Can US Precision Machine Manufacturing Survive? – Part 9

business developmentPackaging Products and Services
PMPI companies may have to offer sets of combined (packaged) services in order to gain a competitive advantage. The package could include design engineering, precision machining, and prototyping, fabrication, vertical services (such as anodizing, material selection, etc), fixturing, assembly, and repair/modification services in various mixes. Becoming an element in the customer’s supply chain can also be effective.

Choosing the right mix of services to package could be difficult, if the PMPI Company continues to operate in a ‘job-shopping’ mode. Each situation should be evaluated to determine how multiple services can be packaged in order to deliver the highest level of Value (doesn’t have to be lowest price) to the customer. Effective packaging will require that the PMPI Company understand the customer requirements in significant depth.

Design Engineering
Many PMPI companies may not be able (or want to) provide this level of service since it could add a payroll burden to them, and especially if their legacy and target customers do not normally require this kind of service. Becoming vertically aligned with customers may be a way for some PMPI companies to grow but it could be the first step out of their box for many companies, bringing with it significant risk.

Adding design engineering as a packaged service could be OK if the PMPI Company can develop a strategic alliance with a specialist design engineering house. Forming strategic alliances could be an effective way for PMPI Companies to grow. Forming strategic alliances would be a strategy that allows the company to step outside of the ‘job-shop-box’ with a lower level of risk.

Computer Numerical Controlled (CNC) machining has been around for decades. But, making prototypes from drawings (or 3D -CAD data) plus the non-recurring engineering needed to design the required tool-paths, limits the ability of the CNC-machining process to produce prototype volumes with short lead times.

However, CNC machining allows designers to use (or try) varieties of materials, whereas using additive processes like 3D-Printing limits the materials that can be used and somewhat limits finishes available. Greater value can be transferred to a customer via the knowledge and experience base of the supplying company and its employees, thus enabling the PMPI Company to compete on the basis of Value and not price.

Discovering New Market Niches
Finding a defensible market niche is one of Porter’s three major strategies and is an excellent way for PMPI companies to become profitable and to get out of the job-shopping mode of operation. A company that was interviewed for this paper had been serving a small group of customers in the aerospace industry for 25 years. They had no sales people, no website, and no real competition.

Niche markets are core groups of people within a larger market who have similar needs and or job-to-be-done characteristics that can be targeted with excellent results. A unique product or service that will fulfill the unmet needs of a specific group of people – that’s niche marketing in a nutshell. To identify niche markets, try to break your current market into as many subcategories as you can, and see if you find specific subgroups with similar needs and interests.

Trying to enter a new market and or creating a completely new market segment is highly risky and in most cases leads to failure. The message for success here is that the desired niche should have needs and wants that match well with the PMPI Company’s core business. Stepping away from a company’s core business moves it in the direction of implementing a diversification strategy which is extremely risky. The best place to start looking is at customers who are already on a company’s books.

Analyzing data that is stored concerning customers and services that the company has provided, will help get a handle on the company’s strengths, specialties,and help discover which sets of data could lead to finding “A Market Niche”. The chart below is a “heat Map”, that indicates possible strategies for stepping outside of the company’s box (known as adjacencies) and shows the risk (probability of success) that comes via the strategic distance stepped away from the company’s core business. Heat Map copyDeveloping Unique Business Models
Product/Service differentiation has become short-lived (as we have shown for the PMPI market) it provides short-lived pricing advantages. Differentiation (based on a unique competency) will last longer, i.e. until competitors match that competency, or find a substitute. Many of the moves (steps away from a core business) that have been made by PMPI companies, e.g. Lean Processes (which most companies now implement) no longer provide real differential advantages.

However, in the PMPI Industry, most firms are moving in the same direction, and have ended up using similar business models, which provide no differential advantage. When examining company websites, it was discovered that (in the vernacular of the industry) what was described, as a business model was really an operations model, a description that PMPI companies need to correct.

A unique business model is a mechanism that provides a much longer-lasting competitive advantage and a way to compete on the basis of Value not price. The new business model may require a better organizational design and culture, to fulfill a company’s Value Proposition. Creating a Unique Business Model can be an enlightening and creative exercise for a company’s management team.
Brainstorming new business models is relatively inexpensive and it can be highly energizing for employees who have not done anything like that before. At the heart of any business model, which is much more than “just the way we make money” is the company’s Value Proposition. The company may have a number of Value Propositions based on what they are selling. The VP is a statement of the Value delivered by a company via its business model. It provides a reason why a buyer should buy from you and why your offering is better than others in the marketplace.

Generating More Referrals
It never fails to amaze that PMPI companies absolutely love referrals, but do nothing to cultivate them. Active selling is somewhat new to most PMPI companies, and now most of them are hiring sales people to go out and ‘bang on doors,’ cold call and generate appointments. When asked how business had come in before (pre-recession) it is usually said, “Oh, people just called us because they had heard about us, or we would get an RFQ over the fax machine.”

Unfortunately, too many PMPI companies still try to operate this way. They build a sales model around cold calling, traditional ‘push marketing’ despite the fact that is not how business is done anymore; and they wonder why they miss their revenue targets. Our advice to them? Cultivate the process of asking for referrals; use a Consultative Selling Process whereby relationships are built. When a trusting relationship has been established, customers will no longer try to get you off the phone, or out of their office, and they will be willing to give you referrals.

Offering Increased Services
There’s no real secret to getting repeat business from customers. All you need do is provide excellent customer service – the kind of customer service that exceeds a customers’ expectations and outdoes your competitors’ level of service. The perception of value lies with the customer, as does the concept of service, therefore it is a primary requirement that the highest value relationship be established with customers, so that the supplying company may discover what Excellent Service means to them, and deliver it. The onus is on the company’s sales force to develop and maintain these relationships.

Company management must develop the view that ‘we exist to serve customers’ with every employee. Employees must understand and commit to providing service; it must become a central part of the company’s culture. Making it a metric of employee performance with appropriate rewards will get every employees engaged in the operational success of the company. Employee Engagement Surveys should be conducted frequently to assure that the company is on track.

Offering Guarantees
Offering a guarantee is one way to positively differentiate a company’s offering from its competition, a guarantee can also enhance the formation of trust with potential customers.
Here are some examples:

Satisfaction Guarantee – While a guarantee should be part of every offer, an extra-strong guarantee can serve as its own offer. An example; “money back if not completely satisfied.”

Cash Discount – A special one-time price can be given to help force the purchase decision. This offer works well when dealing with new customers.

Special Terms – This can work as well as a cash discount. For instance, “receive the item now and pay in monthly increments up to six months with no interest.” In some cases, purchasers will be more interested in the monthly payment terms than the total cash amount.

Demo/Trial Offer – A smaller, trial version of the product is sent (sometimes for a fee, sometimes for free). If the prospect likes the demo, he orders the full product. This offer has a time premium.

Performance Guarantee – The customer gets to use the product for a period of time. If it does not live up to the specified criteria, it can be returned for a full refund. This offer works well if your product is clearly superior to its competition.

Special Inducement – Something extra is given to the prospect, , if an order is placed immediately. The inducement could be extra product, better terms, free training, or extended maintenance.