Applying the Franchise Model to Your Manufacturing Business with Paul Van Metre

Episode 187 | Challenges: Leadership Growth Process Workforce

We often don’t think of a franchise and a manufacturing business as being an easy match, but systematizing your business according to the franchise model can vastly improve the functionality and profitability of your company. Tools such as an ERP system can help you boost efficiency and keep track of everything needed to streamline your business. In this episode, the co-founder and president of ProShop ERP, Paul Van Metre, shares the practical steps to take towards a more refined and systematized set of processes for optimal company performance.

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Applying the franchise model vs. becoming a franchise

Applying the franchise model vs becoming a franchise

Paul explains that the goal of modeling your business after a franchise isn’t to become the next Subway or McDonald’s. Instead, the vision is to design a franchise prototype. Creating standardized systems for every process and goal within your company will help you create repeatability and redundancy for every task and will help you pinpoint problems - leading to continual refining. The goal is to have the same and reliable output as a franchise delivers - consistent value, low labor costs, impeccable organization, and documented workflow that produces predictable product.

Whether your company is growing by leaps and bounds or not - establishing systems that streamline your processes and help ground the expectations and values of your business will help take your customer experience and your efficiency to the next level. The goal isn’t to duplicate your business into a thousand perfect replicas. The goal is to run your company in the most efficient and proven method available - with a franchise mindset applied to the small business structure.

 

Streamlining your processes for optimal customer experience and efficiency

What processes do you apply to the franchise model? Paul says that the answer is all of them. Systems like ERP can help minimize the labor involved in documenting your processes for storing fixtures, programming, job descriptions, hiring, training, company expectations, and procedures for making each and every product. Paul explains that one huge step for his company was standardizing jobs. Making sure that every person in your company is following the same procedures creates reliability.

 

Jim uses the ERP system in his discussions with new clients, allowing them to view the numbers and procedures used to create the products they need. With a standardized system in place, every operation is itemized and trackable. All the details are available in one place - not scattered across different platforms and mediums. Documenting your systems in one location allows for a higher level of professionalism that makes everything black and white for your customers - and for your employees.

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Paul explains that you don’t need to create brand new procedures in order to streamline your business. Begin by bringing your team onboard with the mission to document every process you already have in place. It’s a team effort - unless you are a one-man shop. Each individual is going to have specific knowledge that is vital to the tribe. So much more information can be documented with ease when it is all inserted into one place - such as an ERP system. While it may seem daunting at first, it becomes easier the more your team utilizes it. Be sure to listen to the entire episode for Jim’s story of how implementing an ERP system in Carr Machine & Tool helped him keep a clear and focused approach to company growth.

 

 

 

A systemized approach leads to greater profitability

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It’s surprising how many steps you can eliminate when you centralize all of your processes and procedures in one location. Eliminating needless or unprofitable steps creates greater efficiency, which leads to greater profitability. It also helps streamline your customer experience so that they know exactly what to expect and are met with quality time after time.

Paul shares the 80/20 rule of profitability. Once you have the systems in place to track the profitability of each product, order, and customer, then you can begin to see the 80/20 rule take place. 80% of profits are derived by 20% of your jobs, and 20% of your jobs cause 80% of your losses. With a systemized process, you can see which jobs are losers and which are profitable. Having a procedure for killing off the losers will help keep your company moving forward and allow for less wasted time and resources.

 

 

Prioritizing and tracking the needs of your company

It’s important to analyze how you define job profitability and how you analyze the urgency of a request within your business. Streamlining your processes and procedures will lead to unearthed problems within your systems. Constant improvement needs to be an understood key-to-success by everyone on the team. Humility and honesty are vital to the improvement of a company, but leaders don’t need to be bogged down and notified of every problem that arises. Know, as a leader, how you will analyze and prioritize what needs to be addressed, when, and by whom. Jason shares his strategy of IDS (Identify, Discuss, and Solve). Encouraging your team to understand why a problem occurred and report it into a centralized system - like ERP - will help minimize the risk of the same problems occurring over and over again. Be sure to listen to the entire episode for more insight into why a franchise model may be the next step you should take with your manufacturing business.

 

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Here’s The Good Stuff!

  • Can and should you franchise your machine shop?
  • Manufacturing News: USMCA will replace NAFTA.
  • Guest speaker: Paul Van Metre - president of ProShop ERP.
  • Designing a franchise prototype to optimize your company’s performance.
  • Generating consistent and predictable output.
  • Streamlining your processes for ease of employee upscaling.
  • The key to methodical profit growth.
  • Analyzing and prioritizing job profitability.

 

Tools & Takeaways

 

This Week’s Superstar Guest: Paul Van Metre

 

Connect With MakingChips

 

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Jason Zenger: Welcome to MakingChips. We believe that manufacturing is challenging, but if you are connected to a community of leaders, you can elevate your skills, solve your problems, and grow your business. I'm your host Jason Zenger, and I'm joined by my unfunny co-host Jim Carr.

Jim Carr: You're still working on that funny thing, huh? You really think you're that funny, don't you? Well, today we're in our upscale studio, so you better watch what you say or you might get kicked out.

Jason Zenger: Your wife likes me better than you, so I don't think she'll kick me out of your house.

Jim Carr: I don't know.

Jason Zenger: So Jim, what is your familiarity with a franchise?

Jim Carr: Well, I used to work at McDonald's back in the mid-seventies so I know that, I give my money to franchise businesses to Dunkin' Donuts and Starbucks.

Jason Zenger: Well, I don't think Starbucks is a franchise. I think those are corporate owned stores. So like an actual franchise typically is when they have a franchisee and they give them processes and branding and everything that the local entrepreneur can utilize. Although there's some different definitions to franchises. So my family actually used to own a franchise.

Jim Carr: I did not know that.

Jason Zenger: Yeah, it was called T-shirts Plus. So I worked in a mall, I used to fold up T-shirts in little triangles.

Jim Carr: What mall?

Jason Zenger: Stratford Mall in Bloomingdale.

Jim Carr: Oh, I know where that's at.

Jason Zenger: Yeah. So, and I'm actually working on a franchise model for my industry, kind of something I've been working on.

