Here I go again...

Posted by Patterson from adsl-63-198-64-195.dsl.lsan03.pacbell.net on June 07, 2000 at 12:13:07:

In Reply to: Past, Present, maybe future Wested Consumers posted by Compassionate Indee Anna on June 06, 2000 at 21:41:17:

First of all, I do empathize with the frustration of waiting for one of these jackets. But I'm attempting to step back and be objective from a business standpoint. Some will probably laugh at that when they read this post, but I believe I have sound footing from real experience.

A little truth is a dangerous thing…

Everything you say is absolutely true. But you address everything but the cost. Expanding your fixed capacity to cover one-off orders? On a product that (let me forget I’m and Indy fan as well) could go away with no notice? History is full of failed businesses that went down that path. They saw increased demand for a hot product, sunk capital (their own or others) into adding capacity, only to see the demand turn to vapor. Then you’re basically screwed.

It just rolls right off the tongue so easily, doesn’t it – “Additional craft workers can be hired and/or trained…” For better or worse, this is not always the case and it’s not always the right thing to do. Generally, you can hire a full time employee for a lower hourly rate compared to a contractor (in the US it usually runs between ½ to 2/3 the rate). BUT, you then have benefits and general fixed overhead that comes along with new employees. In the end, it’s about as expensive as a contractor to hire permanent workers, except that they are PERMANENT. They are on the payroll. You do not just pay them when you have work for them to do. You do, however, gain more control over quality.

With contractors, you gain flexibility. They work when you need them, though you pay a higher hourly rate. On the downside, you have a worker with less of an attachment to your company, and you do run the risk of quality slipping.

Then there is the issue of fixed cost. The machinery and systems necessary to expand a business from one tier to the next can be extremely significant. I’d take an educated SWAG to say Peter would probably have to double his capital investment to get to that next level of automated production with sound MRP planning and tracking. It isn’t cheap.

Now drop into the case study – Wested Leather. The company has been around awhile. It’s always been relatively small – a couple retail outlets and has a long running relationship with the film industry. The owner is comfortable with its size and how it is run. He makes a jacket for a movie in 1981, and about 10-12 years (forgive me John if my timeline is off) all hell breaks loose. He is brought kicking and screaming into this thing. Granted, he didn’t object once the cash register “chinged” a few times, but as you said it “it is his livelihood.” The man ought to make something from this. He certainly isn’t gouging anybody. I challenge anybody out there to find anything that closely compares to the Wested for a comparable price.

But back to Wested. The choice Peter is faced with is this. I’m making enough of these jackets to make it worthwhile doing them. In fact, the demand seems to be creating a bit of a problem keeping up. I have a choice; do I stay the same size and divert existing resources to cover this demand. It means giving up some other piece of the business. Which one? The other choice is to expand the business. Where do I pull the funds? Borrow? Retirement? Do I take on partners? Big choices just to make Indiana Jones jackets – sorry folks for the sacrilege!

Sorry, but it just makes me laugh. The guy has a comfortable and prosperous business, and he is doing us a favor by making these jackets at all. We want him to gear up his business, when (pardon me Peter) I be at a point in my life when I’d be thinking of spending time with my grandkids NOT spending more time growing the business even more.

Reality check. Sometimes the customer IS wrong. Sometimes something that looks like a good thing for a business really isn’t. It’s easy to criticize from 90,000 feet, but when you get down and buzz the trees, your perspective changes.

IMHO, and real world experience with my own and other people's money.

Patterson

Follow Ups:

Re: Here I go again... Danno 00:40:19 6/08/2000 (4)
- Necessary clarification... Patterson 11:12:17 6/08/2000 (2)
  - Agreement to an extent Gregg 15:14:33 6/08/2000 (1)
    - LOL on "The Mummy" sequel! Thanks for the laugh! (NM) Patterson 22:25:18 6/08/2000 (0)
- Amen, brotha. Amen. (nm) Indiana James 07:39:43 6/08/2000 (0)

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: First of all, I do empathize with the frustration of waiting for one of these jackets.  But I'm attempting to step back and be objective from a business standpoint.  Some will probably laugh at that when they read this post, but I believe I have sound footing from real experience.

: A little truth is a dangerous thing…

: Everything you say is absolutely true.  But you address everything but the cost.  Expanding your fixed capacity to cover one-off orders?  On a product that (let me forget I’m and Indy fan as well) could go away with no notice?  History is full of failed businesses that went down that path.  They saw increased demand for a hot product, sunk capital (their own or others) into adding capacity, only to see the demand turn to vapor.  Then you’re basically screwed.

: It just rolls right off the tongue so easily, doesn’t it – “Additional craft workers can be hired and/or trained…” For better or worse, this is not always the case and it’s not always the right thing to do.  Generally, you can hire a full time employee for a lower hourly rate compared to a contractor (in the US it usually runs between ½ to 2/3 the rate).  BUT, you then have benefits and general fixed overhead that comes along with new employees.  In the end, it’s about as expensive as a contractor to hire permanent workers, except that they are PERMANENT.  They are on the payroll.  You do not just pay them when you have work for them to do.  You do, however, gain more control over quality.

: With contractors, you gain flexibility.  They work when you need them, though you pay a higher hourly rate.  On the downside, you have a worker with less of an attachment to your company, and you do run the risk of quality slipping.

: Then there is the issue of fixed cost.  The machinery and systems necessary to expand a business from one tier to the next can be extremely significant.  I’d take an educated SWAG to say Peter would probably have to double his capital investment to get to that next level of automated production with sound MRP planning and tracking.  It isn’t cheap.

: Now drop into the case study – Wested Leather.  The company has been around awhile.  It’s always been relatively small – a couple retail outlets and has a long running relationship with the film industry.  The owner is comfortable with its size and how it is run.  He makes a jacket for a movie in 1981, and about 10-12 years (forgive me John if my timeline is off) all hell breaks loose.  He is brought kicking and screaming into this thing.  Granted, he didn’t object once the cash register “chinged” a few times, but as you said it “it is his livelihood.”  The man ought to make something from this.  He certainly isn’t gouging anybody.  I challenge anybody out there to find anything that closely compares to the Wested for a comparable price.

: But back to Wested.  The choice Peter is faced with is this.  I’m making enough of these jackets to make it worthwhile doing them.  In fact, the demand seems to be creating a bit of a problem keeping up.  I have a choice; do I stay the same size and divert existing resources to cover this demand.  It means giving up some other piece of the business.  Which one?  The other choice is to expand the business.  Where do I pull the funds?  Borrow?  Retirement?  Do I take on partners?  Big choices just to make Indiana Jones jackets – sorry folks for the sacrilege!

: Sorry, but it just makes me laugh.  The guy has a comfortable and prosperous business, and he is doing us a favor by making these jackets at all.  We want him to gear up his business, when (pardon me Peter) I be at a point in my life when I’d be thinking of spending time with my grandkids NOT spending more time growing the business even more.

: Reality check.  Sometimes the customer IS wrong.  Sometimes something that looks like a good thing for a business really isn’t.  It’s easy to criticize from 90,000 feet, but when you get down and buzz the trees, your perspective changes.

: IMHO, and real world experience with my own and other people's money.

: Patterson

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