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By Jeff Pett, The Fleetwood Group

May is a tough month to work through in our industry, at least as a furniture manufacturer. You aren’t quite sure yet what the summer is going to hold, but you have to prepare for a better summer than last year. We usually see incoming orders begin to ramp up in April, and in May, we usually see some increase in orders. But by the end of June, we pretty much know what kind of year we are going to have.  Our fiscal year runs from April through March, so by the end of our first quarter we can predict with quite a bit of certainty what total sales for the fiscal year will be. We get fully half of our total year’s orders in the months of April-June. And we ship in the neighborhood of 75 percent of our year’s sales by the end of August five months into our fiscal year.

But what do you do in May?

We added the first major installment of summer workers this past Monday. And by the end of May we will have three times as many students in the shop. We don’t have the orders in house to justify those numbers, but if we don’t get the summer help in and trained this early we will not be able to keep up with the orders in July and August. It is definitely a step of faith each May as we ramp up. And most years that works well. The summer of 2009 was, unfortunately, a major exception.

We don’t stock any finished goods. Every piece of furniture we build is to fulfill an order. So until the orders come in we cannot build anything. We can, and do, build common components ahead of time, but until there is an order in hand we don’t go any further. Then every year our capacity ends up being sold out in July and August so we have to be able to accelerate from zero to 60 mph in no time. But in May, it’s a bit of a guessing game and time to prepare for the hoped-for growth.

Our best indicator is incoming orders, but even then there is not the consistency year to year that you can take to the bank. April orders as a percent of total year orders have been plus or minus 11 percent over the past four years. The same holds true for May incoming orders. But by the end of June the total first three months of incoming orders gives us a much better picture of what the total yearend sales will look like.

It’s that pesky month of May each year where you have to commit to a plan and hope it is neither too conservative so our lead times would extend out, nor too aggressive where we are over extended on summer help and prebuilt components.

How is our year going to be this year? Talk to me on the Fourth of July.

Jeff Pett, is V.P. of Sales & Marketing for the Fleetwood Group, a supplier member, and a blogger for NSSEA.


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By Jim McGarry, President/CEO

Ed Spaces (formerly School Equipment Show)

The NSSEA community — thought leaders in the movement to transform schools into healthy, high-performing learning environments — understands the importance of building and renovating schools that will promote healthy living and maximize learning. That’s why we’re pleased to once again be offering an opportunity for decision-makers at a school, college or university involved in any part of the design, building or renovation of an educational facility to apply for an NSSEA Educational Facility Grant to attend EdSpaces, December 4-6, 2013 in San Antonio, Texas.

EdSpaces showcases the newest and the best products for educational facilities and provides education and training for the key stakeholders responsible for school planning and maintenance. With the partnership between NSSEA and USGBC’s Center for Green Schools we are moving forward with our joint vision to make EdSpaces the meeting place for the many relevant participants in the green schools movement whose jobs are to design, furnish, operate or maintain educational institutions.

The NSSEA Educational Facility Grant Award package brings the buyers together with the products and ideas needed to ensure a healthy learning space. The grant includes roundtrip coach airfare to San Antonio for EdSpaces, hotel accommodation for up to three nights at an official NSSEA host hotel and full conference registration to attend career-enriching educational sessions, exhibits and networking events. 

To be eligible for a grant, school district superintendents, facility planners, school business and/or purchasing officials must complete a brief application and provide information regarding current and future building projects taking place on your campus. To be awarded a grant, your facility must have an identified and approved renovation or construction project in place. In 2012 over 120 grants were awarded to school districts and colleges, so don’t miss your opportunity to see the best products, discover what trends are changing the learning environment, and connect with others facing the same challenges in facility design and management.

Apply for a grant today to help both you and your learning environment reach its full potential. Completed applications are due by June 28, 2013. For more information on the conference, visit www.Ed-Spaces.com.
For more information on next year’s event, December 4-6, 2013 in San Antonio, Texas, visit www.Ed-Spaces.com.

Jim McGarry is the President/CEO of NSSEA. This article originally was published on USGBC’s Center for Green School blog.

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By Jeff Pett

Allow me to drift outside of the normal school market blog-space for a bit. I don’t know how most other people involved in selling into the K-12 school market feel about what our customers actually do for a living, that is educating our children, but I have always been intensely interested in education and what goes on in schools. I taught high school for a few years in Nebraska and Florida before venturing into the business world. And after 22 years in business I spent seven years back in the school world as the business manager for a large Christian school system before finding myself back in the corporate world selling school furniture. Certainly the number one topic being discussed these days is school violence.

