Off the Shop Floor and On to the Playing FieldBy Andrew J. Birol, President, Birol Growth Consulting, Inc.
During a presidential election year, issues that affect us as business owners suddenly make the evening news. Can you turn on CNN or pick up a newspaper today without being told once again that American manufacturing is dying … that jobs going overseas are not coming back … that small businesses can’t compete against Far East competitors … that free trade is not fair trade … that health care costs are crippling American businesses … and that young workers who can’t program computers will end up flipping burgers for the rest of their lives?
Yes, our manufacturing base is declining but political rhetoric and gnashing of teeth are not going to rescue us from reality and bring back the glory days. Almost daily I hear a manufacturing leader lament the condition of his industry. Isn’t it time to stop venting and accept our new challenge?
You cant compete with foreign competition on the basis of price, but that doesnt mean that defeat is inevitable. The fact is that some manufacturers are thriving in almost every industry. These companies succeed because they accept the challenge to innovate. They avoid or beat foreign imports by:
- Competing in niche markets.
- Providing very fast delivery.
- Finding customers who will pay for value.
But Andy,” I sometimes hear, “you just dont understand manufacturing.” Here is what I do understand: I work with clients in steel, rubber, coatings, and other beleaguered industries. These companies are not only surviving—they are growing their businesses.
Lets Get Real
What do successful manufacturing companies have in common? First, they provide real products and real services to real customers for real money. They resolve real problems and create real opportunities.
In order to get real, some manufacturers have to fall out of love with their machines. While processes are critical to boost productivity and keep costs down, too many manufacturers, in pursuit of perfection, end up in the land of the lost. From KANBAN and just-in-time to quality circles and lean manufacturing, an entire industry has emerged. The more I see manufacturers pursuing ISO 9002, the more I grow concerned that they are hurting themselves as much as helping themselves.
Heres why: American factories simply cant beat the Chinese on price. The quality of many Far East products and components has improved to the point that they are viable alternatives for U.S customers, distributors, and assemblers. ISO 9002—the “good housekeeping” seal for manufacturers who have reduced supplier risk and met their bosses objectives—has an unexpected consequence: it turns a manufacturer into an ever-the-more-qualified commodity provider to an ever-shrinking pool of buyers who are focused largely on price.
The latest version of ISO emphasizes customer satisfaction. If your customers define satisfaction in terms of finding the best price amongst identical suppliers, how can you win? This is particularly critical for small manufacturers who risk being driven down to bankruptcy by selling parts they can’t produce cheaply enough. If your business is being shopped to foreign producers, recognize that quality and service won’t save your day.
Its the Market
The second characteristic of successful domestic manufacturers is their ability to innovate in ways that serve their market where it is now and where it is going. Innovation for its own sake might get you written up in a trade magazine, but if your customers dont really care and arent willing to pay for it, it wont improve the fortunes of your business.
In this new environment, the question for manufacturers isn"t whether to innovate but how and when. The trick is to know where you are in the life cycle of your product or market. Lets identify the three phases as A, B, and C:
- Early in a products life cycle, manufacturers must work closely with engineers to work out any kinks and discover opportunities. Production, which may be small-scale and highly customized, must stay close to home. Successful manufacturers will define a narrow strategy, refine it through dedicated production methods and runs, and set unwavering standards of quality, cost, delivery, and service.
- As the product expands into the marketplace, customers may require hands-on service, fast delivery, and customization. The market is not yet entirely price driven, but successful manufacturers will drive down costs before competitors and customers force them to do so. They also will focus on increasing customer loyalty and add-on sales.
- In a mature market, price becomes more important than quality control, and domestic manufacturers may be priced out of business unless they innovate. This is the time to seek out productive relationships with Chinese and other foreign suppliers. Introduction of new product lines, expansion into new markets, and targeting niche customers may also be necessary at this point. Most importantly, understand that quality and service will not keep you afloat in a marketplace that prioritizes price.
In any one of these phases, there are many smart things manufacturers can do. As the market moves from A to B, a manufacturer might focus on meeting the needs of small but profitable niche markets; for example, a maker of stone and marble home products eliminates his low-end lines in order to focus on designing, producing, and installing high-end kitchens for affluent homeowners and prestigious builders. A factory owner whose market is shifting from B to C cuts costs dramatically by creating a price structure for value-added services that customers had been getting for free. Phoenix Products, a client of mine, is successfully navigating the “C” phase as its industry—production and assembly of water delivery systems for manufactured housing—grows increasingly price-conscious. Among its innovations, Phoenix has launched a new line of low-cost products by partnering with a Chinese manufacturer, thus blending its superior design with the cost-savings of overseas labor.
Confidence, not Complaining
There is one crucial point that seems to elude most politicians and factory owners: demand for products is not falling. Yes, it is a rough time for the Rust Belt, but leaders of growing firms dont waste their energy on rationalizing their current challenges. Instead, they manage them.
Becoming a survivor instead of a casualty begins with accepting that the world is changing and deciding to change with it. Here are a few good ways to start:
- Provide strong leadership, project management, and rich incentives that let your employees know whats at stake. Workers in the Northeast are highly loyal but tend to “go along to get along.” Promote ingenuity by rewarding passionate, aggressive people.
- Take no customer for granted. Review and renew your processes in sales, marketing, distribution and delivery, and customer service.
- Know where you are in the A-B-C cycle and creatively approach your need to change.
- Go after your mediocre domestic competitors. Only a few of you will survive, so capture their customers before the Asian producers do.
- Do not indulge in complaining, self-pity, or nostalgia. Focus on profits and make these the Good New Days.
In terms of tactics, you must hone your skills in many “non-manufacturing” areas and make sure that all your employees are on the same page in terms of sales, marketing, and customer management. Specifically, make sure your company is in top form in these crucial areas:
- Sales and sales forecasting.
- Product management.
- Direct marketing, trade show, and telemarketing.
- Distribution and territory management.
- Database management of customer, cost, and competitor information.
As you do all these things well, your company will thrive as those around you fail. If you acquire customers, technologies, or key people from your competitors, make sure to use them in ways that enhance your company’s Best and Highest Use® as you help your customers resolve pain or seek opportunities.
We are all running businesses in tough, changing times, but no matter what you have heard, the situation is not hopeless. The good news is that many of your competitors lack the confidence or conviction necessary to survive the current shake-up. Accept where you are and where your market is going, and set high goals for your business. Then anticipate, innovate, differentiate, and brand your way to manufacturing success.
Articles by Birol Growth Consulting are © copyrighted and all rights are reserved. However, articles may be reprinted with prior written consent if attribution is included as follows:
© Copyrighted by Andrew J. Birol, President of Birol Growth Consulting, who helps owners grow their businesses by growing their Best and Highest Use ®. Andy can be reached at (412) 973-2080, by email at firstname.lastname@example.org, or on the web at www.andybirol.com.