Managing a MCR business

Kurt Rhyner   

Micro Concrete Roofing tiles (MCR) are produced in some 25 countries around the globe. In Latin America, where the technology has been most successful, by the end of the year 2002 more than 23,000,000 square meters have been produced, which is equivalent to some 350,000 roofs. The total value of MCR sold surpasses $US 65,000,000.

 

Some 650 workshops in 14 countries of Latin America are producing MCR, and the customers range from large housing projects to private clients, simple rural dwellings to luxury mansions. The quality of the tiles produced varies greatly from excellent to deficient, and the application of product standards is not easy to enforce.

MCR seems to be a technology best suited to small businesses, producing for the local market. Many of them operate in the informal market and marketing is based on the reputation of the owner and his products. However, there are also larger workshops and of course many selling to the formal construction industry.

In the following we will examine the experience of ten years of successful operation in Latin America.

Small or big, what is more productive ?

The technology is well defined and standardised equipment is available. However, most producers try to introduce changes to the technology, they either want to cut costs or improve quality, and sometimes both. However, experience shows that those efforts are usually not successful and often the productivity suffers.

In a well managed workshop there should be a daily production of more than 100 tiles per person involved in production. There are some workshops with a production of up to 200 tiles per person, however quality tends to suffer when production exceeds 150. This figure includes all persons involved, the “tilemaker”, the “helper”, the administrator and the also the sales person !

For a small business, this means that several tasks are done by the same person ! Many of the most successful workshops operate in the backyard of the owner, and he (or she !) is selling, administering and producing, apart from being the security guard ! A second person is producing tiles and between the two they are manufacturing and selling some 200 to 300 tiles daily. This workshop is likely very profitable and if for some reason there is a slump in marketing, the fixed costs tend to be low. Often the employed worker is a neighbour or even a family member and will react with understanding in the case of a temporary layoff.

Generally there exists the belief that a larger workshop would ripe more profits. This, however is not necessarily the case. If a workshop operates with three or four sets of equipments, producing maybe 1000 tiles a day, they are likely employing 6 to 8 workers, but will find it necessary to employ a fulltime supervisor who checks quality and quantity, administers the raw materials and makes the payments. This workshop likely is not in the owners backyard and a security guard is mandatory. Marketing for this amount of tiles could be a fulltime job. At the end we find ourselves with a productivity per person involved that is likely smaller than in the first case !

While the small workshop can react with a lot of flexibility in the case of a slump in market demand, the larger ones are usually inflexible and need a much bigger working capital. Labour relations are more difficult in a larger workshop. In many countries the tax laws permit small workshops to pay just a fixed small fee, while larger operations have to report sales taxes, which also adds to the administrative complexity, and local governments often also collect additional taxes according to the size of the business.

Formal or informal market ?

There are definite advantages to place the workshop within the formal economy. With a well established (and legalized) business the access to “big clients” is better. Advertising through billboards and other means is possible. Architects, Engineers and construction companies usually are reluctant to buy from small producers hidden away in a backyard. If working with bank loans or government grants , constructors often are obliged to buy in the formal market and produce bills that fulfil all requirements of the law (taxes paid !).

However, there are also drawbacks. In a meeting with producers in Honduras, they all manifested that it was not convenient to even put up billboards, as this could change their status of being informal and then be subject to tax collection. They are selling locally, do not pay taxes, and keep their fixed costs to a minimum. Larger workshops with higher fixed costs (and sales taxes added) can not compete with them !

Every producer has to analyse carefully where to place himself. You have to adjust the level of formality to the demands of the clients. Be aware, that every step towards formality costs money and it does not necessarily bring higher prices.

How to control the costs

Most small workshops are directly managed by the owners and no real bookkeeping exists. Many of them claim that there are no profits, and sometimes they complain about loosing money. However, they keep producing, most of them for many years, and underway they have maintained their families, have improved their house and sometimes even bought a car, with MCR being their only steady income. So, obviously the business is profitable, but as there is no real control, and at the end of the month there is no surplus cash, so they pretend there was no gain.

We call this the “pocket bookkeeping”. Money flows into the pocket when selling, and it flows out when buying. The balance would be called profit. But there is no balance, because living expenses are being paid out of the same pocket and whenever possible investments are made. This producer thinks to know intuitively where to set the price of the tiles, but he might be wrong.

