There is no doubt we are in unchartered times and I honestly couldn’t think of a harder time to run a small business. The stress of keeping work flowing, whilst keeping people employed and a roof over your own head is continuing to build for many fabricators as they navigate the new world we are operating in.
I’ve heard from fabricators who are suffering in different ways. One fabricator has an awesome team which he has had working for him for 4-5 years as full or part time employees and even though they are paid above the award rate and have paid taxes throughout their employment, they do not qualify for JobKeeper as they are all internationals and not Australian Citizens.
The fabricator has spoken of his frustration at trying to keep his workers employed and as work begins to slow, unlike many others, he cannot access the Government support.
I understand Australia’s debt is rising daily and no matter what the Government does, there will always be groups that miss out, but if an employee can work for the same company for four or five years, if they pay tax on a weekly basis then they should qualify.
However, this is not the biggest issue our sector faces. Unfortunately, with the added stress of not knowing where the next job is coming from has resulted in some fabricators fighting over the available work with many dropping their pants to win the job.
Let us be clear. Now is not the time to drop your pants. It does not make good business sense.
The JobKeeper payment is revenue based, not profit based.
So why fight over jobs to keep your workers busy if you are not going to make money from the job. This is not ACCC territory, this is business 101. You are in business to make money, to keep your business operating and people employed, yet by dropping prices you are threatening everything.
You may win the job, however, the revenue generated from the job may push you over the threshold and your employees may no longer be eligible for JobKeeper.
Don’t get me wrong, I do not want anyone in our sector to rip off the system, but I also don’t want to see fabricators fighting over the scraps by creating price instability in our industry.
It’s Not a Sale Until You Get Paid
It’s important to remember that it’s not a sale until you get paid. Some fabricators have expressed their concerns that they have builders that they’re not supplying because they owe the fabricator money. However, they know the builder is getting jobs made elsewhere, resulting in the builder still operating whilst more and more suppliers are owed money. Everyone loses when this happens.
Fabricators should be wary of new builders approaching them for jobs and I urge you all to do your due diligence. If you know they usually use another fabricator, it may be worth checking that they have been paid for past work so you don’t end up at the bottom of the builders list of businesses they own money to.
Do you know your costs ?
With the magic formula of economy of scale soon to elude most fabricators now is more important than ever to understand your true cost.
Controlling your costs in an downturn market is the holy grail of keeping your business alive and healthy, however first you need to have a really intimate understanding of what these costs are.
Loss of efficiency from not running at full capacity can be silent profit killer if not understood and watched carefully, many plants time in motion studies are based on full staff and are no longer accurate when running a leaner model. As fabricators use stock substitution to curb expenditure their wastage calculations can also been blow out of the water. Price fluctuation from suppliers will also add further margin erosion.
Top Tips to remember:
- As we slow down, a fabricators cost per point equation INCREASES – now is not the time to be blindly dropping your sale price.
- Debt collection is not free…. Loading up on cheap work adds to the activities at the back end to collect and remember the new insolvency laws will make it even harder to chase debts.
- Stocktake, stocktake and then stocktake again. The only true reflection of your months performance is to complete a monthly stocktake.
- Maintain your database costs. Keep a close eye on price movements from suppliers and update your pricing file for QUOTES, remember you are quoting for work weeks ahead of the price increase.
- Builders have long memories…. What margin you can give away in minutes will take you months to recover.
- Even Builders Don’t like Price Fluctuations
- As part of discussions with the Top 100 Builders, they even provided feedback suggesting that price fluctuations are not helping the sector with feedback outlined below:
- “The timber industry supply chain servicing the residential market sector needs to be very aware that its ultimate client, the builder’s, main concern with timber is ‘price stability’. Volume builders in particular, much of whose business is first home and investor clients, are extremely price sensitive. With volume builder homes today, most contracts have the price fixed on signing, even though sometimes the homes may not be started for six or more months, so any price rises in that time the builder then must wear. Depending on the size of the builder they could be doing from hundreds to thousands of homes per year so even small price rises in products can have huge overall margin impacts.
- Even short-term price reductions in the supply chain have a negative impact, as these are either often not passed on to the builder, or when they are corrected, the builder sees this as another price rise. Volume builders have clearly said they need price stability, this they can plan around and work with. Several builders nationally have said they have looked at, or turned to steel framing, because of past timber price instability and multiple rises. It is a salient lesson from timber framing’s ultimate customer” – the Builder.
Now is the time to work on the business, not simply work in it!
As work begins to slow down at your plant, I urge fabricators to begin to work on their business, not simply work in it. It is important to look outside the square and identify ways in which your business can adapt to find new work.
Think of all the times you have said that you don’t have time to undertake training, or to participate in the AusIndustry program or simply having the time to do renovations or work within the business.
FTMA Australia is working on a number of webinars for August in conjunction with expert knowledge of WoodSolutions. These webinars are around key issues such as:
- Mid-Rise Opportunities for Fabricators, where the FTMA Technical Forum, originally planned for February will be split into a number of hour-long webinars.
- Taking off plans to maximise what you can supply. For example, one small fabricator in Victoria last year provided approximately $180,000 in Glulam beams as with every set of plans, he converts the steel beams to timber and the builders are loving it.
- Timber Flooring Cassettes have been around for a while now and the attitude from builders towards the cassettes is changing so now is the perfect time to revisit this product.
- Knowing your business costs is more important than ever and we will be working on a Webinar with an expert in this field.
Finally, there is no doubt that your business must learn to adapt if you wish to survive this Pandemic which will be worse than the GFC. If you have not read the book Who Moved My Cheese by Dr. Spencer Johnson, I strongly recommend you purchase it.
The essence of Who Moved My Cheese? is about how people handle (or do not handle) change. It is a part of life and knowing how to cope is a necessary life and leadership skill. The key to successful leadership is realizing that change is inevitable and actually a good thing.
I am not saying this Pandemic is a good thing at all, but it does offer you an opportunity to reinvent your business by learning to adapt and take advantage of new markets and/or products.
Kersten Gentle
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