The Challenge to Change
In an industry that has been hit with a new housing slow down, rising interest rates and a slowing retail trade, cabinet dealers and remodelers who keep doing business the way they’ve always done it face hardship. Current market conditions dictate that dealers must be willing to do things better, quicker, and cheaper.
The complexities of the remodeling industry’s product nomenclature, coupled with ill fitting traditional accounting systems have left cabinet dealers and other industry professionals with businesses that are labor intensive, error prone and difficult to profitably scale.
A group of leading dealers recently adopted new technology that increases the time salespeople have to sell, increases staff productivity, enhances customer service, and triples profits. This report examines how the technology reads a bill of materials from kitchen design software, generates purchase orders, tracks shipping and job status, and then exports sales and cost information into the accounting software. The technology uses a unique identifier to link all materials and costs to a specific job or location, which enhances a cabinet dealer or other professional’s control of costs and ability to service customers. A Cabinet Dealer’s Guide to Doubling Sales and Tripling Profits makes the case that cabinet dealers, who spend more time selling, reduce costs and service the customer better and can double sales and triple profit; despite a difficult housing market.
To double sales and triple profits, a deep understanding of the cabinet and remodeling industry challenges is required. The key challenges addressed in this report include:
- Reducing the time it takes to quote a kitchen
- Reducing the time devoted to data entry and quality control
- Responding accurately and quickly to customer inquiries
- Eliminating call backs and rush orders due to purchasing and inventory mix-ups
The report is based on over 50 years of experience in the cabinet industry. The information in this report is most relevant to dealers and other industry professionals who have over $4 million dollars in sales and sell stock and semi-custom cabinets.
The kitchen design is finally done and now the prospect wants to know if the salesperson can re-price the job in two different finishes and in another style from a different vendor, never realizing they created several hours of work for the salesperson.
Then there is the builder who is building 300 homes next year, but wants three upgrade options for each of the three floor plans, including some variations in the cabinets in the entertainment room and bathrooms. But the prices need to be fixed for a year. It takes a lot of time to quote jobs like these. It is tedious to price everything accurately. Mistakes are common and costly. Someone needs to check and double check each quote – it’s no wonder cabinet salespeople spend 25% or less of their time actually selling.
Purchasing becomes even more complicated. Each quote needs to be turned into a whole series of purchase orders, many times broken out by style and color. Some vendors have other unique ways the purchase order needs to be organized and some require their own custom PO forms to fill out. And unlike other industries, cabinet dealers are forced to review the manufacturer’s confirmations to ensure they were entered correctly.
Each dealer has thousands of items on order and in transit from the factory, with hundreds of customers calling to check their status. It’s confusing. Paperwork helps keep everything organized but job files can be very hard to find. Hundreds of pieces of paper are updated each day, tracking a constant stream of changes, but sometimes employees aren’t answering questions from the right piece of paper. Handling installation, job site damage, and warranty issues can be a real challenge. The way the job is quoted and actually completed is often different. Finding the reason for all the changes, rush orders, and who pays for them is hard to track.
Unfortunately, all these updates involve cost, a cost the cabinet dealer or other professional is often forced to bear. Everyone agrees the plumber damaged one cabinet on the job site, but why is it that the dealer paid for the replacement and not the plumber? It’s very easy for things to “fall through the cracks” and difficult for management to identify why.
Improving paper-based work systems
For most organizations the easiest way to solve a “procedural” problem is to add another piece of paper or person to the process and then add someone else to double check the work. These strategies feel like the quickest and easiest way to fix most problems.
For example, adding a sales coordinator to fill out quotes is a quick way to give salespeople more selling time. The sales coordinator checks each quote for accuracy and a manager checks off that the quote has been approved before it turns into a sales order. The fix is quick and easy but labor intensive.
