In an industry battling dwindling margins, increasing global competition and heavily declining government assistance - why are some manufacturing industry businesses still thriving?
Coverforce talks to Paul Coffey, One of two Directors of Melbourne based furniture manufacturing business Dynamic Concepts; to find out how they made it work.
What drove you to start a furniture manufacturing business in 2004 knowing the issues facing the industry?
I'm a cabinet maker by trade, so I've worked in the Manufacturing industry all my life. During my career I was fortunate to experience every role from entry level through to Management so it gave me a good understanding of how to run a sound business. My wife also had a strong sales career in the same industry. It's always a scary thing when you put your life savings at risk, but our experience gave us the confidence to start a business, despite the challenges.
What would you say the key to your success has been?
I believe to succeed in manufacturing today you need to be more than just willing to change a few things. It's critical to have a sense of urgency in finding a business model that doesn't deliver diminishing returns, then never stop improving on it.
When did you realise you needed to change your business and how did you start?
When we opened in 2004, we knew the industry was changing, but how quickly it was happening was a real shock. I saw that margins and competitiveness were a real hurdle to the business model I knew worked in the past. It was clear big changes were needed to stay in the game.
For us the first step was a goal, we wanted to become CNC capable within 12 months. This required a significant investment and yet another overhead for the business during a downturn, but we saw it as essential to staying competitive on our own turf.
We also had another goal, to establish an imported products line. With no contacts and no idea how it all worked it seemed pretty crazy but we were determined.
An imported product line seems at odds with your core business, what made you think this was a good way to go?
Through looking so closely at the costs for each component and product it quickly became apparent that some items just weren't viable to continue to produce or purchase locally. Importing was the logical answer.
How did you overcome your lack of knowledge and contacts in the importing business?
We spent months researching and trying to decide on an approach. In the end it was a stroke of luck, a supplier of ours who was retiring invited us come to Malaysia where he introduced us to a company who could assist.
Although we felt our contacts were reliable it was still a very scary process. To be taken seriously you need to be order a container load minimum. Imagine the prospect of having a 20ft container load of something you can't sell and can't afford to store. It's daunting to say the least. Thankfully we knew our customer base well and sold through our initial order within weeks of it's arrival.
Today we have our own line of imported products to complement our locally manufactured items. With investment in large tooling we also design and re-engineer imported products to meet a high and safe standard for the Australian school furniture market, this allows us to meet and service our customer needs and expectation.
How has importing impacted the manufacturing line of your business?
They are very complimentary, by importing where it makes more sense and manufacturing where it makes more sense we've been able to keep our prices competitive across the board, this leads to more customers choosing to work with us. Occasionally we may even offer imported products as a loss leader into our locally manufactured products this works very well.
What improvements have you carried out to make local manufacturing more efficient?
We are continuously working on this, we conduct time in motion studies for every locally produced product and streamline what we can. We focus on maximising resources, getting more out of every sheet of board and conduct annual reviews on our purchasing for every component part. If I save half a cent on a screw or a dollar on a hinge it sounds like nothing on its own, but it's huge when you see how many of these we go through in a year. Some days I'm able to say I added $50,000 to our profits in savings for the next 12 months. It can quickly become an obsession.
We've also recently utilised CNC nesting technology to achieve what we thought was the impossible, stabilized margins. It now takes us the same time per unit to manufacture one item as it does for an order of one hundred on our standard products. That's a great place to be for a business like ours and for our customers, it means our profit margin on a 3 item order or a 300 item order are the same.
That's inspiring, how have you found the time to do so much work on the business when you are working in the business each day?
This is something I've often struggled with. The best approach I've found is to never set myself more than 3-4 hours personally of desk work to do per day. This allows me time to get out into the factory and really see how everything is working. I use the time to make adjustments to manufacturing products and procedures, talk to customers and suppliers, and work on improvements and innovations that will have the most impact across the board.
With so much work going into building your business what is your attitude to risk management?
We are very pro-active when it comes to risk management both internally where we can and of course through insurance. Manufacturing, warehousing and importing all come with big risks outside our control. It's important to know we have reliable cover in place for the full scope of our operations and assets. That's where a trusted advisor is invaluable.