PPP - Taking Your Business to the Next Level
At first, this sounds simple—just get more of the equipment you have already, or get larger equipment to handle increased production demands. But the problem with this thinking is that the quality and cost of production with these tools can vary widely. Often the owner of a small to medium-size pottery looks only at the selling price for a piece of equipment and doesn’t “run the numbers” to determine the true cost. Such potters risk compromising their short-term results with long-term profits and improvements.
Any potter looking to increase production and overall product quality while reducing production costs would do well to look to our industrial friends. Every large producer carefully examines both cost and quality before purchasing equipment. In most cases, they are as concerned with quality output and with unit costs as we are. In fact, the equipment and techniques developed by industrial producers came about as a result of the same need potters face—to produce more ware of better quality and at a lower cost. As most industrial producers have learned, a good equipment investment will grow with your company, help you reduce your losses, and help you meet market trends.
First Costs Can Fool YouEven though a piece of equipment has a high price tag, it may turn out to be the least expensive equipment you own. Potters who can learn to look beyond the first cost of equipment will have a better chance of succeeding in the market.
A good example of this principle is Homer Laughlin China in southeastern Ohio. The 130-year-old company has outlived most other potters that were once located in the same area. Many of these other companies would not consider new equipment unless it paid for itself in 18 to 24 months—and even then were often afraid to invest in that equipment. Homer Laughlin, however, had a long-term commitment to improvement. Sometimes the payback on its equipment was as long as eight years—but the company recognized the equipment as an investment in its future. Now, after all these years, Homer Laughlin is still operating and doing well, while other companies run by shortsighted management are gone.
First costs can fool you. Often equipment that looks too expensive at the outset can actually save your company enough money each month to make the payments for it. Then, as time goes on, additional savings can accrue.
For example, an Australian-American joint venture wanted a kiln to fire very high temperature refractory brick. The two final bidders presented two very different kilns. The cheapest kiln cost less than half the kiln that they purchased. Why did they purchase the more expensive kiln? A detailed cost analysis showed that the more expensive kiln produced a higher percentage of good product at lower fuel and maintenance costs. The result was that they could make more profit from the more expensive kiln, including the cost of the money borrowed for the investment.
This case is not unusual. Many of the kilns used by potters are quite satisfactory for small production but become very costly for increased production. The same is true with other machinery. For example, a hand-operated mechanical press is quite inexpensive, but once worn, it will never again be accurate. Many manufacturers suffer product losses from using old presses that are worn beyond repair yet appear to be working fine. But you cannot ignore losses or extended manufacturing time. That is where you profit is hidden, and that is where your money is going.
Look carefully at the true cost of any new equipment you plan to buy for your plant. Don’t get caught in the trap of avoiding a first-cost savings approach simply because you don’t have the cash to pay for it in advance or you think the cheaper one will do. Even when buying used equipment, make certain that the equipment is of modern design and fits into your company’s plan for growth. Compromises in these areas can be very expensive in the long run.
The High Cost of LossesYou may be producing enough ware at the moment, but are you suffering too many losses? If so, are they occurring in manufacturing (pieces being chipped, mishandled or poorly formed), drying (warping or cracking) or firing? Often the losses will come from several causes—usually relating to equipment problems. If you can pinpoint the problem area and are willing to invest in new equipment, your purchase can often provide a quick payback in terms of reduced losses.
For example, a well-known china company purchased a modern tunnel kiln. Its old kiln produced about 5% losses, and those losses spiked as high as 11% when the company’s production demands increased. With the new kiln, the company reduced its average losses to less than 2%, allowing it to pay for the kiln in 18 months. Needless to say that company has been very successful.
Pay Attention to the MarketWhen you are evaluating new equipment, be conscious of where the market is headed. If you buy equipment to make a product that your customers don’t want, you won’t be able to sell that product and will end up losing money on your investment.
Years ago a company on the Hudson River that supplied common brick to builders in New York built a new dryer to save labor. But while the company was spending its capital to build its new dryer, the demand for common brick was being replaced by a demand for quality face brick. The company’s new dryer, of course, would neither cut its firing losses nor help produce face brick, and the company had little hope of recovering its investment. Had it built a better kiln instead, the company would have been able to meet the market demand and make a handsome profit by producing face brick that sold at a premium price. Needless to say, that company is long gone.
It’s nice to be able to sell what you love, but the market may love some little thing you think is “dumb.” If that’s what they want, then make lemonade out of that lemon. Sell that item, and experiment with other, similar items to see how they sell.
Once you know what the market wants, you’ll be better able to determine what equipment can help you meet those demands.
Growing your BusinessAs the examples in this article have illustrated, potters looking to grow their business should look to the large industrial producers, who are both cost and quality conscious. Don’t be fooled by the capital cost of a new process—it may even pay for itself with the savings. Additionally, don’t ignore your losses. Decreasing your losses will not only provide you with increased profit, but can also give you enough capital to pay for better equipment. Finally, be conscious of where your market is heading. If you don’t make what your customers want, it won’t be long before you have no customers.
The Circle of InvestmentThree years ago, an Arkansas ceramic company began making trivets from a unique ceramic material that allows the accumulation of condensation on the side of a cold glass in the summer to be absorbed rather than run over the sides of the trivet onto the table the customer is trying to protect. The company’s sales grew steadily, and it wasn’t long before the company needed to expand.
The company started with a mechanical press and a few top loading electric kilns. As the company grew, it bought more electric kilns and more used mechanical presses. It wasn’t long before the company was operating 20 electric kilns, and its energy and labor costs were through the roof. It wisely replaced the electric kilns with a used gas kiln, which greatly increased efficiency.
Now that the company had more firing capacity it could fire more pieces, so a larger press was the next investment. Adding a modern kiln reduced costs even further. The company then improved its mixing and batching area to greatly reduce the labor time involved, as well as to improve dust collection. Later the company bought a hydraulic press that enabled it to more fully automate its pressing process and further reduce its labor cost per piece.
Some of the equipment this company bought was very expensive, yet in terms of the cost per piece produced it was very cheap. And while the company didn’t buy all of its equipment overnight, it planned ahead so that it could invest in the future. Certainly it didn’t have the money to buy a big hydraulic press when it first started, yet it knew what it needed, and as soon as one purchase was paid off, it was able to invest in the next one. And because each purchase was made wisely, each piece of equipment began returning its investment as soon as it went on line.
As this company continues to control costs and improve quality, its sales continue to advance. At the same time, it is able to improve its product line to continue meeting customer demand.