The Argument For Market Diversification In Manufacturing
You will find that rule 80/20 applies;
That is to say, 80% of their sales come from 20% of customers (
Only one or two clients sometimes).
But what if one of these big customers decides to force a discount on SMM where they can\'t make a profit?
Or if customers are like Wal-Mart
Wal-Mart, they will compare your price with a Chinese supplier and force you to either match the Chinese price or lose business.
Another problem is that the customer may decide overnight to outsource the product to Asia instead of buying from you.
Or customers may be in a cyclical industry, such as housing that has fallen during the recession, and there has been no business for a few years.
The answer to all these questions is market diversity.
I mean find more customers in more market segments so that one or two big customers won\'t dominate your business.
There are many ways to do this, but here are some examples.
Davis tools in Hillsboro, Oregon
CEO Ron Davis saw the handwriting on the wall as the parts of the merchandise store increasingly came from Asia.
Ron Davis said, \"If customers have time, they can get anything they want from China for less money.
Davis Tool decided to change their strategy to provide quick turnaround in custom or small batch work.
Davis knows that many of their customers are operating in a timely manner and can\'t stand the uncertainty of using foreign suppliers as long as delivery is fast.
One of their customers is Lite Edge Inc. of Tualatin Or.
John Erickson of Lite Edge said, \"We operate on time and frankly we can\'t stand the uncertainty of ordering overseas.
The following measures are needed to support the new strategy: 1. Consolidation-
They merged their 5 different locations into one building and auctioned some of the old equipment.
Vertical integration-Davis offers machining, manufacturing, nickel plating, anodized, laser cutting tool design, solid engineering, Pro-
Engineer, powder paint, paint and engineering design from one location.
This strategy enables them to deliver very quickly and enables them to control most processes. 3.
Part of the new strategy is to describe their customers, find out which customers are best suited to the new services, and where they can gain a competitive advantage through their services.
The best customers are companies that operate in a timely manner and require high quality and night service. 4.
Market diversity-the strategy also includes a conscious diversity of more market segments and industries.
Sell Davis tools to the high-tech, military, medical and aerospace industries;
And many market segments and applications within these industries. 5.
Cross training-an expert in an operation is cross
Trained in other businesses.
For example, mechanics are also trained in laser cutting sheet metal.
This allows managers to move people and work in the background.
The result of the new strategy is that they reduce the flow time (
Average time of work order opening)
From 40 days two years ago to 17 days today, they have diversified into many new market segments and customers. .
Nimet Industries is a work store in South Bend, Indiana, offering proprietary anodized and 75-
Someone works in a 60,000 square foot factory.
Their main strategy can be described as: market diversity-Nimet\'s conscious attempt to diversify into industries such as medical, dental Pharma, food processing, fluid power and electronics.
Processes and applications define many market niches in these industries. Guy Ellis (Vice President)
He said, \"The advantage for us is that when an industry segment falls, there is little change in our sales.
We really diversify as much as possible to minimize the impact of the business cycle on our company.
\"Geographic expansion-most work stores focus on local markets and customers.
On the other hand, they have expanded the market across the country, and Nimet\'s work rarely comes from places close to their factories. Sales Organization-Nimet visits their customers using a combination of independent reps and factory sales staff.
Customer Profile-part of their sales strategy is a conscious effort not to sell most of the capacity to any one customer.
If a job looks like it will take up too much of our capacity, we won\'t be able to quote it as competitively as some companies do, Ellis said.
Anything that exceeds 20% of total sales, we will double check to make sure it makes sense for us.
\"This is a very progressive strategy because most of the business in the professional store depends on 2 or 3 customers and rises and falls with these customers.
Proprietary process-Nimet developed nitoff, a type of four fluorine (Teflon)
There is also a hard Anode Oxidation finishing of dyed black.
They also offered nicoteff. it\'s a collaboration.
Deposition of nickel and four fluorine.
Both technologies are proprietary and have a strong competitive advantage in the market.
\"We don\'t make a big part,\" says Ellis.
We mainly manufacture small parts for industrial equipment.
For example, we don\'t do the building part or the bulk work.
Nimet focuses on the small volume market of 100 to 500 pieces.
Fast delivery-from their 3,000 active customers, they receive an average of 100 to 200 orders per day.
They can score 3 points on average.
Within 5 days from receiving the order to shipping.
SRC holding company in Springfield, Missouri. -
\"When we started at 1980, we spent 75% of our labor on the truck market,\" CEO Jack Slack said . \".
\"We did some research and found that the truck market is in recession every six years.
So we have to ask ourselves what we will do if the economy goes down.
\"We have considered the rise in the market when it fell,\" he continued . \"
\"We found that auto parts would increase because people would keep their cars for longer and fix them.
This is how we enter the auto aftermarket.
This idea is part of our culture and the way we do business.
\"Slack knows that the more diverse the company is, the safer it is.
SRC Holdings is now a mini
A group of 26 companies and 1,200 employees.
They produce car engines, refrigeration equipment, agricultural machinery, pumps and so on.
Vancouver WA-Columbia machines
The author once managed a department that made stackers (
Automatic Machine to pile cartons on pallets).
Our goal is to diversify, not to rely on several large-volume customers.
The strategy we use is to find the NAISC code for the customer\'s product in each new quote request.
We will then use services like D & B to find the number of potential customers in the US marketS.
We are able to use our standard machine models, but the cost of getting into a new market is to design new options and accessories to accommodate the new product.
This gives us the opportunity to learn a lot about the market niche before we commit to it, from entering the cost and market potential.
With the globalization of markets, industries and customers, diversity is the strategy that all SMMs should adopt.
But you have to have a strategy to do it or you will find yourself
Go down many paths that could lead to deathends.
When you don\'t know where you want to go and what you want, alice\'s encounter with the Cheshire cat sitting on the branch and the path she took were the best explanations divided into three separate paths.
She said: \"Please tell me, which way should I take from here?
\"It depends on where you want to go,\" said the cat . \".
\"I don\'t care where ---\' said Alice.
\"Then it doesn\'t matter which road you take,\" said the cat. `--
\"As long as I get somewhere,\" Alice explained.
\"Oh, you will definitely do that,\" said the cat, \"If you go long enough.
\"The point is that you have to know a lot about where you want to be before you try to go.
This should include checking the total number of niche markets, applications, and base customers.
It should also include information about competitors who have already sold to customers in niche markets.
Michael Collins is the author of The Guide to Business Marketing manufacturing.
His website is mqmgt.