In this episode, Patrick speaks with Paul Menninger, owner of Capitol Granite, a very successful fabricator based in Virginia.
Listen to this episode to learn:
- Why it is crucial to measure key performance indicators as your business grows
- Why importing material directly from overseas poses considerably larger amounts of risk
- How companies lose money on labor costs and what they can do to minimize those losses
- A more detailed metric for tracking business that Paul uses for Capitol Granite
- New technologies that countertop producers may benefit from
- How Paul’s profits vary based on the size on the job
Be sure to subscribe to the podcast in iTunes… and please let us know what you think! You can leave comments for this show on the StoneTalk Facebook page or on this site.
If you have stories or insights that you’d like to share with other fabricators, please reach out to Patrick.
Transcript
Welcome to StoneTalk, the podcast for countertop fabricators. Brought to you by Moraware, makers of JobTracker scheduling software and CounterGo estimating software for countertop fabricators. I’m your host, Patrick Foley.
Patrick: Today I speak with Paul Menninger of Capitol Granite, a very successful fabricator in Virginia. Paul sometimes speaks at industry events and if you get a chance to see him, you should. Let’s give him a call.
Paul: Good morning Patrick.
Patrick: How are you going this morning?
Paul: Good.
Patrick: Let’s just start with the basics, tell me about Capitol Granite, how long have you been in business, approximately how big you are, that sort of thing.
Paul: Well Capitol Granite has been in business now for 12 years.
Patrick: Okay.
Paul: I started the business with myself and 1 other person and today we’re 90 strong.
Patrick: Nice.
Paul: Just doing about $11,000,000-a-year revenue and growing.
Patrick: Wow.
Paul: We’re in the Central Virginia area.
Patrick: How do your customers see Capitol Granite? What makes people choose you?
Paul: Well, we are a quality organization and in order to grow I’m a believer that you must have customer service and a level of quality that goes to back your product.
Patrick: Nice. I’ve seen you speak at a couple of industry events and one of the things that I love hearing you talk about is measurements and metrics and things like that. Let’s jump into that area. Say I’m a beginning fabricator; I just started out my own countertop business. I’m not $11,000,000 I’m not even a million dollars, what are the key things that I need to track? What do I need to measure if I’m just getting started?
Paul: Well, if I’m going to measure anything when I get started, first and foremost has to be your most expensive cost center which is the stone itself.
Patrick: Okay.
Paul: When you get started, brand new and out of the gate and you’re handing 1 or 2 jobs a week, that’s something that you can handle with a Ouija board and an excel spreadsheet but when you begin to grow you need to have a database whereby you are monitoring and measuring those key performance indicators that are most important to the shop owner and begin to develop that into a model ware Job Tracker database to keep you up or what you’re looking for.
Patrick: Right, I actually spoke with a colleague of yours who’s thinking of being a customer and he said you’re actually getting to the point where you’ve grown enough that our software is stretched at the edges and is causing problems for you, you’re big enough that we don’t necessarily make it easy for you to measure all the things you want to measure.
For example I know inventory isn’t our strongest feature from the standpoint of asking, how much is my stone yard worth? We don’t handle that. How do you deal with that or how are you thinking of handling that?
Paul: Well, the way we’re currently handling it right now is we’ve got an API patch with … Which is taking the backdoor of Moraware and tagging it with this other company using a barcode scanner.
Patrick: The VPN systems thing is that correct?
Paul: That’s correct.
Patrick: Okay cool.
Paul: That’s the VPN systems thing.
Patrick: Right.
Paul: That seems to be working pretty good so now we have a constant update of where our inventory is which is the most important thing, the sales that you’re dealing with, remnants and you’re dealing with partials that have legacy to the parent slab if you need to match up a remnant to a slab, this is going to give you the legacy that you need in order to ensure that you’re not going to have a color mismatch.
Patrick: Okay, and you mentioned inventory, do you strive to have a lot of inventory in stock? I’ve heard some fabricators fly to exotic places and pick out containers worth of material and bring it back. Do you do things that way or do you work with a distributor you trust or a mix? How do you acquire your material?
Paul: We do most of our business vis-à-vis distributors.
Patrick: Okay.
Paul: We get very little material direct oversees as that poses another issue when it comes to safely unloading material and then one has to consider the mitigation of risk in the event that you’re not actually getting what you think and then you have stock with slabs that are either broken or don’t have the right polish or there’s something wrong with the resining or, or, or … It goes on and on. Unless you’re dealing with somebody that’s a trusted overseas broker directly bringing in material, there’s always a risk you venture especially for a small guy.