Nick Goellner: Well, maybe you could fold the MakingChips T-shirts.

Jason Zenger: No, I don't think so. My T-shirt folding days are over. I used to know how to use that folding board but not anymore. But today-

Jim Carr: That is funny to think you folding T-shirts.

Jason Zenger: Well, I mean it was family business.

Jim Carr: Yeah. you've got to do what you got to do, I understand.

Jason Zenger: Yeah. So I mean today we're going to actually talk about, can you franchise a machine shop and you would think intuitively what?

Jim Carr: Challenging.

Jason Zenger: Yeah, it is.

Jim Carr: 'Cause manufacturing is challenging.

Jason Zenger: Right.

Jim Carr: To franchise a challenging industry or a business, I don't know.

Jason Zenger: At MakingChips, we always want to think differently and we want to kind of say, well, that's the way people would intuitively think, but let's try to think differently about it. And we brought a guest with to talk about it.

Jim Carr: He's going to tell us how to franchise machine shops?

Jason Zenger: We're going to talk about machine shops and franchising, so it should be interesting.

Jim Carr: Yeah. Well, I look forward to hearing our guest's opinion on creating a challenging franchise in a challenging industry. So it sounds like it's going to be-

Jason Zenger: Because manufacturing is challenging.

Jim Carr: Very challenging. But anyway, speaking of challenging, we're both in the industry. What keeps you awake at night, Jason?

Jason Zenger: Honestly, what's keeping me up at night right now is my new ERP implementation.

Jim Carr: Really?

Jason Zenger: Yeah. Well, it's one of these situations where we're very dependent on our ERP, processes are changing, people used to come to work and go through their routines and now they don't have the same routines. It's either more steps, different steps, some things are harder, somethings are easier. It's stressful right now. We're busy and so we're implementing this ERP system so that we can allow our clients, and we have thousands of clients to self service, to order online, to look up things themselves, so that we can deliver to them what they demand.

Jason Zenger: We have a certain segment of our customer base. We talked about customer behavioral groups in a certain customer base, like possibly Carr Machine & Tool and Ryan Carr. He does not want to communicate with us in the same way that we used to communicate with all of our clients, so we need to keep up with the times. And so we're implementing that and it's keeping me up at night a little bit, so yeah. What about you? What's keeping you up at night?

Jim Carr: Right now, deliveries. Deliveries and-

Jason Zenger: You're busy, that's good.

Jim Carr: I know you're going to laugh, but I really think a lot about our corporate culture and keeping that really high 'cause that's really important to me.

Jason Zenger: It's not easy, you got to [crosstalk 00:03:51]

Jim Carr: It's not easy.

Jason Zenger: Yeah, I talked about that previously that sometimes when you get busy it goes by the wayside and it wanes, and I'm kind of in that mode right now and I need to get back.

Jim Carr: Yeah. Well, ours isn't going anywhere, but I'm definitely trying to keep the culture high. And I'm glad to announce that my ERP system is not at all keeping me awake at night.

Jason Zenger: Great, it's good to hear.

Jim Carr: Actually it's helping me sleep.

Jason Zenger: Good, that's awesome. And I hope to be there soon.

Jim Carr: You will. You just got to dig in and get it done.

Jason Zenger: Get it done. What's going on? I know you hang out at the bar all day long, Nick. What's new at the bar?

Jim Carr: Yeah, Nick. Tell us what's on tap today?

Nick Goellner: We hang out at the boring bar, which right now is just a digital thing. It's our newsletter, but very soon it will be a real boring bar-

Jason Zenger: Are we going to apply for a liquor license and actually own a bar in Rockford, Illinois.

Nick Goellner: Well, we probably have to now that you've told everybody.

Jim Carr: You better edit this out.

Nick Goellner: Yeah, we were going to do it on the low but now that you've told everyone, we probably have to do it legally.

Jason Zenger: It's not open for public.

Jim Carr: No.

Nick Goellner: But yeah, when the new MakingChips headquarters is done, the boring bar will be a real thing as [crosstalk 00:04:50]

Jason Zenger: Invite only, you have to have a membership.

Jim Carr: Yes, it's private.

Nick Goellner: Right now it's just a newsletter. And what you can get in the newsletter is a contribution from what we call chipping contributors. There are other manufacturing leaders in the industry who can equip and inspire you with their expertise. And then it's an article written by someone on the team and then it's a bit of manufacturing news. And today you're going to talk about the manufacturing news, right?

Jason Zenger: I am, yeah. And make sure you have some Belgium strong L's at that boring bar, okay?

Nick Goellner: I will.

Jason Zenger: So, yeah. In the manufacturing news today, I thought that this was really relevant and I didn't even know anything about this. The American, Mexican and Canadian lawmakers will soon have an opportunity to vote on a new massive trade deal that replaces NAFTA. And this one is called USMCA. I mean, the USMCA.

Nick Goellner: USMCA, do you think people will say it like that?

Jason Zenger: I don't know. With NAFTA I thought USMCA was just the natural way to say it. But it's the United States, Mexico, Canada Agreement. And I wonder if they fought over the order that that was going to go into.

Jim Carr: It's definitely not an alphabetical order.

Jason Zenger: No, it's not. But this is going to replace NAFTA. As everybody's aware, Trump has not been a fan of NAFTA. The world has changed in the last 25 years.

Jim Carr: Really?

Jason Zenger: A little bit. And we need to change with the times and our agreements with our partners need to change with the times. So I think all three countries are ready for this change. And I think that we really do need to be partnered up with each other because, I don't know about you guys, but I mean I enjoy my Canadian and my friends from Mexico, so I'm happy that we're going to be doing this.

Nick Goellner: What I like about it is the article mentioned way more American jobs, specifically manufacturing job. So that's a huge win for-

Jason Zenger: Yes. I think there's a big focus on manufacturing and agriculture. So I'm happy, I eat a lot of avocados and apparently this is going to make avocados less expensive, so I'm stoked about that. [crosstalk 00:06:45]

Jim Carr: What are they pitching, I have not really proofed it all that much. So what are they saying?

Jason Zenger: They're not asking for you to proof [crosstalk 00:06:52]

Jim Carr: What is the objective? What are we going to end up doing?

