Drummond: The Keys to Successful Component Rush Orders

The summertime build season has arrived. For most wood component manufacturers (CM), and other manufactured suppliers of building materials, the lead time of new orders typically easily exceeds four weeks during this period. Inevitably, a salesperson will ask, “Hey, can you do me a favor? I have an order that needs to be completed and delivered in two weeks instead of our current lead time.” How your leadership responds to this type of request shows a great deal about the type of leadership, efficiency, and flexibility of your organization. Processing rush orders should not be a stressful event and should be a common practice to increase profits. When determining if your organization should provide a rush order and how to schedule it properly, there are two major factors that should be considered.

You should first determine if the rush order provides more actual net profit than other orders. Otherwise, why make an effort? Determining if one order is more profitable than other orders waiting in the queue is viewed incorrectly by far too many. Let me state one more time that most CMs do not realize that an order with a higher gross margin (GM) percentage of the sale price may not be more profitable, so that should not be the determining factor when understanding an order’s contribution toward greater profitability. If your company does not understand the true, accurately estimated time to process the order using work minutes (R.E., S.U., or Man-Minutes rather than lesser units such as board foot or piece count; see, for example, See A-1 Industries – Leader in Wood Truss Industries article), your company is losing an average of three to six points in profitability every year. Once again, I will state that orders with a higher percentage of GM to sales dollars may not actually be more profitable. The math is very simple, and the vast majority of CMs are not performing this simple GM per Work Minute calculation in the quote reports. (For more about the GM per work minute calculation, see “Component Manufacturing Pricing Formula to Make More Net Profit.”)

The next step is to properly determine how the rush order will affect the current design and manufacturing capacities, which is a serious problem for many CMs. Simply telling the design and manufacturing leaders to “make it happen” is a terrible management practice that will create far too much stress and cause subsequent orders to be processed beyond their promised due dates. The act of inserting the rush orders is a game played over and over without truly understanding the domino effect on all the other orders being pushed out by many CMs. Everyone knows there are many factors that affect the current scheduling of orders for both manufacturing and design, such as incomplete information with signoffs, but intentionally inserting a rush order is another level of complexity many do not handle well. Both the design group and the manufacturing should have a capacity schedule that is easily understood and reliable using work hours. Does your design team and manufacturing have a planned schedule using work hours? An example of work hours capacity scheduling is this: if you have ten personnel and they work eight hours, you have eighty hours total hours (minus breaks) per day for scheduling. Can you determine what either group, design or manufacturing, has as its current on-time schedule and how this rush order will affect the order processes in each group? How about being able to determine this without calling someone on the phone and asking, “Hey, can you do me a favor?” If you have to pick up a phone and ask someone if it can be done and when it can be done, don’t you think you are wasting your management team’s valuable time? Why are you unable to view both the design and manufacturing capacity schedules to determine which orders the rush order will affect, and be able to update this schedule without interrupting current orders and workloads? Your company should be able to streamline the communications processes using a properly developed cloud-based project communications project software and by properly scheduling each group’s workload if using accurate work minutes.

If your company truly desires to make more net profits, your company should have two schedules that allow for higher GM per work hour to be processed on a much shorter time schedule. It requires properly defined capacity schedules using work hours and best-in-class communications. When done properly, it does not interrupt your current processes of both design and manufacturing. Some CMs do this all the time, and it truly adds to increased profitability.

Don’t let pride or ego be the barrier preventing your company from making meaningful improvements. An honest assessment and a review of all current practices are always warranted. Maybe your group should try a different approach to learning improved processes instead of using the same methods you’ve grown accustomed to over the years. The time for improvement is always now, so embrace continuous improvement in meaningful ways before it is too little too late.