The school shootings in Newtown were a shocking tragedy. Since then we have been hearing almost daily about what we need to do to prevent that kind of thing from ever happening again. School violence, like really every major issue we deal with in our society, is almost hopelessly complex. It defies a simple answer, but it seems that the only “answers” being loudly offered are simple and one dimensional, usually in line with some special interest group.  Put armed guards in every school. Stop allowing “practice killing” via violent video games. Require better background checks.  Limit the size of ammo clips. There are well-funded organizations built to protect their special interests at all costs. As a result we seem to have almost no hope of a consensus multi-faceted solution where all interested parties give a little. The real solution probably involves some aspect of each “simple” solution being offered. But political gridlock once again is keeping us from solving this issue and improving a key element of our society.  We seem to have lost the willingness to do what’s best for society if it requires any amount of self-sacrifice.

School violence, of course, is nothing new. Kids have fought each other, and probably always will, over petty differences, racial differences, boyfriends or girlfriends, territory, etc.. There are key differences today versus the 1960s when I was in school. We had kids bring weapons to school, too… but knives instead of guns. Often our school fights were pre-arranged for after school “by the fence”. Sometimes they happened, sometimes they didn’t. I remember witnessing some fights in the school hallways, too, but they tended to be brief and non-life-threatening.

There are also differences in who is perpetrating the violence. There is school violence by students as in Columbine and there is school violence brought into the school by an outsider, as in Newtown. Each brings unique problems and different solutions. In the former the question is how do you keep students from bringing weapons into the school, and in the latter how do you keep the intruders out?

Another key factor in the school violence debate I rarely if ever hear articulated is the societal impact of the deterioration of the family at home. My parents get a lot of credit for so much of what I learned about how to live, and with both of them in the house they could always double-team me and make sure I was staying on course. One of the many key lessons I learned from my them growing up was, “your rights stop where someone else’s rights begin.” Does anybody teach that lesson anymore? We are more likely today to hear people claiming their rights above all others. That is what we seem to be teaching our children at home. That is what we see in famous sports figures. Show more attitude and the idea that, “it’s all about me!” The much higher percentage of broken homes and children being born out of wedlock certainly contributes mightily to the problem (and that’s another whole issue about selfishness), but two-parent homes are just as likely to be teaching children about claiming their own rights as in broken homes these days.

Like I said earlier, this issue is almost hopelessly complex. Let’s at least try to bring back the civility that recognizes, in any society, there are limits that should we should put in place on ourselves. Yes, this would be creating some level of mutual self-sacrifice, but that will allow us to be more secure and, in many ways, more free. We need our representatives in Washington to get passed protecting their power base and focusing on doing the right thing. Now more than ever our country needs to have leaders who will do as Sam Houston once urged: “Do right and risk the consequences.” If we really want to solve some of our most difficult problems, like school violence and dealing with the national debt, we have to get passed putting our own self-interests ahead of everyone else’s.

We all need to take a lesson from my parents: “Your rights end where the next person’s rights begin.”

Jeff Pett is V.P. of Sales & Marketing at the Fleetwood Group, an NSSEA member supplier.

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By Jason Bader

When I walk around conventions I generally hear conversations regarding how the business climate is going. I hear a lot of talk about how sales are up or sales are down. In good years, there is a bit of chest puffing and general peacock behavior. In the down years, there is a whole lot of blame on the economy and other external forces. What I don’t hear is a whole lot of discussion about profit or profitability. Sure, you might hear some comments about dwindling margins; but when was the last time you heard someone talk about success in terms of gross margin dollars? Isn’t that what is really important? If I can draw a correlation to a golf analogy “drive for show, putt for dough”, aren’t top line sales really just for show? 

At a very young age, working in my family distributorship, the importance of gross margin dollars was drilled into my head. We occasionally talked about sales when it came to an extraordinary order, but the next question out of every mouth was – how did we do on it? In other words, did we make any gross margin on it or are we nurturing our charitable side? I think this awareness of gross margin came from an open attitude regarding financials and how income worked in the company. When your team understands how we pay for the operation of the company, gross margin begins to take on a whole new meaning. My brother and I spoke about this recently and he agreed. As the president of the company, he is the only one allowed to talk about top line sales. It only becomes relevant when speaking with banking partners, accountants or legal advisors.

