Truss and Wall Component Manufacturing For a Lumberyard - Pros and Cons
Many lumberyards still do not have their own wood truss and wall panel manufacturing as part of their offerings to their contractors but are contemplating whether this might be a good investment. There are pros and cons to this type of big investment; if you have been doing any research, you have probably heard some say it is a great investment that gives a very good return and others say that it has been one big horror story and that they wish they had never wasted their time. Well, both versions are very true, and to a guy like me who makes a living giving advice on improving net profit for truss and wall panel component manufacturing, the reasons for this are clear.
An anonymous former lumberyard CEO of 17 lumberyard locations explained to me that his two component manufacturing plants (CM) had made up only 10% of their sales yet contributed 30% of his net profits. He wished he had given the CM division far more focus and resources.
First, let us discuss the positives and why this is such a great idea for many. Component manufacturing can be a nice money-making part of overall sales. When sales exceed $5 million per year, this normally provides a 10% to 12% net profit per sales dollar in most regions. Many companies are happy with single-digit profits while others consistently operate in the high teens and even low 20s for net profit when sales are going very well.
There is also the added benefit of supplying the company’s own products to their sales offerings. Contractors are able to deal with one company that can provide everything for the home-building process. This is especially true as competition gets stronger from big multi-location companies. Let’s face some basic facts: All these big multi-location lumberyards have their own component manufacturing; they are able to provide their customers everything builders need to complete their projects. This should be a very telling sign to you that it helps their sales and there is money to be made by doing so.
Now, for the dark side of truss/wall component manufacturing and those who have found it to be a serious mistake: I personally have performed over 80 different consultations for companies, which include both lumberyards and independent truss component companies, and by far the ones that have the most trouble are the lumberyard-owned component manufacturers.
Lumberyards tend to let bad component manufacturing operations continue within their companies at a single-digit net profit or breakeven. The common theme for these troubled facilities is that the truss/wall division comprises less than 10% of overall sales of the company and yet it seems to be the majority of the problems. Some simply ignore this problem because they are focused on the other aspects of their business and others state that no matter how much time and money the companies put into fixing the problems, they just never seem to get it right. What they have found is that it was not as easy as they thought it would be.
Why do many lumberyards find it to be a great investment while others are failing? First of all, it starts with the philosophical understanding that an engineered and manufactured product, such as a wood truss, is not as simple of a process as providing and selling a unit of lumber. The process of quoting, designing, manufacturing, and delivering has complexity that is error prone when not understood and managed correctly. And like any other more complex products, the best component salespeople are the most technically knowledgeable ones who truly understand trusses and what the builders need. The salespeople need to be more than just print pigeons who behave just like carrier pigeons they go out to gather prints and return to just hand them off to someone else to process without any understanding of what is actually needed. The other aspect is that retail management versus manufacturing management is not the same type of management. This is crucial for senior lumberyard management to grasp. The most troubled lumberyard-owned component plants are being managed by lumberyard sales and management practices, which are causing all kinds of headaches. Even though lumberyard and component manufacturers are selling to the same customers and are making products with the same type of materials, the processes, and the technical challenges are not the same at all. Most lumberyards that get it right have put in place a separate management and sales team that understands this complexity. In other words, component manufacturing is normally a separate division able to run effectively without the lumberyard’s management overriding crucial decisions.
Another critical error many lumberyards repeat is they listen only to advice from plate and equipment vendors and then think they are able to figure everything else by themselves. The process of manufacturing trusses and wall panels is not as easy as it looks or as easy as the vendors tell potential new customers. Yes, the vendors have dealt with many successful component manufacturers and witnessed what many consider best practices. But no, the vendors are not willing to tell someone they are making serious errors or they need to correct bad decisions. They are making a sale, not risking a sale by telling someone something that might upset his (or her) fragile ego. They are trained to give the impression they have the company’s best interest in mind, but one must always keep in mind they are selling software and equipment to everyone—and that includes the competition. After the sale has been made, many are shocked the plate vendor will help with the software setup for truss labor time standards but will not help with the actual truss labor estimation time standards in the software. (What actual numbers do you plug into the software that will give good labor time and cost estimations?) Equipment vendors fail to explain the best work order processes, cut/build practices, or even lean manufacturing practices. Why would anybody think an equipment vendor is going to tell a company it does not need another equipment investment to get more production when in fact it simply needs to change the overall process to get better results?
In summary, the sales and management practices for component manufacturing are not the same as running a lumberyard, and thus, one must be prepared to adapt or let others take control. Additionally, it is not as easy as many people think or as the vendors explain it to be. And when things don’t go well, the vendors are not going to point out the serious errors in the processes or management practices. Yet, in spite of all these negative issues, if everything is done right, it is well worth the investment. When a lumberyard gets the component division operating properly and sales are strong, the overall sales and profit for the entire company will be enhanced. So, to answer the critical question you may be asking yourself right now, should you or shouldn’t you?
The answer is maybe.
Whether you have an existing or thinking of starting a component facility, save yourself tens of thousands of dollars, and consider my services.
Ed DeBiasio - President
Innisfil, ON Canada
Over the years, United Truss (a subsidiary of United Lumber) has done an outstanding job of providing our customers with quality trusses for their building needs. We reached a point though where our manual practices were restricting our capacity to not only serve existing clients but also limited our ability to serve or target new customers. So in the midst of automating our plant and updating our production/design practices, we chose to contact Todd.
Were we ever glad we made the leap to request Todd’s consultation services. Todd’s consultation encompassed time and motion studies, best practices, the theory and practical components of lean manufacturing, which then enabled us to go back to the drawing board in terms of our pricing model. For years, we had been pricing our products without actually and properly tracking our actual costs. Todd’s teachings showed that we could and should incorporate proper costing fundamentals into our model, and the icing was he showed us how to do this.
Without a doubt, we made the right decision to hire Todd Drummond, and once fully implemented, we have no doubt that United Truss will reach heights we had never thought possible under our old regime. Our entire staff, encompassing our production and design staff as well, were both impressed and thankful for the ideas and instructions that Todd brought to the table.
Todd Drummond Consulting LLC
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