Jason Zenger: They're just changing. So lawmakers will create laws in order to have a desired result.

Jim Carr: What is that desired result?

Jason Zenger: Let me give you, I'll just give you like a silly example. And I'm totally just making this up. We may create a law to tax or to create a tariff on Mexican avocados because the Californian avocado growers are complaining that the Mexican Avocados are too cheap. So we create this law and it makes them same price and times change and desires change and the world changes and agriculture changes, manufacturing changes. And so this USMCA is going to change the way that we should be operating in this current environment. And I don't even know what I said about avocados is true, but it is just one way of kind of trying to dummy it down and explain it differently.

Jason Zenger: So here's an example of what's actually proposed in the USMCA. It requires 75% of a vehicles parts to be manufactured in North America to qualify for tariff free treatment. So that's up from the current requirement of 62.5%, so that's great. So if the parts aren't being made here in the United States are going to be made in Mexico or Canada and that means they're closer to us. And so there's probably going to be other service providers that are going to benefit from this. It also dictates that 40% to 45% of auto content sold in North America be manufactured by workers earning a minimum of $16 an hour. So what that will eliminate is the disparity between, say like the United States workers and the worker in another country. And it will incentify companies to manufacture more vehicles and vehicle parts at their US and Canadian factories.

Jim Carr: That's the information I was looking for.

Jason Zenger: Yeah. You weren't concerned with avocados?

Nick Goellner: We're just hoping you don't-

Jim Carr: No.

Jason Zenger: You're not as big a fan of avocados as I am. Do you like them as much as I do?

Jim Carr: I do like avocados but I'm a little bit more concerned about our country than avocados.

Jason Zenger: Oh, I really like avocados.

Jim Carr: I know you're a little selfish.

Nick Goellner: Are you going to, you're not going to [crosstalk 00:08:53]

Jason Zenger: I just really like avocados.

Nick Goellner: When you proof this thing, you're not going to like veto it or anything.

Jason Zenger: [crosstalk 00:08:58] show up and say I've got this problem with the-

Jim Carr: There's a coUple of things I don't like already, but that's okay.

Nick Goellner: 'Cause I'm pretty it's a good thing for manufacturers.

Jim Carr: Yeah, we'll see. I don't know.

Jason Zenger: Let me talk about one last thing. So they do have things that are related to what they're calling mom and pop shops, I hate that term. But basically small medium sized businesses. So there's an entire chapter devoted to small and medium sized businesses and it includes provisions that cut down on the paperwork for express shipments valued below $2,500 and eliminate duties and tariffs on all shipments up to 40 Canadian dollars, which is 30 American dollars, lower costs and administrative hassles. So which is, that's a great thing. Because I don't know about you, but administrative costs really bog me down, I don't like them. I don't export anything at this point. But if we can move more into an environment of less administration, I'm all for it.

Jim Carr: Good stuff.

Jason Zenger: Yeah. So if you want to hear more about the USMCA and other things from the boring bar, just subscribe at makingchips.com to get the freshest MakingChips content delivered into your inbox every week. And that was word for word what Nick told me to say.

Nick Goellner: Good job.

Jason Zenger: So Jim, can you introduce our guest?

Jim Carr: I would be happy to. So we have in our studio today, a friend of MakingChips. He certainly is a metal working veteran having started his own machine shop way back in 1997 with six of his college buddies. Today we've invited him back to continue his intriguing story as the president of ProShop ERP. Paul Van Metre, welcome again to the MakingChips studio.

Paul Van Metre: Thank you guys. I'm super pumped to be here. It's so much fun to hang out with you all.

Jim Carr: Yeah, absolutely. Likewise.

Jason Zenger: And as Jim said, Paul really does have a great story and we're not going to tell that story, we want to reintroduce Paul to the Metal Working Nation. But we're not going to retell that whole story because you can go back to makingchips.com/98 to hear Paul's story. And then you can also go back to makingchips.com/156, where Jim does an episode without me. I think it was still good even though I wasn't there because Paul was there, but [crosstalk 00:10:59] I did cry a little bit when he did that episode without me. But like I said, we want to reintroduce Paul to the Metal Working Nation. Go back and listen to those two episodes, they're great episodes. So Paul, franchising. When you say franchising machine shops, what exactly do you mean?

Jim Carr: Yeah, that freaks me out man.

Paul Van Metre: It's supposed to be a little bit of a compelling statement. But no, the idea is not actually to build a machine shop franchise and actually start multiple versions of the same shop. I think it would be amazing if someone was bold enough to try to do that, but the idea is actually to design a franchise prototype. We all know what prototypes are in the manufacturing business, right? It's the features you want to put into it before you make a whole bunch more. And the idea is that if we build a franchise of our business and we build the systems to be repeatable and understandable and easy to follow, then that one location is going to run as smoothly and profitably as possible.

Jason Zenger: Makes sense. I mean, you want to have those repeated processes in your business. I know Jim, you just recently got a big job and you want to make sure that for quality reasons, for running as lean as possible, that you spent a lot of time tweaking that product and making sure that you did it as best as possible. So you want to make sure that that's repeated over and over again the same way. So is that kind of what you're talking about where it's more like about the job or is this bigger than that?

Paul Van Metre: It covers the whole range, but the main thrust of it is the business processes, the highest level business process.

Jason Zenger: Starting at the highest level.

Jim Carr: I'm going to just jump in real quick. So Paul, when you say, when I think of a franchise, again we think of McDonald's, we think of Subway, we think of fast food restaurants. Obviously you don't really mean to take that business model and duplicate it over in a machine shop environment. I'd like to know kind of what was your thinking when you say you want to convert those processes over. And you're talking about the repeatability, the redundancy of the day to day thing, you want to refine those processes from what we see at Subway, from what we see at McDonald's, from what we see at Wendy's, over into the machine shop process where we do an estimate, it converts to a quo, it converts into a work order, it converts into a part level. We want to have all that pull through and all of those redundancies flowing in one direction.

Jason Zenger: So when my parents opened up their T-shirts Plus store, they were handed a binder and they were sent in a bunch of stuff and they said, put the store together like this and operate the store like this. And if you have a question, go to this binder. I mean it was probably several binders or something like that. Is that similar to what you're referring to?

