"Is It Possible To Reduce The Cost Of Doing Business?"

By Franl< Bunraby, Sun Lumbcr C,ompann Bcvcdy l{ilb C.ff. Address made at the Annual Conventbn of thc C..lifomb R.t il lermbcr men's Association, Novembcr 6, 7) and E, 1930, Pasdco+ C.lifdoir.

"Is it possible to reduce the cost of doing business?"

f am assuming that this inquiry refers to the operating costs of the average type of retail lumber yard, properly financed and doing business during normal times, so I will confine the major portion of my remarks to such conditions.

However. it seems to me that in connection with this subject we should consider, for just a moment, the possible reduction in overhead during sub-normal times, like the present, as compared to the overhead that exists during normal periods.

It is seldom, if ever, possible to reduce overhead in proportion to reduced volume of sales, but there should be an automatic reduction in investment in merchandise as well as in Accounts Receivable, which reduces interest payments of the borrowers, also insurance and in some cases rent and other items. Reduced volume of business means a smaller number of manual laborers, less delivery cost and a reduction in miscellaneous sundry,expense items, but it is seldom possible or. practical to rgduce the number of executives or make reductions in office force, and if there is any business to be had at all it is certainly not advisable to reduce sales effort or advertising and promotion appropriations.

A general reduction in salaries or wages I consider unfair to the employees and mighty poor business from the standpoint of the employer. There is nothing that will so break the morale and efficiency of a man like a reduction in pay (usually too small in the lumber business anyway), and any business too large to be conducted almost entirely by the actual owners is a success or a failure very largely in proportion to the morale and efficienc-y of its employees.

Everyone knows, of course, that general high wages over the country means prosperity and low wages just the reverse,

In short, I do not believe it good business to materially reduce overhead during dull times, except through such savings as quite naturally develop, for generally speaking, what is good business in good times is good business in hard times.

Now referring to the matter of reducing cost of doing business during normal times:

As I study this question I find all roads leading straight to closer, more efficient co-operation among competitors, which should result in reduced investment in merchandise and Accounts Receivable, reduced sales expense, lower collection and legal expense and, most important, reduced losses through bad accounts.

Merchandise investments could be reduced by the organization of a central warehouse or yard owned and operated by a group of association members, the purpose of which organization would be to carry a complete stock of specialties, also odd unusual items of lumber, for sale practically at cost and onlv to members of the association. Such a warehouse or yard rvould avoid the large duplication of investment in expensive slow moving merchandise which exists in most localities at present, and rvould also be a great convenience to all those interested.

In a locality like Los Angeles the same result could be obtained by a close working arrangement between the large wholesale yards and the smaller operators, whereby the large yards would carry this class of stock for sale on a basis that would leave a fair margin of profit to the smaller more dependent retailer.

Proper association activity would avoid a lot of sales expense and effort that results in large numbers of salesmen being employed, many yards quoting the same builder on the same job, much over-service to the buyer, supplying capital to the builder or owner and sometimes to mortgage companies, signing bonds, etc., etc.

The present type of advertising where each advertiser attempts to convince the buyers that he offers more for the buyer's dollar than does his competitors is all wrong, and a great amount of overhead could be saved if the dealers in each.community would reduce their advertising appropriations but group their advertising efforts with that of their neighbor and confine it to the promotion of building and a greater use of the products handled by lumber yards.

Another item not always listed as an item of expense but surely a real influeflce on the net profits of all lumber dealers is lost accounts, and this loss can, without question, be very materially reduced throqgh proper cooperation among association members.

The various dealers in many difrerent communities furnish a central bureau with a monthly list of thcir accounts giving age of same as well as other information. The central bureau then consolidates this information and distributes it among association members, with the resutt that many bad credits are avoided and much money saved that would otherwise be lost or spent in coltection efrort. These central credit bureaus often also assist in collection of accounts, thereby reducing the collection and legal expense of individual yards.

The most successful large city retail lumber association. with which I am familiar. considers the credit feature of their activities almost as important as the maintaining of prices, and I knorv of another large city association whose President told me recently was working l0/o, and the rvhole structure is founded on the matter of credit.

'He told me that they had put over 1,70 contractors on a strictly cash basis during the past eighteen months, had put the building business of their district almost entirely into the hands of those who were able to pay their bills on the lfth of the month fotlowing delivery (the date on which they allorv 5/o discount for cash) and had sarrtd their association members many thousands of dollars in accounts, cut down their investment in accounts and saved lhem many dollars in collection and legal costs. Here, I think, is a most fertile field for saving.

These are the four important ways in which I think overhead can be reduced during normal times, but there are also possibilities in encouraging the use of higher grades, in cen- tral e^qtim-ating, simplifi ed-accounting, simpliied price lists and the like, but to sum up this whoG proposition'of reduc- ing cost 9f.d-orng busineli I would say that, except for a natural shrinkage or expansion di.re to ihange in volume of business, aboff IAO/o a matter of propdr co-operation among competttors.

Possibly I am getting ofi the subject a bit, but I cannot close my remarks without making a plea for more and better association efiorts.

I firmly believe that if a half dozen of the leaders of the retail lumber industry in any community really study the co-operative plans that are available-adopt one thai has ptoyel effective by operation elsewhere and really get behrnd rt, rt rs almost an absolute cinch to accomplish prac_ tically anything we want in the way of businesi impiove- ment.

We must get the spirit of this co-operative thing ancl work a.s though- we were one big family, each trying to make the other fellow some monev "s *.il as malie a"decent profit for ourselves.

Right-here I would like to recite for example the results obtained by dealers in two large mid-west-ern cities, re- cently.visit.9 by-me,-one now toing only about 6A/o of normal and the other 25 or 3OVo of a normil business. '

They are both making better than 100/o gross profit on staple common items. - All of the items tTrat cost them 11gurd $20.00 f.o.b. ,cars, are selling at from g42.00 to H5.00 and the higher priced merchindise in proportion. r hey are havlng almost no losses in bad accounts. and thev have succeeded through the elimination of the unreliabie builder and the christianizing of the shopper, in putting the building business into the hands of the-better and mori responsible contractor where it really belongs.

Let's not be "pikers" in our associition ac-tivities. Let's not be content with half way measures but fight for that typ-e of association that accomplishes someihing worth while.

It is certainly time that California lumber dealers woke up to the fact that they are entitled to a decent profit on their invesments, whether their volume of business is subnotmal, normal or abnormal, and to the fact that their only salvation is through co:oDeration of a bind,ing type that no't only makes Toley for fhe co-operator bu[, ii'necessary, crowds completely out of the picture the short-sighted, inSgmpeJe,n_t or unscrupulous dealer who won't play ball with his neighbors.

J. A. McEVOY VISITS CALIFORNIA

John {. }{gEyo-f,_sales manager of the box shook depart- .ment of Bloedel-Donovan Lumber Mills, Belling'ham, Wash., was a recent visitor to San Francisco ancl Lo"s Angeles, where he conferred with the firm's representatives.