Saturday, October 19, 2013

Focus and Leverage Part 264

This posting is the first in a series of postings on a story written by Bruce Nelson about a company that designs, builds and delivers cabinets for different types of organizations.  In this story Bruce discusses some well-known problems facing many manufacturers and service providers.  I hope you like it as much as I do.

The Cabinet Maker

The consequences and chaos of uncontrolled efficiency

The ultimate story of the Cabinet Maker could actually be any company, in any industry, in any location, and at any point in time.  However, for this story we will focus on a particular cabinet maker and their improvement journey.

This cabinet maker, by industry standard, could have been classified as a small company.  It had grown from a father and son operation conducted in a backyard woodshop (shed) into a company that had annual revenues of about $1.5M, and employed about 30 - 40 people at any given time.  In time, they moved from the backyard woodshop into a sizable building complete with its own shipping and receiving docks, plenty of floor space for required equipment and a large area to hold raw material inventory - complete with storage racks that went all the way to the ceiling – probably about 30 to 35 ft. high.  The new building also contained adequate area to layout and build special cabinets, such as reception areas.  There was also an adequate area, where counter tops could be manufactured. 

This cabinet maker was considered specialized because the highest percentage of their work was commercial cabinetry and not residential cabinetry.  The primary business model focused on office buildings, schools, and other larger public structures (libraries) that required cabinets and sometimes the very special (very ornate) reception desks located in office lobbies and waiting areas.  This cabinet maker could also provide a wide range of custom counter tops, if required.  In essence, they were very much a “one-stop-shop” to provide the cabinets, custom cabinets, custom counter tops, and special design cabinets for larger projects.

For the most part, the cabinet maker had limited their work efforts within a single state, but had recently made a management decision to expand the sales effort into three adjoining states.  Management was of the mindset that they needed to grow the business.  By expanding the sales into additional states they were able to increase the sales and had done quite well getting new business.  Actually, the “sales” statement is a bit of a misnomer.  What they actually did was expand their effort to provide “bids” to local contractors that were bidding, and working, projects for local, county and state Governments, and on several occasions they bid, and won, contracts for the Federal Government such as, court houses.  This expanded bidding process seemed to be working well and the orders were rolling in.  They were winning some major subcontracts to provide cabinetry in several new schools that were being built – life was good!  Except, for one small thing – the new projects were coming in fast but, they weren’t going out fast!

The new projects seemed to be stalled in the production process.  It was not uncommon that new projects could take as long as two (2) months to complete, and this was not a good situation.  The cabinet maker couldn’t get paid for projects that were not complete and because of some contract limitations (which seemed to be typical for this industry), they could not receive progress payments – cash flow was a major concern, and rightly so.  In fact, in some cases the cabinet maker was being charged a severe penalty by the prime contractors for late deliveries.

For a majority of the new business, the cabinet maker was a subcontractor to several different major construction companies who were the primary builders for the projects.  As such, the primary contractor (the construction companies) used MS Project to schedule their project(s).  MS Project is a Critical Path Method (CPM) scheduling system, and that, by itself, presented a multitude of recurring issues.  The cabinet installation was typically one of the last scheduled task segments to be completed, and as such, they were always near the end of the project schedule.  This problem usually manifested itself when any task slack time in the previous tasks had already been consumed by previous tradesmen.  The cabinet maker was often exposed to a reduced time-setting to complete their tasks and was often asked to complete tasks in less time than they had originally bid.

To compound the problem even further, if the cabinet maker did not perform the tasks in the reduced time offering they could (most of the time) be subjected to very severe financial penalty for not completing the work on time.  The construction companies certainly held the high ground and contractual advantage to make this a very painful process.  It was a vicious cycle of reduced cash flow, poor on-time-delivery, and the inability to accept any new work, that finally pushed the cabinet maker management team to ask for some help.  To be continued.........
Bob Sproull

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