More Work Does Not Mean Bigger Profits for Store Fixture Industry
by David Welch
More business does not necessarily mean more money — at least not in the store fixture industry where profit margins can disappear if production capabilities are not managed properly.
Profit margins are shrinking due in large part to labor rates that seem to be out of control. In order to attract and keep workers, manufacturers have to shell out the bucks. If there can be a negative placed on an economy that has been so robust in recent years, it is the fact that the labor market has become squeaky tight.
For this there seems to be little relief. At least not until the economy slows down and no one wants to see that happen. So, companies have to lure employees, and higher wages plus better benefits are the carrots to be dangled. However, these employees should not have to work overtime, which is exactly what ends up happening when jobs are overbooked and there is not enough time given for turn-around. In order to curb the resulting decline in profit margins, it might be necessary to pull back the reins on your sales force. That might sound strange to some, but you have to know what your production capabilities are and eliminate the extra hours needed to finish overbooked jobs. No, I am not saying to turn away work, but to avoid giving your shop deadlines that are impossible to meet. That will go a long way in keeping those margins up.
The second biggest detriment to profit margins is material cost. Buying material in volume is not a new solution, but it is still an effective way to curb rising material costs — even for the just-in-time manufacturing facilities. Many store fixture shops that are operating with the just-in-time philosophy don’t take advantage of the volume material buys that will increase margins. It doesn’t pay to order materials only when the job is awarded. Instead, plan ahead and buy in volume. In this case, the old adage a penny saved is a penny earned rings true. If you save one penny per square foot on a truckload of 300 particleboard sheets, that equals $100 in savings or 12 sheets for free. Of course proper inventory control weighs in heavily here. It doesn’t matter how much you save when buying in volume if you do not use the material.
John Moag, president of J.C. Moag, a store fixture manufacturer near Louisville, KY, raised the issue of profit margins during an interview last month (see How J.C. Moag Stays Ahead Of Declining Profit Margins on page 46 this issue). Moag mentioned that declining profit margins have become an issue in the industry and a business has to keep its eye on it or it might lose money despite the fact it has plenty of work. He reorganized the way his company bids on projects so that it is not left with jobs that yield little or no profit. Accurate job costing allows Moag to bid for profitable jobs.
How closely do you cost a job before placing a bid? Do you keep a lid on employee overtime? Do you take advantage of volume material buys and practice effective inventory control? These three areas of concern can help you keep your margins profitable.
David Welch
Phone: 800-633-5953
Fax: 205-391-2081
e-mail: dwelch@randallpub.com
Please contact webmaster@modernwoodworking.com with your comments.
