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    Default Blueprint for Growing Business

    Here is an interesting article that was in the February issue of The Fabricator magazine.
    It's kind of a long read, and it's not Mom and Pop anymore as it has been bought by Big Company at some point, but it is interesting none-the-less.


    One fabricator’s blueprint for growing its business - The Fabricator


    ---------------------

    Think Snow Eh!
    Ox

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    Note that this company is being run and optimized to serve the customer in ways that would make every accountant cringe. Imagine making and inventorying enough product for your customer so that some of it sits on your shelves for up to 3 months just so you can aim for 100% on time delivery. I.e. thinking in terms of inventory = capital and moving your capital around in ways that earn interest (benefit) for your customer.

    Also set up for the advancement of employees with planned paths of progress as people gain skills and experience.

    Lots to like about this approach.

    In our company we seek the mutual flourishing of 3 stake holders in every deal . . . Customer, Employee, and Supplier. If we are successful within the context of helping each of these three groups of people thrive, the business will take care of itself.

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    Quote Originally Posted by Ox View Post
    Here is an interesting article that was in the February issue of The Fabricator magazine.
    I thought you ran a "Machine Shop" ?.....

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    Quote Originally Posted by motion guru View Post
    Note that this company is being run and optimized to serve the customer in ways that would make every accountant cringe. Imagine making and inventorying enough product for your customer so that some of it sits on your shelves for up to 3 months just so you can aim for 100% on time delivery. I.e. thinking in terms of inventory = capital and moving your capital around in ways that earn interest (benefit) for your customer.
    A common theme among non financial people is just what terrible decisions financial people make. I'm an operating guy, but with finance background and education so I've a boot in both camps and imo its an unwarranted prejudice. I recall a biz school case where you had to build an inventory model for a seasonal business, the result was a P&L that was extensive and accounted for inventory including capital cost. Next lecture you came in with your model built, the prof started giving you monthly sales figures and you saw how your P&L performed based on what model said to do with inventory. Over the course of the lecture he kept giving more months sales/order data so the model was tested as the year unfolded with varying monthly sales. The best bottom line would win, and the learning exercise of course was understanding why . We built models that thought of everything, but the bottom line was, contribution from a sale was so much greater than the cost of inventory that the winning model was build inventory at the max rate non stop from Jan 1 on.

    The point being, a good business/finance person makes decisions that should positively affect the bottom line taking into account all considerations and aspects of the business, including the cost of capital and what the customer wants - that is what the education emphasized,. not reducing inventory at the expense of sales or customer satisfaction. It's not just remove inventory or increase turns no matter what. otoh you do want inventory low, all things being equal....but its just one metric.

    I regularly build to inventory, low margin stuff like roll off containers. Sure I've added to the capital cost, but I've also not squandered those hours of labour when I haven't a paying job for a someone to work on.
    Last edited by Mcgyver; 03-03-2018 at 09:50 AM.

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    I've rarely had much luck with building inventory, really takes the right type of work and customers to pull that off. Though I've found throwing out that inventory along with all the fixtures after it has sat for a few years is a great way to get another order for these same parts a few days/weeks later. But let me assure you that if I held onto it a few extra weeks for that order to come, the revision would have changed and rendered that inventory useless anyway.

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    Quote Originally Posted by Mcgyver View Post
    A common theme among non financial people is just what terrible decisions financial people make. I'm operating guy, but with finance background and education so I've a boot in both camps and imo its an unwarranted prejudice I recall a biz school case where you had to build an inventory model for a seasonal business, the result was a P&L that was extensive and accounted for inventory including capital cost. Next lecture you came in with your model built, the prof started giving you monthly sales figures and you saw how your P&L performed based on what model said to do with inventory. The model was tested as the year unfolded with varying monthly sales. The best bottom line would win, and the learning exercise of course was understanding why . We built models that thought of everything, but the bottom line was, contribution from a sale was so much greater than the cost of inventory that the winning model was build inventory at the max rate non stop for Jan 1 on.

    The point being, a good business/finance person makes decisions that should positively affect the bottom taking into account all considerations and aspects of the business, including the cost of capital and what the customer wants and that is what the education emphasizes, not just remove inventory or increase turns no matter what.

    I regularly build to inventory, low margin stuff like roll off containers. Sure I've added to the capital cost, but I've also not squandered those hours of labour when I haven't a paying job for a someone to work on.
    Well stated - and perhaps a reflection of better accounting schools in Canada. However, I regularly see push back against the idea of building to stock both with our suppliers and among peer companies with the most strident arguments from finance guys who "parrot" the lines related to disparaging anything above minimal inventory.

