Additional ways to improve your bottom line without raising prices and alienating customers.


Last month in part one of this two-part series, I shared a situation where the owner of a wood products company wanted to know how best to increase prices. He wanted to do this because profits were falling. I discussed that, while you or others in your company should want to do something about eroding profits, raising prices is the last resort. Rising costs just do not justify raising prices.



I further suggested that the best way to increase profits is to increase productivity, or the rate at which your company produces products in relation to the amount of resources consumed during the process — especially materials and labor. December’s column reviewed six simple steps to follow in the process of lowering costs:



• Identify Rising Costs — once you know what they are;

• Analyze the Causes — of the rising costs;

• Investigate Opportunities — to stem or reverse this trend;

• Determine Corrective Action — that will give desired results;

• Implement Change — in the way you do it now;

• Monitor Results — in order to document effectiveness.



This month, I want to look at no-nonsense approaches to raising productivity. If you missed the December column, please read it now.



Opportunities Knock

The good news about most companies is that opportunities for improvement abound — including productivity. Regardless of the state of your company, it is not likely to be an exception. The key is to identify and capitalize on potential improvements as quickly as possible, moving from one to the other in order of priority. Your priorities should be such that the change in initiatives make the greatest impact in meeting your company goals.



This is a good time to determine if your company has clear goals and objectives that everyone knows and understands. Don’t overlook developing goals and objectives if you do not have them, because this is likely the root cause of many productivity and profitability challenges.



If the immediate overriding goal is to return to profitability ASAP, you want to look for change that will lead to that end. If it is to reduce labor costs, there are many ways to accomplish that. Larger wood products companies generally have the resources to simultaneously implement more change initiatives than smaller companies. However, this should not preclude undertaking a costly or complicated initiative. To the contrary, the greatest rewards often lie at the end of a difficult or expensive journey. So, if the resources are available, and there is a will, go for the gold.

RCI

The best way to initiate positive change in your organization is by involving your entire organization in RCI — Rapid Continuous Improvement. We have covered this many times previously and have indicated the importance of the CEO being the driving force — the change agent in your company. To make an impact, you need a RCI coordinator to train and coordinate the prioritized change initiatives above. This is the only way that every person in every department will be working toward the common good of the company.



This person can track the progress and accomplishments resulting from the RCI efforts. Exercise only enough control to keep the change process from becoming too much, too fast, but do not control the change process itself lest you kill employee motivation. (Revisit the October 2004 Management Matters column — “Let Your Employees Handle the Trees” to get ideas on employee involvement in your company.)



Following are some common, basic opportunities for productivity improvement that are typical throughout our industry and that should stimulate some ideas of your own for your company.



1. Stick To Your Knitting

One of the most common constraints to productivity in small- to medium-size manufacturers is the excessively broad variety of product offerings. Some manufacturers admit the reason they have diversified so much is that they want to grow their business. Thus, if an opportunity for a sale arises, they jump on it. Once a store fixture company makes an entry door, it becomes harder and harder to say no to the next request. “After all,” they rationalize, “we made it and the customer was happy, and we charged a good price.”



This scenario is repeated over and over again in custom furniture shops, and factories that manufacture flooring, wood fencing, millwork, or cabinets, etc. Every company has a core competency, and whenever it is within those boundaries, it can usually recognize its costs and make money. When a company strays from that core business, it often loses control of costs without knowing to what extent and the company’s profits invariably drop or disappear altogether. It always takes longer to do something in which you have no experience. You are ignorant of the hidden costs until you have gone through a long learning curve. The problem is exacerbated by the fact that many companies keep experimenting with unrelated products or business segments in which they have no experience — all in the name of growth.



We crossed into a new, more critical era of specialization and niche manufacturing when we entered the 21st Century. So, the first way to improve productivity is to stick to your knitting and grow your business in your core competency.



2. Continuous Flow

In many shops and plants, it is typical to find work-in-progress scattered about, indicators of a constraint that is causing waste and limiting throughput — all resulting in higher costs, lower profits and slower delivery dates.



What’s the answer? Keep the product moving through your plant. The old-school process was to set up a machine (which took 30 minutes or more) and process as many parts as possible while on that set-up. Thus, a pile of parts was generated. Next, this pile had to go to machine #2 to be further processed. When that machine was busy, we had to wait — maybe an hour, maybe a day or two. There it sat. As this was repeated, the plant became full of tens of thousands of dollars worth of work-in-progress. (Actually, it is “work in storage,” which is a wa

When Profits Start Falling...

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