Paul Van Metre: Yeah, absolutely. The goal that we're trying to get out of this, and I also want to be super clear, this is not my concept. This is actually from a book that we read really early in the days that we built our shop called The E-Myth Revisited, Michael Gerber.

Nick Goellner: Didn't you mention that book on the previous episode?

Jason Zenger: It's very famous book. It's probably one of the ... it was pre traction, uses some similar concepts. I've been to one of their trainings like eons ago. And yeah, it's a big proponent of that. But go ahead Paul.

Paul Van Metre: So we've just kind of taken some of those principles and morphed them into kind of the machine shop business. But what we're really going for is getting sort of the same outputs of what a franchise delivers and that would be consistent value, the lowest labor costs that you can possibly get away with, within reason of course, sort of an impeccably organized company and a really documented workflow that produces a predictable product. And that product, of course we want all our machine parts and our fabricated parts to be consistent, but we also want every touchpoint that we have with the customer to be consistent. So the way you answer your phone, the way you confirm orders, the way you present your quotes. All those things should be customizable to the customer but in a way that's consistent that they feel comfortable with, 'cause people like consistency.

Jason Zenger: And they feel like the next time you answer the phone, the next time that they receive their parts it's going to be as expected.

Paul Van Metre: Yep. I know Jim you take great pride in packaging beautifully.

Jim Carr: I do.

Paul Van Metre: I've seen pictures on your website. That's just an example. You have designed the process of how you want to package those parts and that's the Carr way.

Jim Carr: Right. Well, it's part of our branding. It's part of our differentiator. It's part of a unique service that we offer our clients. And I know some customers value that immensely.

Jason Zenger: So Jim, you're growing your business, we're growing our business and you can only increase your capacity so much within the facility that you have. I mean, you can obviously run a second shift but that comes with its difficulties as well. So if you had to take that same footprint because your output had to double, this would probably be a good way in order to say, okay, how do we do this exactly the way that we're doing it now in a different location. Let's get another building the exact same size, let's put the same machines and let's follow the same processes. Is that kind of what you're talking about?

Paul Van Metre: Yeah. I definitely like to think of it, if you are going to open another branch of your business even just the next town over, but you weren't there to actually do all the setup and someone else is doing it for you, how would they know what to do to produce the same output that you produce in your current facility.

Jason Zenger: And most people are not even operating that way in their current business as well as they could. So to think about it from that perspective, even if you never opened up a second shop, you'll probably make some huge drastic improvements through your current location.

Paul Van Metre: That's exactly the point.

Jim Carr: So what I think you're saying Paul is much like we know traction and the EOS, which is a systematized way to run your business. What you're proposing through ProShop ERP is a systemized way to run your business. It would run parallel with EOS because it's the actual manufacturing part of it, where as EOS is the way to approach problems, issues and vision and direction with your company.

Jason Zenger: Yeah. So like if a guy in Texas said, I'm a machinist, I want to start my business, but I don't know how to run a business but I listened to you guys on MakingChips for years and I want to run it like you run it, your franchise could simply be this is the operating agreement that we have if you were to take over this business and you're telling them kind of like a franchise how to run that. So I mean it's certainly possible.

Nick Goellner: Are you flexible Paul? Like what comes to my mind is Jason said, okay, they dropped off a binder and it said this is how you run the business. So we've got a bunch of different business units but they all run off of the same operating system. But it's, the product is a little bit different and the customer might be a little bit different and they share some resources in the shop. Does this kind of franchise thinking apply if the businesses aren't identical?

Paul Van Metre: Yeah, it absolutely does, of course. So the idea is that typically the owner of a business especially in the manufacturing industry, they were a technician of some kind, right. You are a machinist, you are a programmer, you felt you could do a better job than your boss. So you got alone and you got friends and family money and you opened up a shop.

Jason Zenger: Sounds like 90% of the stories out there.

Paul Van Metre: Absolutely. And there's so much more to running a business than the technical side of it. And most technical people really don't understand that and they just start running their business the best they can, but they don't have a business process to grow and scale their business with. So they're running around like chickens with their head cut off, trying to fight every fire and do every little detail. And they're just kind of working themselves to death and they just kind of bought themselves even a crazier job than they had before. So if you can start to document what you do, and there's a whole big system to this. But document what you do, define those business processes. It's much easier than to hire people into backfill those roles, so you can work on more strategic important things. And you can multiply that many times over until you have a much larger organization.

Jason Zenger: So what are the core principles of this model?

Paul Van Metre: Basically it's to have a very processed based approach to how you run your business.

Jason Zenger: To everything.

Paul Van Metre: To everything.

Jason Zenger: Okay. How you answer the phone, how you got the job, how you accept the job, how you ship the product out.

Paul Van Metre: Yep, how you store your fixtures, how you do your programming, how you manage your cutting tools. All of those things can be built into systems. We want to have really well defined roles for the employees. So when we hire someone we say, "This is what the job is we're hiring you for. This is the expectations. These are the metrics for good performance and poor performance." We have really robust training. Everyone knows it's hard to find good employees these days, so you've got to bring that in house and sort of train people in to use your shop. Jim, as an example, train those employees in the Carr Machine way of doing things. So yeah, having robust training of course, having very standardized work.

Jason Zenger: What do you mean by standardized work?

Paul Van Metre: That's actually kind of a lean principle and lean definition. Let's say you talk about the way that you set up a machine tool. You have a very standardized way that you prep the job, you bring it to the machine, you load it all in, you load your programs, you get ready to [inaudible 00:20:17] start. Making sure everybody in your company is doing it the same way as the way you say you do it, that's a standardized process. Making sure the systems you're designing are scalable. Today you might have five employees or 10, but imagine if you wanted to have 50 or a hundred, you don't want to design systems that aren't going to be able to work at a bigger scale.

Jason Zenger: What did that look like when you own your machining company, what did that, 'cause you scaled up to 75 people, right?

Paul Van Metre: Yeah.

Jason Zenger: And what did that look like as you were scaling? What difficulties did you run into and how did you make that scaling possible? Because that does get overwhelming to think about that, to do it effectively, to do it cost effectively. 'Cause I know like as I've grown my company, I feel like I could've done it better, I could have done it more cost effectively. So how did you do it?

