Back when I used to sell woodworking equipment, I worked with customers to cost justify the machinery they were considering. The baseline was to ask how much it currently cost them to make a unit, or a particular part. What stunned me was how very few business owners could even guess at the cost, let alone give an actual figure. But cost justification of new equipment is only one reason to track your costs.
If you don’t very accurately know how much your products cost you to manufacture, you don’t really know if you are even making money on the job. If your costing assumptions are off, your bid on the next job might cost you plenty rather than making you money. You’ll have no idea which areas of your shop to look to improving, since you don’t know which operations are profit centers and which are money pits.
Tracking your time and cost gives you control over your business. If you know how much a cabinet costs to assemble, you’ll know which of your team are productive and which might need extra motivation. When an employee comes to you with a “money saving” idea, you’ll be able to properly evaluate it and make a decision to implement or not. Information is power, and this is the most basic information your company has. The good news is that the Lean techniques we have been implementing can help you gain control of this information.
To begin with, you have cleaned, organized and standardized your work stations. You have organized your hardware and fasteners and such, and may or may not have begun working in a unit flow. In either case, you can now begin to accurately figure out the time it should take to gather materials, fetch fasteners, drawer slides and such, as well as what all those items are costing you per job.
As you can see, breaking the entire process down allows for more accurate cost studies. Keeping track of these items from job to job leaves a paper trail that can be applied to future estimating, giving you an edge over your competition. You’ll know how to trim your estimate to the edge of your profit margin. You will also know which jobs to walk away from if the profit is not there.
The next part of this tracking is to begin recording the time spent in the initial milling of the parts, in edging and end boring, in assembly and in finishing. Each cellular step of the process should be tracked and quantified. This again makes bidding more accurate, and allows for more efficient application of resources. If you find that assembly takes twice as long as milling, then you obviously need to insure that there are two assemblers for each mill person. You will now know with more certainty how the shop time breaks down by procedure, which will give you much better insight into where to most effectively apply your capital budget. So, as you gain cost control over your materials and hardware, begin to create a time study history and use that information to best guide your business.
Next post, I’m going to discuss the debate between people and process, and why I am convinced that both is the proper answer.
As always, I invite you to comment here or by e-mail on this or any of my posts. I can be reached through Linkedin as well: http://www.linkedin.com/in/ralphbagnall
