If you have ever asked the question Martin Holland asks in his book, The Profit Problem, “They say I make money. So why don’t I have any?”, then this post is for you (if you are in the cabinet manufacturing business it should apply, if not, it may or may not apply). What are the root causes of NOT MAKING MORE MONEY NOW AND IN THE FUTURE?
Your first knee jerk response might be, that’s a loaded question, and I would agree, there are so many things we can do wrong that can lead to NO PROFIT at the end of a project. Let’s name some of them one-by-one:
- Poor Marketing and Sales efforts (putting your future in the hands, or mouths of others, by depending on “word of mouth referrals”)
- Making what you sell rather than selling what you make (perpetually reinventing the wheel)
- Weak or Bad Project Design (is your Designmanship equal to your Craftsmanship?)
- Weak or Bad Project Engineering (how often do things NOT WORK OUT as planned?)
- Weak or Bad Product Design and/or Engineering (are your cabinets Profit Engineered?)
- Weak or Bad Job Costing (the translation from costs to selling price)
- Insufficient Equipment (I can dig a ditch with a spoon, or make a Kitchen with a pocket knife, but not well or profitably)
- Insufficient space (more Moving than Making)
- Weak or Non-Existent Processes (written procedures, SOP’s)
- Weak or Non-Existent Financial Systems and Reporting (are all THREE of your primary financial reports ACCURATE and do you understand what they are telling you?)
- Weak/Inaccurate Production Schedule (an abundance of WIP, but never enough FINISHED PRODUCT ready to ship ON-TIME EVERY-TIME, and no one knows exactly WHAT to do and WHEN to do it)
- Weak/Inaccurate Delivery Schedule (does LATE AGAIN feel like your middle name)
If this sounds like chaos and confusion, then it is exactly what it sounds like, but what is the solution, the antidote, the silver bullet? If you have read anything I’ve written in the past, then you probably know what I am about to say. Yep, Theory of Constraints is the antidote, the silver bullet.
Theory of Constraints starts at the very beginning with “The Goal”, which for any ‘for profit’ company should be ‘Making More Money Now And In The Future’.
Then it says that any company that requires a series of dependent events to actually do what they do will have a Constraint, a Weakest Link, and then it walks you through a 5 step process (Identify, Exploit, Subordinate, Elevate, Rinse and Repeat) to SOLVE ALL YOUR PROBLEMS, including making Money and KEEPING some of that money. I know, you have questions (everyone does), and the first one for most everyone is, how does TOC solve ALL the items you listed above?
Well let me attempt to answer that. By Identifying your core problem (Constraint), and focusing your attention on that, you will discover that the VAST MAJORITY of that laundry list of “Problems” are not actually “The Problem”, they are symptoms of “The Problem (Constraint)”, and when you fix the “Constraint (Core Problem), they simply go away (since they were symptoms of the core problem).
BUT, you still might have a few other problems that are not symptoms of the Constraint, and those are almost always dealt with during the 3rd step of Subordinating Everything Else to the Constraint. The Silver part of this Bullet is Focus (not trying to fix everything at once, and investing time, energy and resources into Phantom Improvements, improvements that make something faster, but do not change the velocity of Finished Products going out the back door).
To drive that point home, if your Constraint is the finish department (most common Constraint for mostly insourcing cabinetry manufacturers), and your finish department can finish all the parts required for 10 cabinets per day, and let’s say you can machine enough parts for 20 cabinets a day, will you be able to sell one more cabinet per day if you were able to improve machining so that it was able to machine enough parts for 25 cabinets per day? That is the definition of a Phantom Improvement.
With a clear (definable) Goal, and a systematic approach to reaching that Goal (the 5 step process), and better financial guidelines (Throughput, Investment and Operating Expense) than Generally Accepted Accounting Principles (GAAP) provides, you will not only Make More Money Now And In The Future, you will do so with little to no chaos, and my experience is that the TOC measurements are a lot easier to interpret than what we use to keep the Banker and Government happy (GAAP accounting).
If that sounds like a good plan, then you might find the World Domination Custom Cabinetry app (soon to move away from this Alpha/Beta name to its official name of Custom Cabinet Planner) helpful in executing this plan, and eliminating a whole bunch of chaos in the process.
May the Lord bless the work of your hands, heart and mind!