Paul Van Metre: Well, we definitely could have done it better [crosstalk 00:21:03]

Jason Zenger: Oh, right. In retrospect I'm sure [inaudible 00:21:06]

Paul Van Metre: There's so many mistakes we made, it's just ridiculous. We almost went out of business several times.

Jason Zenger: Oh really, that sounds like a good story over a bottle of wine.

Paul Van Metre: We'll get to that tonight.

Jason Zenger: Okay.

Paul Van Metre: But after reading this book, and I think it's just the way we were as a group of people as well, we were very much process based. We were all about designing the way we wanted our company to run to produce a consistent output. And then we built our software to help with that because we couldn't find any software that would do it for us. But the key was just having that mentality of being processed based, being very focused on efficiency and lean and just continuously improving the company always.

Jason Zenger: And that's also the last principal that you came up with, which is continuous improvement.

Paul Van Metre: Absolutely. That's got to be a foundational principle.

Jason Zenger: Great. You mentioned that consistency in the way that you operate as a company that helps you to grow, but what are the other benefits that looking at your business from a franchise perspective is going to deliver to the business owner or to the business?

Paul Van Metre: I alluded to those just a little bit earlier, what we're really wanting to do is produce an extremely predictable output to our customers and designing a system that produces that results. And then the people are the ones that run that system. So you hire people into a system and they have to, you got to have good people. I'm not saying that you could just hire anyone off the street.

Jim Carr: You can't hire somebody off the assembly line at McDonald's and say, here's how you do ProShop and expect them to be successful, right? It's just not going to work. They have to have the skills [crosstalk 00:22:38]

Paul Van Metre: Funny story, I was a customer in the Portland area a couple of weeks ago and there was a night shift guy and then I was in there doing some work. And I said, "Hey, where did you come from before this?" He said, "Oh, I worked at KFC." And I said, "Oh, I'm not familiar with that shop." He said, "No, I mean Kentucky Fried Chicken, that's where I used to work." And he was running their night shift, running meals [inaudible 00:23:01] Swiss machines.

Jim Carr: So he found his passion.

Paul Van Metre: He did.

Jim Carr: Yeah. And it's awesome.

Jason Zenger: Going from that lowest level of skill, he probably was able to move up in the company that much quicker because that company had taken that franchise approach to the way that they operate.

Paul Van Metre: Yeah, they used ProShop and they've made huge strides in making their company much more process based. And yeah, they could take someone from a fast food joint and plug them into showing them how to run machines and train them quickly and make them productive.

Jason Zenger: So Jim, we talked about how Zenger's is operating their ERP systems so we can offer that online experience for our clients. But when you told me that you actually use your ERP system ProShop in discussions with your clients, I was like, "Really? A machine shop utilizing their ERP system with perspectives and their clients." Tell me about that.

Jim Carr: Well, it's kind of unique, but what we're doing now when we're doing a lot of prospecting with new OEMs to do business with, we get them on a video chat and we share our screen and we let the ProShop ERP system be part of the sales feature. I take them through the entire estimating process. I show them how the throughput of the work comes in as an estimate and all the way out to when we finish and ship the job. Every single operation is itemized within the ERP system. There's times involved for set up, minutes run per part, checking the part, inspecting.

Jason Zenger: So you think it's just a higher level of professionalism that most machine shops aren't doing.

Jim Carr: Bingo. And the thing is too, it's cutting out all the nonsense and it just making everything black and white. And you know what? At the end of the day, Jason, the numbers don't lie. So if you can show somebody the numbers, they're going to believe you. So go to ProShop ERP, talk to our good friend Paul Van Metre there. He'll be happy to hook you up with some kind of demonstration. So I'm not just telling-

Jason Zenger: Telling MakingChips on you.

Jim Carr: ProShop ERP.

Jason Zenger: Let's talk about process. When you have a described process, it just, to me it seems so daunting because of the detail that would have to go into documenting every single process. And I do understand and I agree with the reason why, we do have a lot of, in traction terms it's called FBA, followed by all, and we do have that. We have a lot of FBA processes and my people follow those and they do things consistently. But there's probably a lot more things that should be documented that aren't because I have a lot of people that are veteran in my company, they know what they're doing and I don't have to train them how to do it. But where does the manufacturing leaders start if they don't have everything detailed process written down in order to get there? Because it just seems like a daunting task.

Paul Van Metre: Yeah, there's no doubt. It definitely takes work. I just want to be clear, I'm not recommending people add a bunch of different new steps to their process. It very likely needs some tweaking to refine it and make it more efficient, but it's just about taking the time to document what you do and it will take a bit of time to do that. But I can promise you it's actually so much easier once you actually have done that documentation and then you can start to offload that to other people and get yourself out of that strictly technician role and working as more of a manager on your business.

Nick Goellner: Do you think that you ask your team to document their processes? Do you as a manufacturing leader say, show me how you do things and I'm going to document this? What's the best approach to getting those processes documented?

Paul Van Metre: Yeah, it's definitely got to be a team effort. If you're a one man shop, you're the only one that's going to right things, but as you hire employees-

Nick Goellner: So we've got like 45 people. Jim's got a bunch of people. When you have a lot of people, everybody's doing their jobs, so where do you start if you have a team?

Paul Van Metre: Well, hopefully in your case you can have all 45 of your folks sort of take that tribal knowledge out of their heads and actually plug it into your ERP system. So that as people move up in the company into different roles or they leave or they retire, that tribal knowledge is not leaving with them and you can continue to run your company in a really consistent manner with excellent-

Jason Zenger: And I think it's important to have the right people in the right seat that are going to understand how to use the ERP system efficiently and adequately. Let's face it, at the end of the day, it's not easy to convert over. It does take a little bit of time, energy and effort. Have you documented more processes at Carr machine after implementing ProShop, taking this franchise model.

Jim Carr: Oh my God, serious. I mean, we can talk about it in another episode, but infinitely more documentation goes on. I have to tell you, it did seem very daunting at the beginning and Paul and I had a serious conversation on the phone once and I wasn't stepping up. I was the one-

Jason Zenger: I think I remember you mentioned, you did mention that exactly [crosstalk 00:28:12]

Jim Carr: And I had my come to moment-

Jason Zenger: Come to Paul.