    I think there are many other ways in which ignorant application of finance "rules of thumb" can harm business . . . we have customers seeking 90 - 120 day payment terms. Which we do not accept and then they find another supplier who will buy the hardware from us at our terms, mark it up some percentage, and then carry the customer terms. They certainly wouldn't tolerate waiting 90 - 120 days for their paychecks would they? . . . but then again, they would never think of putting themselves in the other guys shoes - that is increasingly antithetical to the business mindset produced within the context of academia (and our society in general).

    This is common to every endeavor in business related to every sphere of expertise - I have written about the plague of misapplied Lean Manufacturing where prescriptive solutions are applied without thought to the consequences. Same can be said for any number of other disciplines in any vocation . . . if you don't have a good grip on what it is your company / industry is focused on in the context of the greater purpose of promoting thriving for the people around you - you will find it much easier to use the smarts / experience you have to optimize things for yourself at the expense of others around you. And those others should include your customers / employees / suppliers as they all contribute capital in various forms to the solution.

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    Quote Originally Posted by motion guru View Post
    Well stated - and perhaps a reflection of better accounting schools in Canada. However, I regularly see push back against the idea of building to stock both with our suppliers and among peer companies with the most strident arguments from finance guys who "parrot" the lines related to disparaging anything above minimal inventory. .
    thanks, I think the prejudice comes from the inevitable siloing that occurs as a business grows, the sales guy is measured on sales, the finance guy on how much working capital is needed etc. So in way, you do often get the finance function as the proverbial hated bean counter who's only worried about his area's metrics. I suppose the business structure, you get what you measure and reward, often ends producing that result. But it see it as a structural issue, not that every biz knob and accounting is an idiot incapable of understanding what matters. In a perfect world there'd be visibility across the functions to have all rowing together. That's what business school tries to teach and the leader is suppose try to instill that across functions. Of course there is no perfect world and everything you do has unintended consequences and so on.

    SND, imo it only works if you have a product line. We're mostly an engineered design build shop so can't inventory that, but we've developed some 'products' we can make and inventory so we have a little control that way

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    The Short Form: If holding the inventory makes you money, hold it. If it DOESN'T make money, don't hold it. If you don't know, FIND OUT.

    Leaving out such details as "how much inventory" and "of what?", those are for the advanced class...

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    Its interesting to read the varying points of view here.

    Guess it comes down to your business.

    We usually try and work on the basis of, if you can do the job quicker for your customer than the opposition...

    Doing custom work in the past has meant only keeping the materials that shift quickly. Virtually no finished articles in stock.

    Recently started to diversify a into something that requires finished assemblies, so now will need to keep an inventory of completed items. Being able to mix and match many of the parts will help in this regard.

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    Inventory is the enemy of innovation. “We can’t change that we still have lots of the old design (that don’t work) in stock!”

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    Quote Originally Posted by Mcgyver View Post
    A common theme among non financial people is just what terrible decisions financial people make.
    Preaching to the choir.....I had a toolmaker friend, been working for the same
    place for over 30 years.

    Had a idea to save the company "oodles of money" and needed $2500 to rework a die
    to get this savings.
    "The stupid front office won't give me the money" He told me that they make
    "oodles of these parts" while waving his hands in the air.

    After listening to this same story for 1 1/2 years, I said "You need to see
    it from the accountants side. You want $2500, and money is tight."

    The accountant is not from another planet, he put's his pants on one leg
    at a time, just like you.

    You need to explain to him, using real numbers, how much savings your $2500
    change will produce. Instead of "oodles" and arm waving.

    As soon as he did this, they (in the front office) granted him the money to
    make the die change.

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    Good article. Very close to a small town that my parents almost "bought the farm" but glad they came out to Oregon! It's hard to argue with success and growth through acquisition can be extremely effective. There are a few things that I noticed that I didn't necessarily agree with:

    1. They are "just now" getting into a quoting module for their ERP system? That's been around for well over a decade, at least for this type of industry. I'm a bit shocked they could have grown this big without that. But hey, now they'll be even better, if they do it right!
    2. It doesn't actually say how profitable they are, which as a private company (which I assume they are) they don't have to share, but I have seen private companies grow too fast and then fail when bad times hit. I hope they are doing it carefully or it could all come crashing down.
    3. They are providing a good service in doing things like working with their customer on product/process improvement (like the self-piercing rivets which I am quite familiar with), but it pains me when the OEM doesn't have the staff to figure this out themselves. It's just not a good sign of American manufacturing. All OEMs should strive to offer a product that is competitive (and I know a lot don't). The fact that they can keep 20 people busy just doing research is just a sign of how everything is moving towards "farm out". Good for many of the people here, I get the feeling most are job shops, take advantage of it!