A simple writing down of all money flow would help to analyse the real cost of the tiles. This is not a difficult or time-consuming exercise. Some producers do it secretly and would never show it to tax collectors, and they know why !

However, it might pay to keep a total control over all flow of money and raw materials. Mainly in larger workshops or where the owner is not present, often large sums are being lost through lack of control. Sometimes it is simply lack of communication or lack of instruction that causes an employee to make big mistakes, but quite often a lively business of undercover sales develops. I remember the case where the workers reported high production and therefore they got high payments. The cement consumption was of course also high. However, after some weeks the administrator became curious and she checked the days production. On every pile of moulds, the lower ten were empty ! The workers had made false reports and sold a couple of bags of cement every day. Of course, the administrator was rewarded by the workshop owner and now he gave her full confidence. Based on this, she started undercover sales of tiles and made a high profit herself…..it took the owner several months to discover the fraud.

It pays to make a monthly analysis of every workshop. How much cement and how much sand was used ? Compare this with total production and with salaries paid. One tile should not use more than some 700 grams of cement, which means that a bag of 50 Kg must render between 70 and 80 tiles, and the smaller 42 Kg bag (used in Central America) should produce 60 to 70 tiles. Of course, the quality of sand could make a difference, but this you would be aware of.

But then you also have to check stocks. If every month you write down the total number of tiles on the premises, then discount sales and add production of the month, you get the final amount of tiles that you should encounter in the workshop. It is easy, but I am always surprised how few owners do this exercise regularly and quite often they find grave irregularities when they actually go to count. You might find out that the administrator, or the watchman or even your neighbour does thriving business with your tiles.

How to market tiles

There exist many books on marketing and courses are offered everywhere. They often promise to teach you how to market and make good money. They all have one thing in common : they are a good business for themselves, but not always for you. Yes, there are certain guidelines for marketing and it is very convenient for you to know them and apply them. Analyse your market segment and know the cost of your product as well as the price for which you can sell it. Based on this, decide how formal your business should be and how much you have to invest in marketing.

But there are no ready recipes for marketing. The worlds major producer of MCR tiles (a colleague in Honduras) told us an interesting story (lets call him Alex) :

Alex was well prepared to do tile business. He studied several of the major authors on marketing and built up an impressive chain of workshops, producing and selling 10,000 tiles a day. However, his best salesman (Pedro) was somebody who did not fit the description of a successful salesperson. One day they targeted a small town and both went out to sell tiles. Alex had read the local news to be able to make smalltalk, he knew exactly how to calculate the number of tiles for any given shape and size of roof, he knew transport costs, and of course he knew the “sales methods”. He sold one roof that day. In contrast, Pedro who had not read the local news and who was not too good in calculating numbers of tiles and charged too much for transport, sold several roofs. Alex came to the conclusion that sales is more than just knowing how to do it, it has to do with personality and natural talent. That, you can not learn.

Recently I heard of a new tile producer who went into business with an unusual tactic. He told all his potential customers, that the production was already sold out and that for at least three months he could not deliver. This created the impression that his tiles were in big demand by some construction company and people started to make downpayments for later delivery. When he actually started to deliver tiles, the business was well established and a sizeable part of the working capital had been raised by the customers themselves.

How to stay in the market

Sales efforts are usually geared to fast action, you want to sell NOW. However, every sale is also an investment in the future. If you treat your customers well, with good quality and a good after-sale-service, you are likely improving your chances for the future. Client surveys in Honduras and Ecuador showed, that “mouth to mouth propaganda” had been the most effective in propagating tiles.

Be aware of the fact, that ultimately people are not going to judge the tiles, they will judge the roof. Therefore you have to make efforts to ensure good roof-laying. Visits to the construction sites and instructions for the carpenters could be a good instrument to ensure this.

Some of the most successful MCR workshops try to sell the roof, and not the tiles. They either have their own team of roof-layers or they recommend qualified personnel. That is how a long-term strategy can be implemented without any additional cost to you, and even the possibility to make some extra cash. Builders are your most important allies or foes. If they like your product, they will recommend it, it they dislike it or if they do not know it, they will induce the house owner to choose another product.

You are here: Home Past editions February 2003 Managing a MCR business

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