By Neil Chaudhry, COO buyCASTINGS.com, inc.

Manufacturing is a deflationary force. In the manufacturing world, by and large the prices have been going down for two decades now. They are certainly NOT going up like they are in the service sector. In services like health care, education, legal, financial, advertising, the prices continue to rise steadily but surely. No wonder, the hardware guys such as the cell phone manufacturers, computer and printer manufacturers are virtually giving away the hardware. Why? Because they know that the money is made in services like selling you the warranties, the monthly subscriptions, and the consumable supplies after they sell you the hardware.

The IT world realized this a decade ago or so. IBM started selling services to expand out of the PC box business. They started focusing on consulting, problem solving and value added services like customized software development rather than the manufacturing and selling of hardware. Why? Because the margins are a lot nicer, the pricing power is great, and there is little or no competition if you provide a niche solution.

Long term, this bodes well for internet services, IT customized services, product designers, anyone who is clearly providing value added service that is not easy for others to provide.

So, how does the foundry industry take advantage of this trend? We need to define our customer's need not just with respect to pricing and terms but with respect to service, delivery, solutions, bundling of services, and what do they value the most. Every customer has needs that go well beyond what they are coming to you for. It's our job to discover those needs, define solutions, define our value added service and show how we can satisfy those needs.

The difficult part is putting a value or a price on the value added services. The customer has to be willing to pay for the value added services, otherwise there is no value added or perceived value to the customer. How do you put a value on value added service? The value is the price that both parties agree on and if that price is less than your cost of providing that service than there is perceived value but no deal unless you are willing to take a loss for some other long term benefit perhaps. Ideally, you should be able to mark up your service if there is a significant perceived value to the customer.

In a manufacturing world where the price of the tooling, the castings, and the hard goods is stable or going down, there is no choice but to charge for value added services to grow your margins and profits.