Jim Carr: Come to Paul moment, and they're like, "You better get on it." And I needed that push. But I'm telling you once I started, I don't know how we could ever go back.

Nick Goellner: But Jim, you had a way that you were doing something, right. Were you just not documenting it and standardizing it?

Jim Carr: We were but it was just all over the place. It was in word, it was excel, it was on Google sheets, it was on a Google doc. It was in one drive. It was on our network, a shared network. It was on somebody's desktop, it was on somebody's thumb drive. It was all over the place. There was not one place for all of this data to go. And yes, it wasn't easy to understand the concept of it because it was new. It was, especially for me, I'm a veteran guy, it took me a little bit of time. But let me tell you, it's a win-win.

Jason Zenger: Did you Jim take the lead role in documenting everything or did your team, what was the split? Was it 80/20, 'cause I know they're all busy trying to get parts out the door, setting up jobs and everything.

Jim Carr: Well, Ryan Carr was the one that I would say took a bigger leadership role in the implementation. But at the end of the day everybody has to be on the same page or else you're not going to be successful. But we have weekly meetings. We have about five to 10 minutes of our weekly production meeting where we talk about ProShop. It's part of our weekly show structure and we share. Jason, what did you learn this week about ProShop that you want to share with the entire team. So we can all learn from each other because everyone's touching different components of the system on a weekly basis. And if you teach me something about the system that I had no idea, or I teach something to somebody. Because there's so many ways you can get to information and data. Sometimes you're just going to streamline that process of pointing to where you want to get to faster.

Paul Van Metre: Well, I appreciate the comments, I genuinely do. But I just want to make sure that we don't, well, that it's clear that any company with any business tools, software, whether it's all excel based, word based, whatever, they can make their company more like a franchise prototype to run it more smoothly. They could do it from a binder as you mentioned. So the principles are really universal regardless of how you execute it. But we did design ProShop with this whole concept in mind because when we were building our company and needed some tools to organize all the details and sort of build the system around, we just couldn't find anything that was good enough for it.

Jason Zenger: Yeah, now that's good feedback. One of the principles that you discussed regarding this franchise concept is continuous improvement. I know that that's one of our mantras at Zenger's is that we are a service provider and we get hired by our customers in order to continuously improve their manufacturing processes. What did it look like at your shop in order to make those continuous improvements? Why did the franchise model add to that continuous improvement principal?

Paul Van Metre: I don't think they're incompatible. I'm not sure the franchise model has that as one of its most important principles, but it's critical. I mean, I'm sure every Subway and McDonald's, they study the way they do things and they're always trying to make it better and faster. But we went all in on lean early on in our company's history. And I got to give my partner Kelsey credit for that. He really, he was our lean champion, he was fully passionate about it. And we went in with value stream mapping of the entire process, documented exactly how it works, take out lots of steps. It's amazing when you go through a defined process of looking at your value stream.

Jason Zenger: Yeah. You don't want to know what you can do [crosstalk 00:31:51]

Paul Van Metre: Why are we doing this step? Why are we printing this paper and giving it to this person and it's sitting on their desk for two days, right? There's so many things like that, that you can just eliminate and streamline the process. We did Kaizen newspapers. We had several in the company. We had them in programming. We had them out in the production area and the prototype department and the office. I'd say that was one of our biggest successes. We did thousands of small, tiny, little lean improvements all the time.

Nick Goellner: Yeah. I've never heard of that Kaizen newspaper. I hear Kaizen all the time, my brother's a continuous improvement guy, but what's the newspaper?

Jim Carr: You've never heard [crosstalk 00:32:23]

Paul Van Metre: The newspaper concept is basically have a board and actual big sheet of paper in the areas where people are working. And we would train all our employees on the seven waste of the Toyota production system. And as they recognize, when they learn these well enough, as they're doing their job they are going to say, "Oh, I just realized I'm doing overproduction right now or I just made a defect." And then they write down what that defect is and why they just did that, what just happened to make them cause that waste.

Paul Van Metre: And then over the course of the week you'll have several new entries on there. And then we had a team that would meet for about 30 minutes every week and they would talk about it. They would assign levels of importance and then they would all sort of take problems and then they'd go solve those things. We even had a requirement to track at least 5% of your time on Kaizen activities.

Jason Zenger: So those were people that were dedicated to making those improvements?

Paul Van Metre: No, those are machinists, those are inspectors, those are ... Everyone in the company had to spend 5% of their time doing continuous improvement.

Jason Zenger: Okay. So they went outside of their normal day to day job in order to make those continuous improvements.

Paul Van Metre: Yep. Sometimes it would be a machinist has a super long cycle time. So they'd get their machine running and then they go work on improving the fixture area. Or someone in estimating might, when they're done with a hard estimate, they might take 30 minutes to just go do this improvement activity to make the office better.

Jim Carr: That's a great idea, it really is a great idea. I mean, it sounds awesome. Maybe it's something that we should implement at Carr Machine.

Paul Van Metre: I would love to show you how we did it. Yeah.

Jim Carr: So I want to move on to the profit part because at the end of the day, that's why we're all in business, is to make money and make sure profits at the end of the year.

Jason Zenger: I'm only in business so that I can talk to you on a weekly basis on MakingChips, Jim.

Jim Carr: Do we talk to you weekly? Do we talk weekly? [crosstalk 00:34:11] At least, yeah. I'm just kidding. But I appreciate that Jason. On the Carr Machine side, at the end of the day that's really the company that's paying the lighting bill, the mortgage, the real estate taxes, the bottles of wine.

Nick Goellner: I was going to say, there's got to be a wine bill in there some where.

Jim Carr: Yeah. But at the end of the day, so Paul, you have [crosstalk 00:34:32]

Jason Zenger: For me it's diapers.

Jim Carr: Yes, I'm sure it is, Jason.

Jason Zenger: Money for diapers.

Jim Carr: I'm sorry, I've been there. Paul, you've have discussed with us a methodical approach to growing profit. How did you do that in your machining business and how does ProShop help facilitate that profit growth?