I am currently working with a client on changing the mindset from top line sales to gross margin dollars. Eventually, we will drive down to net profit; but for today, we need to start with the basic concept of gross margin importance. Part of the process had to begin with the owner. He freely admits that he falls into the gross sales trap.  It’s a big number. It’s fun to talk about. It just doesn’t do him a whole lot of good.  When you want to change the mindset of the people that work with you and for you, it is important to talk the talk. 

The transformation with this client began with education. With the help of the owner, we gathered the team and discussed how the income statement worked. Although I had a basic income statement generated, based on actual year end numbers, we needed to make sure they understood the concept. When I discuss income statements in any teaching setting, I typically use the dollar bill trick to get the point across. For those of you who haven’t seen this done, here is the quick and dirty: Hold up a dollar and tell the group that we just sold something for a dollar and we paid the supplier 75 cents for it. Tear off about ¾ of the bill and drop it on the floor. By the way, if you use a larger denomination, you will really get their attention. Holding the remaining ¼ of the bill, you explain that this represents gross margin.  At this point, I ask the group if the owner of the company gets to put the gross margin in their back pocket at the end of the month. I usually see a shaking of the heads, but I would bet that there are a few that might believe this to be true. Sad but true, many people that work with you and for you believe that the owner pockets the gross margin dollars every month. Obviously, this isn’t the case. I then start asking about the expenses that come out of the gross margin before it becomes net profit. While they list off some items (wages, benefits, rent, utilities, etc), I am consistently ripping off bits of the bill and dropping it on the floor. I also make comments on each of the expense items and help them come up with a few they might have overlooked. Ultimately, you wind up with a very small chunk representing net profit. This leads to a discussion of the importance of gross and net profit. This demonstration is a great way to start changing the mindset.

Once the team understood how the income flowed, we talked about the income statement of the location. We talked about how a slight improvement in gross margin would really change the net profit picture in the company. The next step in changing the mindset was to create gross profit goals in the company. We started with the least profitable location and developed a daily gross margin goal based on the current expenses for the location. We bumped it up a bit in order to foster some downstream profitability. By creating a daily gross margin goal, we provide a constant reminder of what we want to accomplish. In this case, we came up with a goal and then created a simple feedback method designed to show the location how they were doing. Each day, the branch manager reviews the sales report from the previous day and writes the gross margin dollar total for the day on a wall calendar in his office. For those of you beginning to twitch in your seats, the number has no dollar designation or decimal points. In order to tie the number in with our goal, the number is either written in black pen (for gross margin dollars exceeding the goal) or red pen (for gross margin dollars below goal). The calendar is visible to the employees because you have to walk through the manager’s office to get to the refrigerator. It doesn’t get much simpler than this. 

One of the ways to make sure that we are driving a gross margin mentality is to insure that the sales compensation methodology supports our efforts. What are you basing sales compensation on? If the commission is a percentage of gross sales dollars, you are going to have a difficult time changing the mentality. Although many of you have created compensation plans based on gross margin, there are still a few hold outs. I often see this in companies where cost is not shared with the sales team. This type of scheme can also be found in companies where deviation from established sales pricing is rare or non-existent. I hate to say it, but both of these scenarios lead me to believe that there are some real control issues in the executive team. When you don’t empower your people to do their job, your potential is severely retarded.

When we put an emphasis on gross margin with our sales team, there may be a shift in product focus. Hopefully, we will see a greater interest in higher profit products.  Even when a low profit product is sold, there will be more incentive to round out the sale with complimentary high margin products. A swift way to emphasize margin importance to modify sales compensation. I recently had the opportunity to meet the CEO of Fastenal, Will Oberton. For those of you unfamiliar with the company, they are a multi-billion dollar industrial fastener and supply distributor boasting over 20 percent net profit before taxes. In the words of my father, that’s some pretty tall cotton. He was speaking at an event that I was involved with and I sat in on his presentation. He spoke about a bold program that he recently instituted with their sales compensation. Essentially, if a sales order posted less than 20 percent gross margin, the order was not eligible for commission. As you can probably imagine, this caused a huge ruckus in the sales department. Some of his regional managers were very vocal in their opposition. Oberton held his ground. He stated, “If the company can’t make money on the sale, why am I going to pay the sales person?” The results worked in his favor. By the end of the year, their overall margins had improved and some one of the most vocal opponents said that it was the best thing they had done in years.

A gross margin mentality can also have an effect on your accounts receivable performance. I was recently discussing the benefits of moving to a gross margin focus with a different client of mine. He is in the plywood and shop supply business. There had been some recent focus on driving the sheet goods product category in order to boost sales. This is a high sales dollar, low margin category. In the past, the perceived performance of the company was tied to top line sales. He pointed out that this mentality was really making collections difficult. He explained that a $2000 sheet goods sale might generate $140 in gross margin while a $300 sand paper order might generate that same $140 in gross margin. When it came time to collect on that order, which bill is your customer more likely to pay in a timely fashion? It sure made a lot of sense to me. 