Patrick: Interesting and you’re not even a small guy so that’s …
Paul: We’re not a small guy and we still don’t want to deal with the risk because that opens up a whole another can of worms…
Patrick: That’s true too, very interesting. Yeah and that brings up employees. I remember hearing you talk about capacity planning and management and if I remember correctly you tell your employees each day how much work there is to do and then you have expectations about how long it should take to do it. If there is less work to do, you don’t let people work 40 hours this week if there’s only 36 hours of work. Do I remember that correctly? How do you handle capacity management like that?
Paul: Well, that’s an interesting point because now we’re even taking and changing it again to a concept of synchronous flow.
Patrick: What’s that mean?
Paul: In that synchronous flow, well I won’t get into that but I’ll get into how Job Tracker helps us specifically to manage our day-to-day operations, because companies are going to lose money in 1 or 2 situations: They are either going to have people standing around and not working as efficiently as they can or on the flipside of it they’re going to be spending a bunch of money on overtime in order to get the job done.
Each and every one of our jobs has got a square foot total, it’s got a geographic area and we use the resources function within there to give us an idea based on the type of kitchen, whether it’s got a rip out and or we have to do button-up work on the back side for plumbing, electrical or whatever. We are using the resources to help us determine a couple of things. Number 1 the level of difficulty in fabrication so it’s going to totalize on our calendar view the amount of square foot we’re producing and then it weights it or what would otherwise the equivalent square foot. Then we have the same kind of thing that goes on for installs so that we’re not overcommit the day or we’ve got a real easy project if the crew is coming back by 11:30 in the morning.
We’re using the calendar view to totalize all that up and then when we begin to put and monitor, because Job Tracker has told us over the course of time how many square foot we’ve produced the different types of kitchens we’ve produced, now we know in a given day or week or month how many square foot we’ve produced, we know what our payroll is for that particular activity and we divide it to the temp putters to the production people, to installers and so on and now we begin to develop the metrics.
For us, we’re running a little over 6 square foot per man-hour on the floors to make labor for people who charge the work. Now if we know for easy math that if we’re going to do 600 square foot today in the plant and we know that we have 100 man-hours available or basically 8 people on the floor or should I say 12 people on the floor working an 8 hour day, 12 times 8 being 96. That’s the way that we’re managing it. Now if we all of a sudden doing 1000 square foot today we can reverse engineer that and say that those 12 people need to be working until the job is done but they are authorized up to whatever the math works out to be a 13 hour day or a 12 hour day or whatever it is.
Patrick: Interesting, I’ve heard people debate the merits of tracking square feet as the most important metric or dollars as the most important metric but you described square feet per man-hour which is a little bit more detailed.
Paul: Correct well-
Patrick: That seems more immediately actionable.
Paul: That’s correct, it’s a little bit more detailed, there are shortcomings to that but there are benefits to that because I have toyed with the idea of revenue per man-hour much the same way but revenue per man-hour can be hidden if you’re dealing with exotics when you’re normally handling your basic commodity material.
That being said, square foot per man-hour has it’s adjustments as well which has us rethinking it with the sheer amount of minor dropdown edge work that we’re doing as of late. That type of activity requires an additional amount of time; we have to burden to the shop every bit of 50% more time in order to handle any type of dropdown or lamination type work. We have to account for that. Now that throws in count to square foot per man-hour much like revenue for man-hour.
Patrick: Interesting and you’re an all-digital shop right?
Paul: Correct.
Patrick: Have you been digital all your 12 years or was there a transition point in there where that-
Paul: No we did have a transition point there.
Patrick: Yeah.
Paul: In that transition point, we operated with both the manual and the digital for about 30 days and we were operating really well finally but we were all uncomfortable and I noticed the amount of effort that was being put into double doing everything.
Patrick: Right.
Paul: Finally I just one weekend decided I feel comfortable enough and as of Monday morning I literally took it to all the log strips and threw them in a dumpster so nobody would have an opportunity to do it the old way.
Patrick: Wow, that’s awesome. Is there anything that you see coming down the pipe that is going to have another change like that or is there any new technology invented or not invented yet that you think is going to change the market again like that?