Paul Van Metre: First of all, focusing on, and every manufacturing company has to do this because it's so competitive at just being incredibly efficient at every single thing you do. And we built systems in our own shop and then ultimately into ProShop on focusing on profit. We wanted to make it super easy to know exactly what all your job costs were and of course streamline the process all the way from estimating and quoting through programming and making parts and shipping them and outside processes and everything in between.

Paul Van Metre: But one of the biggest things that actually helped our shop was, once we had built the tools to easily see the profitability of our jobs, and it didn't take a ton of work to try to figure it out. Because if it takes a lot of work, you're not actually going to do it. I mean, I don't know how many shops I talked to that don't actually know which jobs are profitable and which ones are not. And we've all heard of the 80/20 rule, right?

Jim Carr: Yeah, I saw that on your notes, I've heard of that. But why don't you explain it to me.

Paul Van Metre: So the 80/20 rule sort of applies to all sorts of things. In this case, 80% of your profits are being derived by 20% of your jobs. But the opposite is also true, 20% of your jobs are causing 80% of your losses. Once we had an easy way to look at profit, we sort of kicked off this initiative called kill the losers. And so we methodically, every time a job would ship, we would just look at the profit and then we would drill into the numbers. And I'm sure now you're using ProShop, you know how easy that is.

Jim Carr: It's very easy.

Paul Van Metre: You can see who did the setup, who did the programming, any NCRs that were made. And dial in and figure out, did we do something wrong in this job or is this just priced too low or was it a onetime thing, or is there a chance that we can-

Jim Carr: There's so many variables on that.

Paul Van Metre: So many.

Jim Carr: So many. So first and foremost I think, did I underestimate the job? Was there a setup that I missed? Was there a particular material that I didn't know? Like if it was 300 series stainless steel, it's going to cut a lot slower. And then I think, well, was the setup guy having a bad day? Did something happen in the programming process? It's really hard to articulate exactly where that bad job came from. And then the other thing too is, did we quote the job a little bit too low to get in with that tier two tier one customer just to make a splash for repeatability.

Jim Carr: And I know in ProShop there's a checkbox that said taken as a loss. I've never checked that box yet, because I typically don't like to take a job at a loss just because to say I did. And I'm working with Boeing now, but that's really interesting. Yes, I have heard about the 80/20 rule, I just didn't hear it defined like that.

Jason Zenger: I do have a question about this because I'm going through this. I mentioned before we've got thousands of customers. We bought this ERP system specifically because we needed to allow our customers to be able to self service themselves, but we probably do fall within that 80/20 rule if not even-

Paul Van Metre: More extreme.

Jason Zenger: ... tighter. But I just had a conversation, I just had an opportunity. The other day I met with a perspective client who told me a story about how I used to buy these ceramic inserts from your competitor and they told me that I no longer could be a client of theirs because I didn't buy enough. So I started buying these from you and now we've been taking lots of small orders from them over the years. Now we have this gigantic opportunity with them. So how do you balance the kill the losers and just maintaining maybe a smaller relationship or a smaller job that leads to things that are bigger in the future. Did you have like a tactical way or maybe some knowledge you can share with how you accomplish that.

Paul Van Metre: Yeah, I think what's really important when you go into this kill the losers meeting and you're trying to figure out what happened is everyone has to let their guard down, be humble and see that if they made the mistake, first of all own if they made a mistake, say, yeah, I just, I was having a bad day, I totally messed this up-

Jason Zenger: Sometimes that happens man.

Paul Van Metre: ... next time I think instead of a three hour setup, I can get this done in 45 minutes.

Jim Carr: Exactly.

Jason Zenger: But what if it's just a customer who goes to you for the jobs that you're not making money on? Do you continue to maintain that relationship?

Paul Van Metre: I mean, that's a more strategic longer term decision.

Jason Zenger: So you're talking about just killing jobs basically.

Paul Van Metre: Or customers. Yeah, absolutely. I mean, sometimes we would realize that there's just, this customer doesn't have any, there's not enough profit-

Jim Carr: They don't respect you.

Paul Van Metre: Yeah, they're not a good fit.

Jim Carr: They're not a good fit.

Jason Zenger: So were you genuinely killing 80% of your customers who are not contributing to your, to the bottom line.

Paul Van Metre: Yeah.

Jason Zenger: It scares me a little bit, I got to be honest.

Paul Van Metre: We weren't getting rid of 80% of our customers, but the customers that had the most unprofitable work. We either got rid of the work or repriced it or said, "Sorry, it's just not a good fit for what you need and what we are providing."

Jason Zenger: Even if maybe you had a profitable job that went along with it.

Paul Van Metre: You have the occasional one, but there's such a pain in the butt that they're taking hours and hours and hours of your day and your attention.

Jason Zenger: 'Cause this kill the loser thing. I mean, I feel like we should have an entire episode about this, it's a very nuanced conversation.

Jim Carr: I think our business models are a little different.

Jason Zenger: No it is, but there's still like, the business, that still applies I think to every single business out there.

Nick Goellner: I thought firing customers sounded harsh, now we're talking about killing customers. Where is it going to go from there?

Paul Van Metre: And bringing it back to the franchise idea. It's important to document how you analyze job profitability and put in place some guidelines for how you're even going to decide what to do with the data that you figure out.

Jason Zenger: Yeah. And I can see why the franchise model works really well, because for somebody like me to really dummy this down, like Starbucks, I go to Starbucks once a month. There's probably people that go once a day and they're probably the ideal Starbucks customer, but they've created a process and a system within their company where they could still be profitable on my business as well as that person that's coming in there every single day.

Paul Van Metre: And one of the reasons you go there every month you go is because they have a consistent product, you like the atmosphere, you get treated nicely. Any Starbucks you go into, you're going to get that same positive experience.

Jim Carr: Yeah. They make it very easy to do business with them.

Paul Van Metre: Absolutely.

Jim Carr: Yeah. I know that as a business owner, I need to be working on my business instead of in my business, but I keep getting caught up with tasks. I have my-

Jason Zenger: Quoting jobs.

Jim Carr: No, I have my notebook with me. I'm constantly writing down those tasks, those redundant things over and over and over again. What do I do? Why is it important? And what should I be focused on? Where do I start to get there?