In a recent article, Tips to Improve Gross Margins, I shared several ways to boost gross margin percentages without bringing the hammer down on your suppliers. I was recently reminded of another way to preserve diminishing margins.  One of the regional managers in my family business used to talk about pricing strategies inside sales people could use when confronted with a price objection. The natural reaction when discounting is to think in increments of five – such as 5 percent off or 10 percent off. If you are forced into a discount, try to think in terms of a 3 percent discount or 7 percent discount. Those additional 2 or 3 points can really add up at the end of the month. 

Once the gross margin mentality has begun to seep into the daily lexicon of your employees, you can cement the transformation by using it to measure performance. I am a huge advocate of metrics using gross margin as a basis. The first one that comes to mind is the gross margin dollars per head measurement. Once a manager has established a goal, staffing decisions become easier. The same regional manager mentioned earlier had a benchmark of $10,500 gross margin dollars per head on a monthly basis. If the gross margin dollars began to trend up, and the per head figure was rising significantly, he knew that it was time to add a body. If the gross margin dollars were diminishing, he knew when it was time to make cuts.

For those of you familiar with my work, you know that I am a huge advocate of GMROII or gross margin return on inventory investment. This metric tells us how many gross margin dollars we expect to earn for every dollar invested in inventory. By understanding where we achieve the highest returns, we can alter our sales direction. We can also use this information to identify lines where changes in pricing and replenishment should occur. Since gross margin dollars drive the operation, it is in our best interest to drive the highest return. 

Adopting a gross margin state of mind is not an overnight task. It will take months of education and reform. Old habits die hard and you will find yourself falling back on the top line sales verbiage. Catch yourself and keep driving to change your own mentality. Open dialogue with your team, setting short term profit goals and establishing margin based performance standards will help you make the shift. Just remember – sales are for show, gross margins are for dough. Good luck and I am always here to help.

Jason Bader is the principal of The Distribution Team, a firm that specializes in helping distributors become more profitable through strategic planning and operating efficiencies. Contact him: 503.282.2333 or Jason@Distributionteam.com. Also visit: http://www.thedistributionteam.com.

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By Jeff Pett, The Fleetwood Group

One of the unique things about education as an industry is that everyone in the USA is affected. There is no other industry that can say that. Even in healthcare not everyone has to interact with the system. But everyone has either gone to school, will someday go to school, or has kids in school. And everyone who owns property or works pays taxes to support education every year.  So pretty much everyone has an interest in education.

Researching schools and education is inherently difficult–so many variables, so many opinions, so much politics. If you are able to pull back a little bit though, there are education “megatrends” that are easier to define though their causes may be elusive.

Recently I did some internet surfing on the topic of trends in education, and while there are many interesting things going on in our schools, one topic in particular caught both my personal and professional interest. That is the growing body of knowledge indicating a direct relationship between the quality of school facilities and student achievement. The research is difficult to do and control for other causal variables (like the quality of the instructor and curriculum, parent involvement, teacher pedagogy, etc.). Several studies, however, over the past 20 years have determined some level of direct relationship between the quality of school facilities and the level of achievement of the students within.

Of course there is a larger and easier to quantify body of evidence that, in general, shows that school buildings are falling behind in their maintenance and quality. This was already an issue 15 years ago, and since the “great recession” it has gotten a lot worse.  The demand/need for renovating or rebuilding school facilities has been growing during this time.

The statistics on the state of our school facilities show that about one-third of school districts reported the need for extensive repair or replacement of one or more buildings back in 2007.  And about 60 percent of the school facilities in the United States had at least one major feature in disrepair (roof, air makeup, plumbing, etc.).  There is a lot of suppressed demand for improving school facilities.

Just as the auto industry has bounced back due to suppressed demand for cars since 2008, so too will the education construction and supply market. The auto industry went down earlier and faster than the education supply/construction industry, and it bounced back probably more quickly than the education supply/construction industry will, but the demand is there and growing. We are beginning to see signs of it in pockets around the country.

And that is good news for those of us who make our living supplying the things that go into renovating or rebuilding school facilities.  For many of us, the drought has been too long and difficult. This past year saw some improvement. As the economy improves and people’s confidence grows I would expect a bounce back that will make all the pain a distant memory.

