DWM - 2009 - September

Volume 10, Issue 7 - September 2009

trend tracker

Proceed with Caution
Don’t Be in a Rush to Buy or Rehire
by Michael Collins

As the recovery begins to come into sharper focus, it is more important than ever for door and window manufacturers to ensure they are doing everything possible to remain competitive.

Know Everything about the Competition
In surveying the competitive landscape, which should be a constant discipline for all companies, it is important to note the plant closures of companies with which your company competes. If a competing company has closed a location, will it be able to serve the market in which you compete with them as effectively? Keep in touch with mutual or contested customers to see if lead times and customer service levels hold. Cases where they do not will represent prime opportunities to win business. When a competitor goes out of business altogether, 100 percent of its customers are up for grabs. Every manufacturer should know its competitors well enough to make a compelling case to customers seeking a new supplier that they are the best replacement for that business.

Know Your Own Business
Another aspect of profiting during the recovery is by becoming more of a student of your own business. Important data to calculate include customer longevity statistics, profitability by geographic region or by customer and precise product capabilities versus competitors. Also, we are surprised consistently by the number of manufacturers that cannot accurately estimate the percentage of their business that is used in repair and remodeling versus new construction applications. We realize that this information is most readily known at the dealer or retailer level. However, in most cases, a check box could be added to order forms or bid requests to let a manufacturer know where its products will be used. Where products are being manufactured as part of a dealer’s stock inventory, companies should categorize products by whether they have a nail fin in order to differentiate end markets. If these end markets into which a company’s products are being sold aren’t readily known, there is a great deal of valuable planning that a company cannot undertake. For instance, if a customer of yours only orders doors and windows for repair and remodeling projects, could you win additional business by showing them how to present your products to builders or contractors as well?

"Overtime is a far less expensive option than paying the full salary and benefits of recalled
workers who may be underutilized the following month."

Know When to Rehire
As the recovery gains momentum, certain large manufacturers have begun to call back laid-off workers. This is certainly positive and is another confirmation of the recovery itself. We would caution smaller and medium-sized companies, though, to exercise caution in making the decision to rehire workers. This recovery will not be smooth and it doesn’t take many months during a given year where a company is overstaffed to destroy the profitability of the entire year. Overtime is a far less expensive option than paying the full salary and benefits of recalled workers who may be underutilized the following month.

Know How to Save Money on Equipment
Buying inexpensive equipment available on the secondary market is another way to profit in the current environment. As a result of the closing of numerous companies and plants during the last several years, the market is awash in excess door and window manufacturing equipment. Manufacturers of such equipment have always faced stiff competition from foreign products, many of which are of lower quality but are compellingly inexpensive. Now, though, they face additional competition from the ready availability of their own products on the secondary market. In many cases, the value of even slightly used equipment has dropped to five to ten cents on the dollar. Buyers at equipment auctions are often buying ahead of anticipated future demand and there is little to motivate them to make strong bids at a given auction. Instead, they will simply wait for the next auction.

Michael Collins is vice president of the building products group at Jordan, Knauff & Company, an investment banking firm that specializes in the door and window industry. He may be reached at mcollins@jordanknauff.com. Mr. Collins’ opinions are solely his own and do not necessarily reflect the views of this magazine.