If you produce thermofoil components or Kitchens I am sure that you give careful consideration to your 3D Laminate inventory. You most likely are constantly faced with the dilemma of whether you should stock a new item or not. In this post I'd like to discuss the true costs of inventory, the opportunities that new colors create, and the importance of adding or removing colors in your line.
COST OF INVENTORY: Carrying inventory costs your business money. Not only does it tie up capital, but it takes up space and has tax implications at the end of the year. For foil manufacturers our goal is to maintain an average of three turns on our inventory in a year. Hot selling items may turn five times per year and slow selling items may not turn at all during a year. Having too many colors will give your company undue expense, yet on the flip side not having enough colors will cost your company in the form of lost business.
IMPORTANCE OF FILM RELATIVE TO COST: The average selling price of a custom thermofoil component is reported to be about $7 per square foot. These parts can range from $4 to $20 per square foot based upon the finish, color and design. A lot of costs go into producing a thermofoil component such as glue, board, film, tooling, and labor. Lets assume that you are using a quality board, diamond bit tooling, and a great quality adhesive. Assuming that you make a quality product, there are two ways to add value. One is by the profile and the other is by the design of the film itself. The film is the most obvious way to separate your company from your competitors. Often times manufacturers will price their doors based upon the number of passes on the router. If you are thinking as a plant manager, this makes perfect since because routers are expensive. They are also often the bottleneck in production, as the more passes your router takes increases the time involved to produce the door. But ask yourself this, "Does a buyer care?" Many kitchen producers charge more for a slab door in their modern kitchen line than they do for a multi-pass door in their value line. As a marketer of thermofoil components or kitchens, you can price your doors based upon demand, or just production alone.
If you have a design that nobody else carries why couldn't you charge an additonal $4 per square foot? On an average kitchen, this would cost $200; but, if an individual customer wants that color most would be willing to pay a $200 or even $1,000 premium to his kitchen supplier. Dackor, for example, will often run 3,000LY with only a 600LY commitment. The remaining stock is kept in the US for future orders. For an investment in only 2 rolls you could offer a color that nobody has seen yet in the market.
Basing pricing off of quality of production is another strategy. Consider high gloss doors - some door factories stay away from this all together, whereas other door factories have issues in regards to telegraphing and orange peel. If your company can produce a flawless High Gloss door, wouldn't it be worth $3 more per square foot than your competitor's with orange peel and telegraphing?
HOW MANY COLORS SHOULD YOU STOCK?: Back in the 90s, when I used to work for a competitor, we were the first to introduce small rolls in quantities as little as 10 yards. At the time, no other manufacturer offered small orders. This enabled us to obtain more market share while making it easier for new producers to afford to bring in colors. Nowadays most producers offer small quantities so it is easier to offer a wide color selection. But how many colors should you offer? Some companies carry 20 colors while other carry 50. Certainly if you have a good relationship with your supplier and you trust them to maintain the stock for you it is not necessary to have deep inventory on all colors. If you think about it though, you can break your colors down into market segments. A closet producer who buys from Roseburg may not be interested in your Panolam match. A small Kitchen producer or cabinet refacer who only uses HPL to make his cabinets won't be interested in TFM matches at all. When I visit a component producer I can tell a lot about his company based upon the colors he stocks. If there is only low end films then I know they are selling their components based only upon price but if I see a wide variety of colors and suppliers then I know that the company is trying to market to a wide variety of industries.
Occasionally I see Kitchen Producers with presses who will order a custom color from Germany from us, and they will even pay the air cost. One time I asked a customer if this was for a project, and his reply was that it was for only one kitchen. This Kitchen Producer sold the kitchen for over $30K and the customer loved the idea of bringing something custom into the country for a mere $3K. Now the Kitchen producer has that roll there for future use and it was paid for by one job. Some reading this will find this hard to fathom, but why? If you cannot imagine why consumers would do this, then you are letting your own bias get in the way of business. If you are a component producer and you do not have any Kitchen Producers who can sell a kitchen for $30K, then you might want to start building new relationships with some high end companies. If the Kitchen Producer turns his or her nose up at 3D Laminate components, then give them a little education on the European market from things you've learned from this blog. You can do it in a polite way by saying, "Well as you know, 3D Laminates are widely used in high end Italian and German Kitchens due to their design trends." Mention about DACKOR supplying Louis Vuitton, Gucci and Mercedes. If our product is good enough for a $2K handbag, or a $100K auto, then why is it not good enough for a $30K kitchen? Its all about perception. Visit http://www.dackor.com/ to view some of these kitchens. They may not be your cup of tea but I can tell you that these Kitchens are great for business.