Paul: I don’t believe, I’m not seeing anything that is going to benefit the market this way and the only thing that I can say that I’m seeing coming but it is still- We’ve evaluated and I know some other friends of mine in the industry as well have evaluated is a photo-type system.
Patrick: Okay.
Paul: Benefit of a photo-type system is that we’re out there at the jobsite taking photos anyhow so if we have the capability to photograph the job with a calibrated way of doing it and be able to upload and have the triangulation software work fast, efficiently and not be cumbersome with a lot of expensive targets and things like that then I think that that may be a viable option in the future but the concept is still the same.
Patrick: Yup, I agree. What’s interesting about that is it’s taking advantage of more math than expensive equipment so that could just drive things down further and make it more available to everyone.
Paul: Right, now the other thing that I have seen come from a technology standpoint, and I don’t really know how it applies as of yet but I know that in other related construction industries, they are able to take just a laser set it in the room and it literally rotates and is capturing everything in the room.
Patrick: Wow.
Paul: I see the benefit of that being primarily for the guys doing flooring or ceilings or they need to layout cabinet based on wall structure and I don’t know that it necessarily applies or could apply to the countertop industry but wouldn’t it be nice to in some future date be able to set an object in the center of a kitchen and have it perform all of the automatic scanning of everything and digitizing of everything while you’re doing your consultation with the customer.
Patrick: Right, yeah, that was what made me think of that is that when your sales person can do that that would shift the skillset of the person who would do that activity to someone who is much more customer focused perhaps than more a technician.
Paul: Correct, and that is where we’re currently on believe it or not. The guy that’s templating is more a salesman than he is a mechanic-
Patrick: Interesting.
Paul: … because it’s at that point that you have another touch point with the customer opportunity to upsell, set expectation and be a consultant to meet the customers need. That’s more important than just gathering information.
Patrick: I’ve heard some fabricators trying to even put together a way of selling the slabs, right, in the kitchen as well, talk to a guy who is using a couple of iPads so each, the husband and the wife would both be looking at material. He lives in some cold place where there is a lot of snow and people don’t like driving. Have you experimented with that, actually trying to sell the material in the house as sell or do you still have people come in.
Paul: Yeah, in fact I’m talking the output of the Slab Smith photographing system that we’ve integrated into our digital technology and I’ve paid for a software developer to tag Slab Smith and be able to then quote on our webpage those remnants.
Patrick: Interesting.
Paul: Now while that is a good resource because it’s in the cloud we could perform the same function by the customer searching in the internet or a sales rep in the home, it still falls short of setting customers’ expectations because we monitor every single defect in our organization that is what I call, anything other than a first-time-on-time install is a defect. If I have to go back up to the house and explain to the customer why this factory fiddle on the stone or if I have to go back and talk about featuring and the variegated material or seaming or, or, or, then you’re losing money somewhere along the line because it takes a vehicle and a man to go on out to perform that activity.
We look at all those and when the day is done there is still an inordinate amount of defects, as I’ll call it in the general category, that are related to the expectations of what the customer feels that they should be getting as opposed to what they are actually getting. The only way to mitigate that would be to have them physically view the material.
Patrick: Right. Whenever you have a customer that is somehow or another is not satisfied, what is your process for going through and trying to make that right?
Paul: Well again, I’ll take a different approach to that. My approach to that is quite simply, you’ll view your material or you’ll sign a waiver saying that I waive the right to review my material and therefore I don’t want you telling me at a later date that you’re not happy with it. We built that into our process right now and it’s even a job activity in Moraware where we can see that all through the process. When a customer tells me later on that, “Hey I want you to redo it”- That activity costs organizations more money than does. For me for instance, if I’ve got 2 extra people that are required in order to handle the amount of foot traffic that’s viewing material and their bargained cost is let’s say $100,000 a year what I am saving in rework far exceeds that.
Patrick: Right. I assume you also use Slab Smith then to lay it out so they can see where all the veins are going to be and that’s part of the waiver or it’s signing, “Hey this is what it’s going to look like.”
Paul: Correct, and that’s the beauty of Slab Smith that we’re calibrating photography on the material, we’re laying it out ahead of time and we have that variegated material, the requirement for the customer to either lay it out with us or to approve 1 of a couple, 3 different layouts that we’ll send to them on an email in jpeg format because too many times again, the customer is dissatisfied with the way the scene has come together, in more cases than none you wouldn’t believe the customer is demanding that it be looking this way or that way and they just don’t understand when I come back to them and ask them for another thousand dollars because we’ve got to use an extra sheet of material.
