Volume 12, Issue 9 - November/December 2011

TrendTracker


When the Going Gets Tough …
Window Manufacturers Should Gain Insights from Other Markets
by Michael Collins

I recently attended a conference on manufacturing in the Midwest, and, as is usually the case with meetings like this, there were a number of good ideas relevant to the door and window industry. The first key bit of learning stemmed from the recent performance of the four very different companies represented on the panel. They included a big three auto company, a mid-market cement and aggregates company, a small food business and a small metal die cast company.

All of these organizations faced familiar challenges over the past few years: chronically lower revenues, the need to lay off workers and a general struggle to remain viable and attempt to profit. It is easy, when one is intensely focused on the fenestration industry, to feel that we are in a uniquely difficult position. The truth is that the effects of the housing and mortgage crisis have spared no one.

Home-grown Competition

One interesting concept came from the plant manager of the big three auto maker’s Chicago operation. She made an interesting point regarding competition. She views her competition as not only companies external to hers but also of the other plants in her own company’s system. If other plants can be more flexible in accommodating the conversion to new products, can offer higher quality and can maintain lower expenses, they will receive the benefit of more and more goods to produce for the parent company. The managers of plants in any company with more than one facility should view their role in an identical manner. Within plants, area managers should engage in friendly competition to make their area the best and most profitable in the company. In this way, the earnings of the company will increase and everyone will benefit. In large companies with numerous facilities, holding such a standard of performance could mean the difference between being the plant that is slated for shutdown or being the plant that picks up the closed plant’s production.

"She views her competition as not only companies external to hers but also of the other plants in her own company’s system."

Coping with Tax Burdens
One of the moderators at the conference was a consultant to a wide variety of manufacturing business’. He made a series of very interesting points. In a survey of a broad range of economists, it was determined that the highest prediction for the growth rate of the U.S. economy in 2012 was 2.5 percent. The lowest predicted rate of unemployment for next year was 8.5 percent. Finally, he pointed out that the current cost disadvantage of U.S. manufacturers versus their overseas counterparts was 20 percent – before you account for their labor advantage. Manufacturers based in this country face a disadvantage of that magnitude simply from higher regulatory requirements and taxes.

Dialing in all of these rather gloomy statistics, one would imagine that the typical company with which this consultant works would project little or no growth the next couple of years. However, his typical client is actually seeking to double revenues over the next five years.

Our experience in the door and window industry has been that many companies in this segment are planning to achieve the same level of growth. How will they do it? Lean companies are seeking to get leaner. Most companies have made the “low hanging fruit” changes but few have taken lean to the extreme. Many companies are unable to locate enough skilled labor to allow for expansion. Some of these companies are proactively working with local high schools and community colleges to ensure the development of a suitable local labor base.

Companies seeking growth often look to exports as a way to increase sales without having to engage in margin-lowering competition with entrenched rivals. Numerous door and window manufacturers target the Caribbean as an export market and some look as far as South America. At least one U.S. company, Crystal Windows & Doors, exports windows to China.

While we continue to bounce along the bottom in a tough market, these and other strategies are available to door and window manufacturers who aren’t content to just “wait it out” and who wish to be more proactive about their success.

Michael Collins is an investment banker with Jordan Knauff and Co. He specializes in mergers and acquisitions in the door and window industry.


DWM

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