SELLING ME TOO: Do you stock Summer Flame? Candlelight? If you said yes, I don't blame you. Its important to have the everyday colors that are being asked for by the market, but isn't it important to carry the same Summer Flame as your competitor? When a new company sets up, they most often buy the same Summer Flame that they have been buying as a door buyer or the same as their competitor. I think it is far better to have a color that is slightly different. Its easier to carry the same colors and simply beat your competitor's price, but as you build your customers there will be new companies who pop up to beat your pricing. It WILL come back to you. By offering at least some colors that are slightly different, have a unique texture, or are a shade off, you are building up a stronger customer base who must continue to buy from you! My advise would be to mix it up by having some market standards and some market leaders. If nobody is buying a design, but you like it, then the chances are strong that others may like it too. Your tastes are not as different as you think, but often its a matter of time and market exposure. Just remember that when you copy your competitor you are paying them the ultimate compliment. If your color or foil supplier is slightly different, but your service is second to none, it may be difficult from the component producer to switch to you but once he does he'll never want to switch back.
IS THE COLOR TOO CRAZY?: We've all seen new colors introduced to the market that look phenomenal. We have a few colors that look so real that it would fool you into thinking its a real wood door. But why is it that some of these colors aren't selling well? There are various factors that contribute to whether a design will sell. They are:
1. Availability of TFM match in the market to the Closet and Kitchen Producers
2. Availability of HPL to the smaller refacers and smaller cabinet guys
3. Availability of Edgebanding
4. Quality of above matches
5. Number of door producers and end users using the design
6. Popularity of the color and design in the market currently
If you ever hear someone saying they can predict the market colors, they are delusional; however, I have learned that if there is a quality TFM/HPL match that is readily available and if its not too wild it will typically sell. We have refined our design development by speaking directly to kitchen designers, builders and consumers. If people like it and the match is good, then it will sell. We know if we introduce five new colors that two will be good/great, one fair and two bad. Often I hear component producers say "We're not adding new colors." This is a very dangerous position because there will always be competitors who will rise and be aggressive with adding new colors. The established company is sending a message to their clients that product develop is not important or that you no longer believe you can grow your thermofoil component division.
GETTING RID OF DEAD STOCK: If your company has dead stock, one way to get rid of those colors is to offer that color at the price of a low end white for an apartment producer. If you calculate the numbers, you may deduce that you are losing money due to how much you paid initially for the foil; however, it is indeed capital that is tied up. Rather, you should think of dead stock as a fixed cost in introducing new designs. By selling your new designs at a $3 premium, this additional profit will offset the cost of designs that become dead stock. If you offer to one select customer a special offer to get rid of inventory, then you'll free up capital to reinvest into the upcoming designs in the market. There should be a set cost per square foot associated to dead stock built in to your bottom line. If you have no dead stock and have made no mistakes then you are simply playing it too safe.
Another way to reduce your Dead Stock cost is to write it off the books. Ask your CPA about writing Dead Stock off of the books to stop the tax implications associated to the product as an asset.
HOW DACKOR INTRODUCES NEW COLORS: Last month we introduced a brown leather. This design will be able to sell a couple rolls of month (not a lot but still acceptable), even though it doesn't not have any matches. First of all there is an existing demand of leather surfacing, as real leather is expensive. Second, it looks real. Matches do not exist, but in reality they are not needed because it will be used as an accent color on headboards, mouldings, table tops, night stands and other items.
Typically we will bring in new stock items if our customers order 600 yards (2 big rolls). If we like the design, and/or if there is a TFM, HPL or paper match, then we'll produce 2,000 yards and then ship 600 to the customer. This is a very aggressive offering, yet most companies don't take us up on it. I can't be sure if people don't know about it or they are afraid to commit to 600 yards. I know that if I were a component or Kitchen Producer, I'd rather bring in 600 yards of a color I knew I could sell rather than bring in 50 or 100 yards of a crazy color that I was unsure of. As a film producer we make pennies per square foot, but we see new colors as an investment. Many component producers, however, make dollars per square foot and they consider film as a cost. I can't blame them because I'm sure their warehouse is full of non selling colors. Just remember to look at your dead stock and evaluate the match quality available, the quality of the print and marketability of the design. Your past mistakes with taking on colors should not make you afraid of trying new designs; rather, they should be learning experience over the importance of quality colors and quality matches. I am sure that if you never take on any new colors you'll never make a mistake; however, you'll also miss out the respect from your customers of being a pioneer and will miss out on the opportunity to sell NEW colors at a premium.
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