Paul Van Metre: Let's take a scenario. Someone, a customer and employee comes to you and asks you to do something urgent or there's an emergency that comes across your desk, what is your gut reaction to do?

Jim Carr: Quickly analyze the urgency of that particular task and kind of like rate it in my head. So I've got my list of things on my desk that I have to get done that are all prioritized and they're moving constantly. So my dad used to tell me, I'd be in the office and one of the machinists would come in the office and say, "I got a problem." Quote unquote, I got a problem.

Jason Zenger: It's the entrepreneur's favorite-

Jim Carr: It's the worst. And so I kind of like figure this guy out and he always used to make his problems super urgent.

Jason Zenger: And make them your problems.

Jim Carr: In the early days, I'd get up really quick from my desk and I'd be panicking because I don't know if somebody just cut their hand off-

Jason Zenger: Spill your coffee on your lap and you-

Jim Carr: Yeah. So I tried to get a little bit of insight to that urgency and I say, "Tell me what's the problem before I get up from my desk and go out there." So I analyze it quickly in my head in just a few seconds and I say, if it's something like somebody just had a really big issue, I would get up immediately and run out. Otherwise I feel like in a few seconds I can analyze the urgency of that request and I can go out or I'll say, "I'll be out there in just a few minutes, I need to make a phone call and I'll be happy to help you with that problem."

Paul Van Metre: Sure.

Jim Carr: So, that's how I do it.

Paul Van Metre: That's good. I mean, it's good to prioritize, that's really important. But by then trying to go and solve that problem, you are just perpetuating your busyness and the same reason they came to you in the first place. So what I would suggest is that you need to first ask, why is this a problem and what system can I put in place to make sure someone doesn't have this problem again and come asking me for the solution.

Jim Carr: Oh, like what is the UPS collect account number for that customer that I'm shipping the job to. Well, Johnny, if you look in ProShop under the contacts, guess what? There's the UPS collect account number that they should be doing. So yeah, I understand. Yes.

Jason Zenger: One of the things that I, and I think this kind of goes along with what you said, Paul. But one of the things that I like to talk to my team about is, we use the concept of IDS in an issue. And I'd like to ask my team, "Is this an emergency or is this something that we can IDS during our next level [crosstalk 00:44:07]"

Nick Goellner: IDS meaning?

Jason Zenger: Identify, discuss and solve.

Nick Goellner: Okay.

Paul Van Metre: Perfect. Yeah. The principles are very similar with traction, but we're all people that want to please, we want to solve people's problems. I know I'm totally like that and I'm sure you guys are too.

Jason Zenger: Absolutely.

Paul Van Metre: But just pausing and rather than just rushing straight into action, thinking about what really was the root cause of why this is a problem in the first place and that's what you solve.

Jason Zenger: This has been very insightful. I told you before your speech, which if anybody wants to watch it is available on YouTube, where you talked about this concept as well, was very insightful to me. And I know all these things in my head and I just need to get started on being a better leader and being better about running my business like a franchise. So I appreciate you taking this time to talk with us and really to say how do we apply the whole concept of a franchise model to a machine shop.

Jim Carr: And I'm sure Paul would be happy to answer anyone's questions. If you want to reach out to Paul on LinkedIn, Paul Van, V-A-N M-E-T-R-E. Or go to proshoperp.com.

Jason Zenger: Yeah, like meter except spelled incorrectly. Is that right, Paul?

Jim Carr: Exactly.

Paul Van Metre: The Dutch way [crosstalk 00:45:20]

Jim Carr: Is that what it is?

Jason Zenger: Oh, it's not incorrect, it's Dutch.

Jim Carr: But it's a pleasure having you in our studio today and hearing a little bit more insight as to how this all came together, and the franchise philosophy and how ProShop was birthed out of thinking like a franchise.

Paul Van Metre: My pleasure. You guys always start that manufacturing is difficult. I feel like we're all in this together, to try to make American manufacturing better. So I'm happy to help anyway I can.

Jim Carr: You're doing a great job. So Jason, I hope you're not going to go out and start a franchise machine shop. I don't need any more competition. Although I don't think I have too much.

Jason Zenger: No, I've got two things that I'm thinking about. A, I want to franchise my industrial supply company. And B, I wish that ProShop was built for industrial supply company, I'd love to use it.

Paul Van Metre: Definitely not. Never will be.

Jason Zenger: It came from a machine shop, built for machine shops and I think that that's a wonderful thing.

Jim Carr: So at the end of the day, what are we going to tell our listeners that are listening to us right now? Did they, if they liked this episode, what do you want them to do?

Jason Zenger: I want them to rate and review iTunes, and tell us why-

Jim Carr: Okay, I don't have an apple product.

Jason Zenger: You could still go to iTunes, you could still use iTunes. Tell us why you like MakingChips. Give us five stars.

Nick Goellner: You can really use whatever podcast player you're comfortable with and give us a review.

Jim Carr: Sounds good to me.

Jason Zenger: And for the subject, it's very simple, just write Jim or Jason with who you like better in the subject and then put [crosstalk 00:46:45]

Nick Goellner: Who is funnier, Jim or Jason?

Jason Zenger: Yeah. Well that, we know that [crosstalk 00:46:48]

Jim Carr: Of course we do. Anyway, at the end of the day you can also connect with us on LinkedIn, you know our names. I'd like to close out the show with that mantra that my dad used to tell me when I was young man back in the 80s, if you're not making chips-

Nick Goellner: You're not making money.

Jason Zenger: Bam.

Nick Goellner: Bam.

Jim Carr: Bam.

Announcer: As always, thank you for listening to the MakingChips podcast. You need to increase the speed and feed of your business. If you're not elevating your manufacturing leadership, you're going to get left behind. The Metal Working Nation is committed to a new way to stay ahead of the competition. We have more content to help you make and elevate at makingchips.com. Gain access to exclusive content, as well as videos, blogs, show notes, and more resources designed to equip and inspire you. We'll see you next time.

Nick Goellner: I'm going to do my Jim Carr impression, wait, stop.

Jason Zenger: Stop, I just got a comment on it right now.

Nick Goellner: I do have a question.

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