In previous articles I have talked about different types of machines used in the woodworking industry and highlighted how technology can increase your efficiency - or in other words - your profit.
I am sure that a number of woodworkers reading those articles or attending a woodworking machinery show have thought, “I wish I had this technology when I did the ABC job a couple of months ago, but I really can’t afford it.” Today I would like to talk about that dilemma and how we can justify our investments in technology.
A good summary of what this article is about would be, ‘Instead of only looking at the price of a specific machine or technology, we need to ask ourselves how much money will it cost us not to invest in the machine or technology.’
If you want to buy a new television for $1,000, because you like the new crystal clear picture, the decision not to buy will save you $1,000. As long as the old television keeps working, buying a new one will not save you any money (let’s not argue whether or not a television can ever save you money). An investment in capital goods is different and is based on what you need, not what you want. A decision to invest is driven by a recognized need to improve operations in your company to make processes more efficient. It should not be driven by a fancy brochure or slick demonstration.
Once a need to improve is identified we need to look at the additional costs resulting from the present process. Usually these are additional labour, quality deficiencies, and wasted material or even excess inventory.
Your company is manufacturing right now without this machine or technology. Not investing doesn’t mean that you necessarily save money, most likely you are spending this money already on the plant floor.
Not investing has a price tag just like investment ‘A’ or ‘B,’ and most of us would be surprised how big this price can be. What makes us underestimate this cost is the fact that we are used to these costs, which are often indirect and paid in small increments rather than one lump sum. These costs can be hidden in our electricity bill or in the pay cheques handed out every week. They can be costs for rejected products, costs for fixing quality issues or higher bills for raw materials. I would like to illustrate this with an example.
A cabinet manufacturer uses an old edgebander. The machine is starting to wear out and requires readjustment every time it is used. The glue line is no longer as tight as it used to be and the trimming can also not be adjusted as close as in the past for fear of cutting into the panel. Bringing the panel to acceptable standards requires manual labour to clean the edges.
A new edgebander would solve these problems, but the price is more than the owner believes he can afford. If we assume a medium-sized cabinet shop that will keep an edgebander busy for most of the day, then we can conservatively assume two hours are spent each day on re-trimming and cleaning of the panels. With 20 workdays/month and $20/h (including burden) just the straight labour cost for this non-value-added activity amounts to $800 per month, enough to cover the lease payment for a new $40,000 edgebander. Plus these savings continue after the machine is paid.
And don’t think that the costs are lower if you do the work yourself. Your time is the most valuable in your company. Or that the operator is there anyway (the famous ‘anyway’ costs) - but this is not true, the operator can do something productive in that time, increasing your production and profit.
One of my customers recently gave me a tour of his shop, which is equipped with older machines. He had a horizontal drill press, a vertical drill, a hinge drilling machine and a shaper, just to name a few. He mentioned with a smile that ‘all these machines are paid for, so I make straight profit with them.’ Of course that is a very dangerous statement. Unless he has no competition in his niche, or customers are willing to pay him extra for work done by his company, other firms will find ways to improve on the manufacturing process and provide better and less expensive products.
New machines and technology are not al- ways the answer to all our problems, but we have to be prepared to take a hard look every day at our processes and remember to keep the big picture in mind. Sometimes we try to hold on to the way we do things, because we have done it like this for years, even if we know it is inefficient and costs us money.
Have an in-depth look at what you are doing today and ask yourself the question: Can I afford NOT to invest in new technology?”
