Excess Capacity And Stability

By Kenneth Smith, Secretary Lumber Dealers Association of Los Angeles. Address delivered at the Tri-Annud Conference of tfie Millwork

Institute of Califotnia.

Kenneth Smith

A big six-foot policeman stood on the curb and roared at an inebriated citizen, "Hi there, you.can't stand there in the street." But the proud retort of the said inebriated citizen was-"Yesh. I can orfsher-don't you worry 'bou! me. I been standin' here an hour an' ain't fell off yet."

_ The policeman of profitless prosperity has been telling this old lumber industry of which Milhiorti is so important a brinch, in a loud voice for a long time that it could not ttand still, that it had to meet_changed conditions with changed methods, only to encounter from all except a progressive minority the resistance of an individuatr pri_d9 iq.individual ability to ge_t by because "I ain't fell ofi yet."

_ Thinking is so painful that mgst of us think only when we have to. It is much easier to accept thl guidance of instinct and habit. It is much, easier, also, to point out what is wrong than to point out a practicable remedy. And there is a lot of iiifference -between a remedy and a PRACTICAL re-1nedy.

Fol instance, you gentlemen lave spent a great deal of time since this Convention started, and at all the other Conventions you have attended recently, in crying algut the excess capacity and the instability of conditions in the Miltwork industry. And you have all agreed that the remedy is fo1 everyone to be satisfied with less volume and get better prices, .b!rt where you have not agreed is on c-e practical means of making e_ffective a program that would result in less production, better quality and higher profits.

Now before you start worryi4g about having to listen to a lot of lree advice from another outsi{-ei, I want to tltl you a little story. The bloom was off the honeymoon, as you may surmise, when he said to her: "Now that we are married, dear, perhaps I might venture to point out a few of youl little defects." But she stopt him with, l'Don't bother dear, I-ar4 quite well aware of them. It was those little defects that kept me from getting a much better man than you are."

So I am not going to give yqu any advice. Free advice is usually worthwbat it costs anyway. All that I am going to try to do is to think atong with you for a few minutes about excess capacity and stability. Sornetimes an outside point of view will bring attintion fo things that insiders have become so accustomed to that for them they do not exist.

The poetic soul said to the perfumer, "Ah! Your store smells like a breath from Araby the !lest." To which his matter-of-fact answer was, "That so? Blest if I can smell anything."

So, here goes, for better or worse, my view from the sidelines on the subject assigned me.

"Excess capacity" is an overworked alibi. It has become too popular a peg upon which to -l1ang all our troubles. It is the pet exiuse of everyone who cuts prices or violates established trade practices. The real cause is not excess capacity, but blindly grasping for volume to use that capagity. Excess capacity is an inanimate thing that is powerless to do you any harm of itsetf, but grasqing for business is a human trait that must be held in check by reasoning. And reason tells you that getting extra votume will not get you more profits-it will get you le-s_s.

Certainly you have proved tli4t often enough in recent years, but too many don't believe it yet. What can be done about it? 4 glqal many things, some of which you must do yoursetf and some of which you can't do yourself and mugt do thru your "gang," either your iocal trade organization or this Millwork Institute which is in session here today. First you must individually by your own thinking cast out the craze for volume at Any cost and the fear of not getting enoush volume. This means the scientifc quoting of prices based on co.-st plus a reasonable profit. You have a singular opportunity to do this, and attain uniformity i0 the doing, by using Schedule 128 at the prevailing discount. It means sticking to quotation. It melt!! GOTNG AFTER ONLY A REASONABLE PROPORTION OF THE TOTAL BUSINESS based on the average for previous years -and being satisfied with that volume. ft means sticking as much as possible to your own econo{nic territory instead of scattering out all bver the country. It means getting a reasonable volume of business by sane and ethical methg{s-and making sure of a legitimate profit on it.

- The one-price-no-haggling-policy revolutionized retail 6tore merchandising. It will revolutionizF this industry if you just ever develoo enough intestinal fortitude to name your price and stick to it recaidless. I doubt if there is a man in this room who has not chirged his friends prices bearing a profit, and then turned around and iold below cost to a shopper. It has been a practice of lumber and millwork retailer's, I am sorry to say, to crucify its friends as a result of the lack of stable fiices. Not only.is a one-price policy sound, tut it is a proven profit gtaker and almost universally adopted by business. Its only pecutiarity to our business lies in the fact that we_are 20 or 3O years behind thg times in adopting it. l. "Give your men a real reason for aslking for the ordert"

One -of_ the greatest gains from rigid adherence to a. one-price policy is in doing away with lraggling and its attendant enormous waste_of -energy. A contractor yrill not waste your time or his own, once he is convinced that you dg not put out in asking price in anticipation of selling at a lower frice. -He will cease tJriorry about his,-competitor gttting a lower price and quit shopping. Our own policies have made shoppers of men, who were originally customers; and we will have only burselve3 to blame if we do ndt re-educati them.

I believe every fair minded man recognizes that quoting all contractors the same price for identical merchandise is a distintt service to him,and to the _buying publig. Most contractors are glad to see it for the reasons just suggeste_d and for the further reason that he can see it will eliminate from his field the "glyp" contractor, who bids less tlran a legitimate price on jobs in aniicipation of wiggling out or beating the material merchants down on construction materials. What have you gained anyway by taking business away from one another? It is about as economically sound as taking in each other's washing. When you get all. tlqrough you have just about the same proportion of the total votume as if you had concentrated your efforts and held for your price. Most price cutting is the result of chasing after the other fellow's business arid most of the high cost of selling comes from that same source. It is not the ordeis from your customers that run up your sales expense, but the cost of the calls made upon the .folks that you don't sell. And it is the alibis of your salesmen on these same calls that get you excited about qompetition. This is one of the biggest wastes in our industry today. This war that we have been w-aging over existing customeri is one of the major reasons for the ex-cessive increase in the cost of selling in recent years.

"An unproductive call costs you just as much as a productive one *in fact it costs you very much more, because a productive call puts the salesman in the frame of mind where he expects to duplicate the sale with the next prospect, and by reason of that very eipectancy, he will probably do so. But a sales talk given without anylesultant order may have a very dampe-r1ing effect on any salesman's ardor, may send him to his next call a bit less confident, sometimes even expectant that an additional failure will be the resuli of the interview.

"Therefore, both because of the lost time, the salesman's onlv capital, and because of the los.s of morale, the driving force of ail salesmanship, it is indisputable that one of the most serious problems for any sales manager to consider is the frightfully high price he must pay for the unproductivb calls his salesmen make."

I read the other night a bri[iant study of this subject bv W. L. Barnhart, from rrhich those tw-o paragraphs are quoted and he sug- gests a remedy that you can put right into your business with great profit.

When a buyer asks your malr why he should buy your Millwork, does your man feel honestly that if he were in the buyer's shoes he woutd buy from you? If he dogs- not, you can make more money restrictir-rg his calls to customers [re can feel that way about,

2. 'If you hav€n't a real re?Fon "why," then eliminate that particular prospect (?) from your list."

You will find it will cost yog more to call on him than you will get out of it. The only sound.way to expand is by developing your present customers, helping them grow, and by creating new markets for your product. If you will kpep step with progress and hold your percentage of the total volume available, you will have all the growth you can handle profit4bly out of the natural expansion of business in Catifornia. But if you try to go fastelthan that and

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