    Outside of those few points, they have a good culture (or at least paint a picture of that) and I like what they are doing to get people interested in manufacturing (i.e. working for them). In most ways, they represent what I consider to be a true business and not a "private social service".

    The Dude

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    Quote Originally Posted by The Dude View Post

    2. It doesn't actually say how profitable they are, which as a private company (which I assume they are) they don't have to share, but I have seen private companies grow too fast and then fail when bad times hit. I hope they are doing it carefully or it could all come crashing down.

    The Dude

    I highly doubt that they are profitable at all - given all the expansion. I'm guessing that _ that will come later. I never found "growth" being overly profitable. And I doubt many others doo either - in a mature and competitive market as this.


    The part that I was surprised about was that they were just now dabbling in their own powder coat and plating lines. I would have expected that to have been breached several years ago.

    ???


    ----------------------

    Think Snow Eh!
    Ox

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    Quote Originally Posted by motion guru View Post

    I think there are many other ways in which ignorant application of finance "rules of thumb" can harm business . . . we have customers seeking 90 - 120 day payment terms. Which we do not accept and then they find another supplier who will buy the hardware from us at our terms, mark it up some percentage, and then carry the customer terms. They certainly wouldn't tolerate waiting 90 - 120 days for their paychecks would they? . . . but then again, they would never think of putting themselves in the other guys shoes - that is increasingly antithetical to the business mindset produced within the context of academia (and our society in general).
    In my region we have company's that spicifically target this.
    Many suppliers are not tolerating net 90-120. So a "services" company will take the order for them marked up. Really it's just playing banker and Hope They don't fold before you collect.

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    Quote Originally Posted by Stirling View Post
    In my region we have company's that spicifically target this.
    Many suppliers are not tolerating net 90-120. So a "services" company will take the order for them marked up. Really it's just playing banker and Hope They don't fold before you collect.
    They had better mark it up! They're on the wrong end of a Ponzi scheme.

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    Quote Originally Posted by Ox View Post
    The part that I was surprised about was that they were just now dabbling in their own powder coat and plating lines. I would have expected that to have been breached several years ago.
    Could be circumstances. I never even touched welding because the next-door neighbor did great work, knew his stuff, had all the equipment, was reasonably priced, etc etc.

    I guess you could call that intelligent outsourcing

    Quote Originally Posted by Stirling View Post
    In my region we have company's that spicifically target this.
    It's called "factoring". Been around a long time, pretty common. You can do it from the other end, too, as the seller.

    But it's not worth it. They charge so much you may as well not do the work.

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    Why am I reading this differently, it does not seem to be a private company

    "The company has been growing in an aggressive manner, and its parent company, Otter Tail Corp., a publicly held company that also owns Otter Tail Power Co. and some other manufacturing interests, expects more. Management believes that it can achieve $250 million in annual revenues by 2022."
    Fast Facts | Otter Tail Corporation

    When a listed company buys up competitors with investor funds is it growth?


    Bernard

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    Quote Originally Posted by digger doug View Post
    I thought you ran a "Machine Shop" ?.....

    The only magazine to cover the stamping industry [that I have found] comes through The Fabricator, and comes bulk packaged these days. Years ago when I was building prog dies I use'ta git Stamping Quarterly, which was a very thick mag. When I tried to re-up to that several years ago I couldn't find it anywhere. So I signed up for this one I guess.

    I just found out in this months issue (?) that this very thin mag with a diff name is what is left of The Stamping Quarterly that I was trying to find in the first place. I guess that is a sign of the times as the stamping industry is a shell of what it was in the 90's. (yet again - post 2001 China)


    ---------------------

    Think Snow Eh!
    Ox

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    Quote Originally Posted by Ox View Post
    I guess that is a sign of the times as the stamping industry is a shell of what it was in the 90's. (yet again - post 2001 China)
    Very first shop auction I ever attended was for a stamping shop across the street from my software developer day job. That was about 9 years ago I think.

    On the flipside, that company in your magazine is in the next town over from me and my kid really likes his welding classes, so maybe things will work out...


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