Another example is in purchasing. Purchasing staff break down the sales orders and complete purchase orders. Building trucks and reviewing confirmations is generally part of their responsibility, as well as fielding calls about job status. They build huge files of paperwork with check sheets that indicate everything is in the file. Receiving, scheduling, and staging jobs for delivery also creates a lot of paperwork. Packing slips need to be reviewed and shipments sorted into jobs. Many times pieces get lost. Checklists, more staff, and double checking paperwork is usually the answer.
The point is, people have put a lot of work into making these paper based systems handle the huge workload with the hope of relatively few errors. They like what they created and don’t like change even when the process has grown inefficient, and in light of the current housing slowdown – dealers must be efficient.
More technology, less labor and fewer errors Historically, companies have added capacity by adding more people. There simply wasn’t another way to grow. Someone had to handle all the work the accounting system could not do.
First came design software. It speeds up design a lot, but it didn’t really help out with quoting the complete job. New technology changed all that. Today there is software that can read a design file and use manufacturers’ electronic catalogs to price and cost the quote automatically.
The software doesn’t just quote cabinets, but also prices out hardware, countertops, and other fixtures. The manufacturers send the software company updated pricing catalogs, and the software company match- es the bill of materials from the design software with a “master” catalog and prepares an accurate quote – no need for salespeople to tabulate everything by hand, or in Excel. Salespeople who embrace the technology reduce the time they spend quoting by 50%.
The software can also convert the quote into a sales order and attaches a unique job number to all job related information. The sales order information is electronically dis-aggregated and reorganized into purchase orders by vendor and can be tracked back to the job by anyone at anytime. The system eliminates re-keying and the need for 75% of most Dealers Quality Assurance checks.
Instead of having a paper job file to store all job information, the software provides an electronic “job file” that anyone can access at any time. So instead of calling purchasing to check the status of a purchase order, the salesperson can look it up on any computer. This becomes particularly important when jobs are being staged for installation. Delivery people can easily check the order status of all the materials and only stage jobs whose materials have all been received. When material is damaged on the job, the reason is stored on the computer and status of the replacement material is easy to find. Users of this technology drastically reduce costly rush orders.
But the real value of the software is its ability to research issues and provide answers to customers instantly. If a particular customer or vendor seems to have a lot of cost overruns – it is easy to see. Warranty calls can reference a lot number or physical address and the software can find the complete history of the job and information on the warranty items in seconds – most warranty questions are resolved in 2 minutes or less.
For many cabinet dealers, implementing software is really tough. The software vendors don’t really understand the cabinet industry, have a hard time dealing with the parts nomenclature, and don’t do a great job of training people. Software firms with extensive cabinet industry experience should be sought to help. The recommended systems need to electronically integrate with existing accounting systems; or the major cause of re-keying and errors won’t be eliminated.
Many large dealerships are tempted to engage a technology firm to custom develop an application. Any firm considering such strategy should be careful. Software development is a difficult and costly undertaking. Software industry statistics indicate that 85% of custom development projects fail to meet their objectives, and result in significant cost overruns.
Several kitchen and bath dealers who have fully automated their operations have reported sales increases of up to 300% in as little as 18 months. Their explanation is simple – salespeople have a lot more time to sell. The amazing part of this statistic is these firms also report needing little to no additional staff to support the increased sales volume. Their net profit margin actually increased by 2%. Their ROI on the software investment was over 400%.
Purchasing seems to be where the greatest efficiency is gained. One company reported a single individual which could handle purchases for $32 million in sales in a single year. Eliminating re-keying of information into the purchasing or accounting systems seems to be the greatest time savings. The labor saving was over 4,000 hours per year.
Replacing the paper job file with an “electronic job file” seems to be the biggest value to management and service staff. Service reports much greater visibility around incoming materials, problem jobs, and warranty issues. Management enjoys better control of gross margins and costs. The information the software produces allows progressive cabinet dealers and remodeling professionals to drive better business results.
Several unexpected strategic benefits are reported as well. The technology provides users with an ability to provide better service than competitors, train employees more quickly, and rapidly add new offices or locations using a “technology platform.