When I get and engaged and a layout process itself, they understand and can see for themselves that the extra slab would be required to provide what they want and more time than not they are happy with another way of doing business in order to save that money. It gets their buy in and sets the expectation upfront as opposed to trying to explain it in hindsight.
Patrick: Yeah, that makes a lot of sense having them participate. Last question here, I know you have lots of work to do today so I’ll let you get back at that. On your website it says that, no job is too small, but then you’ve also done some pretty big jobs. Is there a sweet spot in terms of size that is either most profitable or that you just like doing better or is size pretty irrelevant in your business?
Paul: No in fact, just the opposite. I’m never going to say no, but I’m going to say this is how much. When we really analyze our organization we find that there are viable costs and fixed costs in an organization. Fixed costs being the building, my salary, the salesmen’s salaries, so on, those are the typical fixed costs of an organization, payment and machines etcetera, the variable costs being the labor in order to get the job done.
Within those variable costs, we’re finding that a lot of these costs are fixed or they are not variable to the amount of square footage. For instance, if I’m going out to template a 10-square-foot job, it does not take me any less time to template that 10-square-foot job as it does a 60-square-foot job because the bulk of my time and money is invested in consulting with the customer on what their needs are, what they want, setting up the digital technology, breaking it down and whether it’s 60 foot or 10 foot, I’m templating in the customer’s home for probably just under an hour.
The same holds to for installation, the fixed cost within their viable cost of 2 men and a truck getting up to the job site laying down the blanket, putting the mat under the vehicle, so on so forth, it approaches a fixed cost of doing business where the install may take, let’s say an hour an hour and a half to do 10 square foot but it will take us 2 hours to do 60 square foot. Where we’re finding is that there is a breakpoint whereby 45 square foot is where you begin to make more money, 5 square foot and above is where you make more money because an install crew is really capable of installing 2 jobs a day and getting back in straight time and avoiding the overtime within a reasonable driving distance.
If they are installing 2 jobs at 45 square foot or 90 foot a day you’re beginning to get into the zone of person ability and a sweet spot, but if they are going out to install 3 vanities, it’s going to take them the same amount of time in those 3 10-square-foot vanities are only going to account for revenue at the end of the day of 30 square feet but it will still take them the same amount of time through the course of the day as does putting in 90 square feet.
Patrick: Do you ever try to upsell customer and say hey, “If we’re coming out and doing your kitchen why don’t we do some of your bathrooms too? Do you ever do that?”
Paul: We always try and do that.
Patrick: Does it work?
Paul: It works on occasion, where we have the greatest value in upselling is when the customer is choosing from our stock material and because of our subject and ability to lay out a nest material and you’re buying the whole loaf of bread so to speak and the slabs or slices in that loaf, as you go use a slab and a half of the stock material you can quote the job based on an average wage factor. When you’re not basically buying that slab back from the customer, if they charged out a slab and a half for a 2 slab job, know that from a cash flow basis you’re under water by charging only for that slab and a half because you’re buying that other half slab and putting it into inventory only to have it be dead inventory more than likely and them more than likely discount it in order to move it later on.
Where we have upsell opportunity is when they’re buying that 2 slab, what we’re doing is we’re saying, okay, we’ll hold your material for a period of 30 days or 45 days and we will come back out to the house and install at nothing but a labor cost but no stone cost. After that period of time then that inventory becomes ours.
Patrick: That’s interesting, cool, interesting middle ground there that I hadn’t thought of. Again, I could talk to you all day but I know you have plenty of work to do. Thank you so much for spending some time with us and if there’s anything we can ever help you with just give us a call.
Paul: Will do, thanks appreciate it.
Patrick: Thanks so much Paul, bye.
Paul: Take care, bye, bye.
Thanks for listening to StoneTalk, the podcast for countertop fabricators. If you liked this episode, be sure to visit stonetalk.org or subscribe to StoneTalk on iTunes for more. Visit the StoneTalk show Facebook to join in the conversation and follow @stonetalkshow on twitter.
StoneTalk is brought to you by Moraware, makers of JobTracker scheduling software and CounterGo estimating software for countertop fabricators.
I’m your host Patrick Foley and I look forward to spending time with you again on the next episode of StoneTalk.
