No Deja Vu in This Recovery

By Ty Gable
President, National Precast Concrete Association

If you were precasting in 1992, you might see some parallels between that time nearly 20 years ago and now. We were coming out of the 1990-1991 recession – a downturn precipitated by the savings and loan credit crisis and a spike in the price of oil due to the first Gulf War.

As is common in construction-related sectors, the precast industry turned around at the tail-end of the recession after the rest of the economy was officially back in growth mode. On the surface, it may look like we are at a similar point now, as we head into the spring of 2011. In fact, the steep contraction that we’ve experienced in the precast industry over the past three years has left us at about the same volume of business in early 2011 as we had in 1992. The precast companies that survived the recession experienced solid growth during the mid ’90s. So, we should be optimistic about the future, right?

Not so fast, my friends. There is a huge difference between 1992 and 2011, and it’s on the expense side of the balance sheet. I was talking with a precast producer the other day who told me that in 1992 his health care expenses were $800,000. “Last year I paid $1.8 million. That’s a million dollars more just in health care costs for my employees.”

That’s just the start. Not only have personnel costs risen dramatically, but commodities, salaries and energy costs have shot through the roof. A gallon of gas was $1.05 in 1992, about one-third of today’s cost. While steel, cement and other commodities have tended to spike and fall due to supply and demand factors, over the past 20 years the trend has been significantly upward. The average salary has risen by about 40 percent. So your cost of doing business has dramatically increased.

On the plus side, computerization and advancing technology have made production more efficient and have dramatically improved quality and cut waste. That’s an absolute essential and a positive thing for our industry, but it also costs more. Factor in environmental regulations, the cost of equipment and constant downward pressure on pricing and it’s easy to see why it’s so hard to make a living in the precast concrete industry today.

So what’s the solution? Having talked with hundreds of precasters over the years – some successful and some not – I’ve come to realize that there are basic fundamentals that financially successful precasters have in common. These are not complicated principles, but by following them, you can still grow your business and earn profits – even in these trying times. Here are three of those principles:

• Know your costs. There may have been a day when you could take orders, make product and count the money at the end of the month. No longer. You simply have to know how much it costs to manufacture each product. When you factor in all those expense items described above, how much does it cost you to produce a manhole riser, or a septic tank, or a median barrier? Do you know? How can you price the product if you don’t?
• Be obsessive about quality. The visual impression you present to customers is so much more than cosmetics. A tank pocked with bugholes and stained with form release may perform just as well as a smooth and spotless tank, but in this day and age, you should be embarrassed to deliver anything but the best-looking product possible. Your customers won’t come back – they’ll go down the street to the guy who’s making it better, or worse yet, they’ll find a tank made from some other material that won’t perform as well.
• Stay close to your customers. In these days of e-mail communication and trading voice mails, the most important way to do business is still personal. Know your customers. Understand their needs. Anticipate their problems and become an extension of their team. Instead of just taking their business and their check, work to develop your personal relationships. Say thank you. Stay in touch even when they aren’t sending you any business. It will pay dividends – maybe not right away, but some day.

It’s no secret that it’s more challenging than ever to run a precast concrete company. But it’s also a rewarding, fascinating industry with amazing possibilities. That was true in 1992, and it’s even more true in 2011.