Volume 9, Issue 8 - September 2008

TREND TRACKER

And the Survey Says ...
Bigger May Be Different, But Not Necessarily Better
B Y M I C H A E L C O L L I N S

Another year has passed and we recently completed our 2007 Window and Door Industry Benchmark Survey, capturing data regarding 34 companies with a total of $2.2 billion in revenues. While we only make the complete results of the survey available to participants, we wanted to share some of the findings with DWMís readers. And, while the results canít be guaranteed to be predictive of companies across the entire industry, the general trends highlighted in the survey should be of interest and use to door and window industry participants.

This installment of the survey supported our prior research indicating a link between earning various industry certifications and having lower warranty expenses. According to our results, the Hallmark, ANSI, AAMA Gold Label, ASTM and ENERGY STARģ certifications were all predictive of companies experiencing lower warranty expenses as a percentage of revenue, when compared with companies without that certification. It canít be proven from the data, but it is logical that the same improvements and high standards needed to achieve various certifications also exhibit themselves in higher product quality and, therefore, lower warranty expenses. Again this year, the certifications most commonly earned by survey participants were NFRC certification and the ENERGY STAR rating.

There are clear differences in business practices that emerge between the largest and smallest companies in the industry. The large companies that responded, whose average reported revenue was more than $200 million, spent 76 percent of their glass budgets on flat glass, indicating that they manufacture most of their own insulating glass units (IGU). The smallest companies in the survey, which had and average of $5 million in revenue, spent only 55 percent of their glass budgets on flat glass, likely relying on the purchase of IGUs for the remainder of their needs. Clearly, with scale comes the ability to bring IGU production in-house, eliminating the logistics of receiving a critical component from another company and capturing the margin normally charged by the IGU manufacturer.

Median lead times are another area where clear differences emerged between larger and smaller companies. The largest companies in our survey had median lead times of roughly 12 days for both custom doors and custom windows. As would be expected, lead times for stock doors and windows were significantly lower. Interestingly, the smallest companies in the survey reported the ability to deliver a custom window in only two days more than the largest companies, at 14 days. Their median delivery time for delivery of custom doors, on the other hand, was the highest of any category in our survey at 27 days. Many of these smaller door manufacturers produce handcrafted doors, accounting for the longer lead time.

A final area of particular interest in a challenging market such as this is the sales forecast of the various companies in our survey. When asked how their 2008 revenues would compare with their 2007 revenues, the median response of all companies in our survey was that they expected to grow 8 percent in 2008 versus last year. This means that half of companies expect to grow more than 8 percent and half expect to grow less. Some companies even predicted that their revenues would shrink this year. (It is important to keep in mind that, while this survey was published midyear, the questionnaires were received in April, prior to the start of the busy season for most companies.)

As may be seen in the chart on page 10, the largest companies in our survey predicted much slower growth than the smallest respondents. This is to be expected, since an $8 million revenue company can grow 10 percent by adding one active customer. For the largest companies in the industry, it is much more difficult to achieve a high percentage increase in sales.

Only next yearís survey results will provide us with visibility as to the accuracy of the predictions made about this year by the responding companies. For now, though, it is possible to take some encouragement in their responses, since it often seems that a generally pessimistic attitude regarding the recovery prevails. Undoubtedly, there are companies in our survey who would lower their 2008 estimates if they were asked for them again today. We are in touch with a number of companies in the industry, though, who report that through proactive selling and continually seeking new ways to take the message regarding their products to market, they are starting to see light at the end of the tunnel. The power of benchmarking is that it gives us the means to quantify the changes that are unfolding in the market, to better predict the point of an upturn and to provide a yardstick for company performance.

DWM

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