J.C. Moag responds to tough times with revamped management techniques
By David Welch
These are difficult times for the small to medium size store fixture manufacturer. The disappearing profit margin and stiff competition from foreign soil have placed many of these companies in double jeopardy. One such company is J.C. Moag Corporation, a fixture manufacturer, whose president John Moag has decided to fight back.
J.C. Moag is a 54-year-old company that specializes in the production of wood and glass store fixtures. Located in Jeffersonville, IN, the company expects annual sales this year to reach $7 million. Moag has discovered that there are three areas of business operation that, if managed properly, can insure respectable profits. A change in job-bidding philosophy, an attention to costing detail and a continual investment in high-tech equipment that reduces labor and improves accuracy are the solutions to profit margin woes, he believes.
Know strengths when bidding job
“Recently, we have dropped a couple of accounts that we found to be costing us more than we were making,” said Moag. “You can do a couple million dollars worth of business with someone, and at the end of the year when you do your analysis on that work, find out that it is costing you money. It is important that you do not grab the carrot that companies dangle in front of you with a job worth $2 million until you have done your research to find out how much it actually will cost.”
Moag has dramatically decreased the amount of work it bids for in order to target jobs specially suited for the company’s capabilities. “We don’t do as much bidding as we used to. I used to have four draftsmen who did nothing but take-offs and submit bids. You can hire these draftsmen to come up with drawings for the bid and not even get awarded the project. Then you have draftsmen sitting there waiting for the next project to bid.”
Moag now tries to stay away from companies only looking for the lowest bid. “When a company has 15 people bidding for a job, that tells me they are only interested in getting the work done for the lowest price. They are not interested in your company, nor are they interested in paying you on time. They want to play with your money, they want to give you very little or nothing down and they want to pay you in 60 to 90 days — for what? A minimal amount of profit? So, you see how you can get squeezed very easily. That is why I don’t bid large stores anymore. Consequently, I don’t have four draftsmen sitting in the office doing take-off work for the 10 percent of the bids we would get.”
One has to know where his company’s strengths and weaknesses lie, according to Moag. “There comes a point when you can’t buy better than the other guy or you can’t manufacture a specific job better than the other guy because of various factors. If you are bidding against him for that type of job, you are cutting your margin. If you are not careful and you don’t keep an eye on your margins, you will eat away at profits.”
Knowing the cost of a job can make the difference in whether profit is achieved. “There was an old rule of thumb that you could take material cost and multiply it by a figure and it would cover your labor and so forth,” Moag said. “I don’t think you can do that anymore — not with all of the things these stores want today. You have to be more sophisticated with your estimating. I primarily look at the complexity of the fixture and how many the customer wants. Also, I look at how my shop fits to what he wants. Every project we have is costed from scratch. In the glass end of production, we can go by square-foot prices when costing jobs. Glass is almost like a commodity, so it is easy to figure. In the wood end of production, it’s a different story. You have to take into account much more labor, and sometimes that can be hard to figure.”
Invest for Increased Margins
As for manufacturing and how it affects the bottom line, Moag believes that labor efficiency is the single greatest factor, especially with his wood operation. “There is much more labor involved in our wood side than the glass side, which is more computerized. With wood, you still have to manually assemble the wood fixtures and manually laminate them. So, any technology that you can invest in that will make labor more efficient will help your margins.”
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| With speed and consistency, this Komo CNC machining center helps J.C. Moag keep its profit margins. |
Moag recently invested in a Komo VR 512 CNC machining center which the company utilizes for many different functions. “With the Komo you can bore, rout and cut to size all within the same work station,” he said. “The speed of the machine also is impressive. It has been a great help on the more complicated fixtures because you can get a lot of things done in one step with great accuracy. We also have a beam saw from SCM that has been a workhorse. We have had it for many years and it continues to cut with a great deal of accuracy. We are hoping to invest in another saw from SCM in the next few months.”
Running high volumes of the same types of parts also helps the company to increase margins, according to Moag. “I hate doing one of anything. We want the cookie cutter approach to manufacturing. We want five hundred of the same thing over and over. You have to watch out for these department stores that want to redesign the wheel every time they put up a store. All the drawings and all of the set up that you had with the first store will not apply to the next. That takes a tremendous staff, and good people are expensive.”
One dilemma faced by Moag is the question of overtime. Because the company values its reputation of meeting deadlines, it sometimes will require employees to work overtime. Overtime is sometimes necessary even when it is the customer’s fault that production is behind. “Usually, it is not even your fault for being late,” Moag said. “The customer may have changed the color, you might not have received the drawings on time from the store or the approval process took longer than you thought. So you predicted you would have six weeks to produce and you only have three. The time it takes to get an order and get it moving is reduced causing workers to work longer hours and your margins to shrink because of that. When you are looking at shrinking margins, the question becomes, ‘Why spend the overtime?’ Why not just run a couple of weeks late on the project?”
Foreign competition adds difficulties
The availability of cheap labor overseas only adds to the difficulty of winning projects. “My biggest industry concern is the amount of manufacturing being moved overseas,” said Moag. “We have all kinds of product coming in from China, Taiwan and Korea. Because of that, we are giving up a lot of manufacturing jobs. That is why as a domestic manufacturer, you have to be able to turn orders around quickly. The big department stores that know what they are buying six months down the road can use foreign suppliers. But the product that needs to be made on shorter notice has to be made here. I can’t compete with the price of a rounded glass top table from India, but at the same time there is no way that India can get out 50 tables rush-ordered either.”
According to Moag, it is because of these issues that the industry has seen an abundance of mergers and acquisitions. “I have noticed that the recent trend in the store fixture industry is that the big guys are scooping up the little guys,” he said. “They are looking for market share. It takes six months to get a new customer and six seconds to lose one. Getting new customers is tough, and one way to get them is to buy them — that is, buy another company that is already dealing with established accounts. Also, the industry is consolidating, which is all right with me because I don’t mind being a little guy.
“In this business you can have a large customer one day and the next day he is bankrupt. So you have lost a $1 million dollar account just that fast. Those are hard ones to bite the bullet on, but it happens. I look at all of these people going out of business, or consolidating or moving manufacturing offshore, and I can’t help but wonder if I am next.”
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