Key to Making a Profit in a Slow Economy
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By Neil Chaudhry, Chief Operating Officer and Vice President Business Development, buyCASTINGS.com, Inc.
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Marketing and sales textbooks will tell you when the going gets tough, the tough
companies focus on their existing customers. It costs too much to get new customers,
if there are any to be found. So, you must figure out how to keep the customers
you have and how to get more out of them. Easier said than done. But, there
are a few simple reasons why your profits go up by getting business from your
existing customers: 1. It doesn't cost to acquire the customer; 2. It costs
less to service them (because you know their needs); 3. It's easier to sell to
existing customers (provided you serviced them well); and 4. They are a great
source for new referrals (again, provided you serviced them well).
That's the theory. Let's see how the metal casting industry can capitalize on
it given the current market conditions. We are in a constant price decline environment.
We are in a globally competitive (and as most would say a non-levelplaying- field)
environment. On top of that, we have to factor in the increasing costs for supplies
and services like energy and healthcare; face the challenges of the e-procurement
technologies; the Internet; and the myriad of government regulations. So, how
do we turn these challenging conditions in our favor and make more money from
our existing customers...
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Increasingly, buyers are going offshore NOT because they WANT TO buy from
China or India but because by going there, they improve their profits. In textbook
terms, in a free economy, capital flows to the lowest cost producers. So, how
do you as a US foundry retain customers and make more profit from the jobs you
have. The answer is simple (but very difficult to swallow for most foundries.)
The foundries have to go "to the lowest cost producers" - outsource your casting
production over the next several years and re-train and re-deploy your people
into the higher value-added functions. This is really hard for people to swallow
because it sounds like you are putting yourself out of business. According to
Mr. Bob Dzugan, President of buyCASTINGS.com Inc. foundries have to face the fact
that "you don't get paid for melting metal, you get paid for shipping castings."
The fact is you would retain the customer, increase your profits, AND meet the
customers' demands of cutting costs every year by 5-7% or more. You get more business
this way and rehire the people that were making castings to doing computer design
work, flow simulation, design optimization - the higher value added, intelligent
functions instead of the manual, remedial functions that others can do for less.
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The trend started in the early 80's when, for example, Ohio lost over 10% of it's
manufacturing jobs as auto suppliers moved their production to Mexico. Short term
there was a lot of displaced workers, today Ohio enjoys one of the best economies
in the country because more people are employed doing more value-added service
or "soft" manufacturing type jobs (such as computer software, technology
management, product design, product development) than ever before. Even the auto
assembly plants owned by offshore companies have moved back to Ohio to do the
back-end assembly, shipping and distribution because it makes sense to do that
here closer to the end-consumers. But, manufacturing of raw components or labor-intensive
operations is outsourced to Asia or South America.
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If you don't do it, your buyers WILL go offshore directly. In fact, most buyers would rather have their suppliers go
offshore to buy the raw parts, finish it here, inspect it, assemble it and deliver it on time. That reduces the risk for them
significantly and they are WILLING to pay for that. The smart strategy is to do that while you have them as a customer
NOT after you have lost the job.
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| So, the new foundry that's going to be prosperous in the next 10 years
will ship more castings per person than ever before. It will be more profitable
than ever before. It will have much higher salary per employee than ever before.
And, it will do significantly less melting and pouring of metal in-house, if any.
Those remedial, labor, energy, and regulation-intensive functions will be outsourced
to the countries with lowest cost. (That is, lowest cost with a given level of
quality and delivery, which everyone has to meet now.) Your foundry will do the
front-end work of marketing, selling, branding, customer relations, design, development,
and optimization work as well as all the back-end like inspecting, finishing,
packaging, warehousing, JIT delivery, and customer service. Everything in the
middle is farmed-out. If we replace the traditional manufacturing jobs with higher
paying service jobs or "soft" manufacturing jobs then that still raises our standard
of living. By helping our customers lower costs, every consumer in America benefits.
This raises the standard of living because we pay the same or less for better
cars, refrigerators, and cameras every year. (It's funny that we don't complain
about manufacturing going offshore when we pay less for these items every year.)
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So, how do you make more money in a slow economy, you have to cut costs by outsourcing
what others can do for less. And, in the case of foundries that means outsourcing
the production of raw castings. A few foundries or the early adopters are doing
that right now. The Internet, on-line marketplaces, and intermediaries like
buyCASTINGS.com can help foundries do that quickly and cost effectively. We welcome
your inquiries and comments at 937-259-1317 or nchaudhry@buyCASTINGS.com. |
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