Jeff Pett is Vice President of Sales and Marketing of the Fleetwood Group, an NSSEA member supplier. Pett blogs monthly for NSSEA.

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By Jeff Pett, The Fleetwood Group

Two weeks ago we were in Tampa, FL with a few hundred of our best industry friends at the 2012 NSSEA School Equipment Show. It felt a little bigger than last year though the traffic seemed to be about the same…down from a few years ago (pre-bad-economy) but steady. All in all, our sales team felt that it was another good show.

Yesterday, I filled out the electronic survey about different aspects of the show. It made me think, again, about why we attend this show. Over the years we have trimmed back the number of national shows we exhibit at, but the NSSEA School Equipment Show remains our number one show each year. Why?

For us it is primarily a chance to reconnect with our many dealers from across the USA and to show a variety of furniture to them while discussing plans and opportunities for the upcoming summer. When you make products as large as ours, and cover such a broad spectrum of the educational furniture universe (we make pretty much everything you could want to buy in the way of school furniture except seating, bleachers, and cafeteria tables), you can’t throw them in the trunk and take them on the road to every state for show and tell. This show allows us to introduce new sales people to our line while reintroducing those who have been with us for years to the breadth of what we do. There is something about seeing our furniture up close, actually touching it, and physically feeling the quality of our line, that is very helpful in understanding what we have to offer.

And, relationships being as important as they are in our industry, this show gives us a chance to have some of that precious face-time with our sales partners. We schedule people into our booth to meet with our four account managers over the course of the exhibit hours and our booth is typically very busy. By Friday morning, we are pretty bushed. 

The past couple of years the NSSEA has been experimenting with sponsoring attendance by school officials to the show. This is a bit of a mixed blessing. On the one hand it gives manufacturers a chance to show off their product line to schools directly and possibly make a connection that leads to a future sale. I love showing school administrators through our booth. Most of the time.

Last year we were bitten by the other side of that coin. A major buyer for our product came to the show and saw that there were other manufacturers offering similar product. She had been ready to ink a PO to us for a major project, but after walking the exhibits decided to reopen and redefine the bidding process. Thankfully we still got the order, but that added six months and a lot of cost to the process for us and our dealer. It seems that most dealers would be hesitant to bring in end-users due to this kind of risk. I still consider this an experiment. We will have to see how it works out over time.

Once again this year we had a great time at the show. We showed off a lot of very fun furniture variations we did over the past year, and reestablished and strengthened our relationships with our dealer-partners. We are ready to take on the next selling cycle!

Jeff Pett, V.P. of Sales and Marketing for the Fleetwood Group, is a blogger for NSSEA.

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By Jeff Pett, Fleetwood Group

So how’s business? It’s October and the busy summer season is over. Dealers and distributors are catching their breath before launching into the selling season for next summer. At Fleetwood, we were winding up the first half of our fiscal year 2013 at the end of last month, so now it’s time to take a look over our shoulder to see how we have done this year to-date.

Internal measurements are the easy part for us, and I am guessing it is for any of you in this industry. Our furniture sales were up slightly more than planned, and more than last year to-date. Our costs are in check and profits are better than planned. It was a very busy summer for us, but we made it through and are thankful for the uptick in business. And while some orders continue to drift in that will ship this fiscal year, our sales team is already focusing much of its energy on next summer.

The challenging part of our corporate measurements is the lack of good external comparisons. Most of the players in our business we would like to compare our performance to are relatively small and privately-held companies. Like us, the only companies that publish their numbers are much larger, publicly-held and involved in a lot more than furniture manufacturing. So the comparisons are less than apples-to-apples. There are some industry surveys, but frankly their data are a bit suspect.

This fall, I will have been in this industry for six years, and each year the same questions are raised about how we compare to our competitors. I have yet to be able to answer that question well. Any help from any of you on this?

I suppose good internal measurements with continuous improvement and profitability is most of what we need. But without making good comparisons to your competitors it can be a bit like drinking your own bath water – it tastes pretty good if you don’t know any better. You don’t know if you really SHOULD be doing better than you are, or if you are a star performer.

Maybe NSSEA could take the lead on pulling together the different pockets of companies in this industry (e.g. furniture manufacturers) to develop methods to allow some sharing of key measures within that niche with the goal of spurring continuous improvement without revealing competitive secrets. I would certainly be open to helping pull that together. Would you?


Jeff Pett is V.P. of Sales & Marketing for the Fleetwood Group, an NSSEA member supplier. Contact him at jeff@fleetwoodgroup.com.

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