This is the third article in a series of three on the industrial services and rebuild business focusing on the marketing of engineered customer products; establishing the value proposition of an industrial service and rebuild product; and establishing the optimum product supply chain.
Situation
Crawling down from his tree stand in the cold of November with his bow was no easy trick at his age. Jim was unhappy he had missed the buck due to the shift in the wind, but as he trudged to the camp at the end of the day he was more upset about work.
He had grown the customer base for his products and services and demonstrated the value proposition to his whining customers who wanted a lower price. Now he was under serious pressure from his ownership to improve the profitability and working capital turns. No one understood the difficulty of the market place. It was hard to make a decent profit and sales in this global economy. Now they demanded more money and much less inventory dollars.
The owners did not understand. Jake knew he was already getting a price premium and the competitors had more inventory. The competition used that inventory constantly as a leverage proposition with his customers. It was not fair. His product group was providing the best long lasting solution value proposition in the industry. Products backed by the strongest and most talented engineering group in the business. There was a limit on what a team could deliver.
How many times did he have to explain the problems?
Perceived Solution
Jake’s team brainstormed the problem. The only solution was to raise prices and lose customers. Inventory cut would mean longer lead times and fewer happy customers.
Process Tools Deployed
The tools of lean manufacturing were deployed beginning with Value Stream Mapping that documented the service and rebuild process from initial teardown to quote to rebuild to shipment and billing. The results identified opportunities to improve the flow of material by keeping partially machined components prior to when they became unique to the customer. These became a Kan Ban item reducing inventory.
Many components were sourced in China partially machined to reduce the cost improving profitability. This supply chain integration took significant effort and was aided by a disciplined approach to identifying, qualifying, checking, and re-checking for quality and capacity.
Solution
The solution was to eliminate waste in the product, redesign components as appropriate and package the pricing of the product so the customer could understand the value proposition.
The integrated team working with their customers determined the best life mix of components to retain the life of the product advantages. The global sourcing group found overseas less expensive equivalents.
Jake’s team compared the life cycle costs of the materials for the customer and offered the more expensive material with a longer warranty, offering the cheaper material as an alternative with less of a warranty.
Components were redesigned for manufacture or sub-contractors were used to lower cost.
Study was given to the customer with a full service arrangement as had been the practice or an alternative of quick replacement was offered as a tiered program.
Information Technology was applied to reduce the time spent by application engineering and the customer was educated on the value of the engineering reports to keep them running.
Results
The customers were maintained with few price decreases. The education on the value added proposition further entrenched Jake’s group at the customers. The material provided was easily used by the customer maintenance personnel to support more spending with their management groups. Profitability was increased and inventory turns improved.
The development of the value added proposition for the customers was only one part of the industrial service success story. On Friday, an article on establishing the optimum product supply chain for those services will be posted. Join me every Monday, Wednesday and Friday for a new look at leveraging your human capital to attain a sustainable competitive advantage.
Friday, April 10, 2009
Wednesday, April 8, 2009
Establishing a Value Proposition
This is the second article in a series of three on the industrial services and rebuild business focusing on the marketing of engineered customer products; establishing the value proposition of an industrial service and rebuild product; and establishing the optimum product supply chain.
Situation
Jake drove his dark blue pickup truck back home following a successful boating day with his key customer. The mess of fresh water lake perch on ice in the truck bed cooler attested to the successful fishing. Jake seethed and fretted inside over the message left by the customer. “Why are your products so much more expensive than your domestic competition? I hear those Chinese custom products are holding up and they are half the price.”
It was not fair! His product group provided the best long lasting solution in the industry. He backed the product with the strongest and most talented engineers in the business. Now the customers who saved a bundle of money with his productive and long lasting custom solutions were questioning his price. He had always charged a fair price!
The market had grown stronger as the industry consolidated to compete globally. A handful of survivors were emerging. These organizations were global in reach and demanded cost reductions for their business. The specifications were harder to influence despite the expertise of his applications engineering group. The problem was aggravated by the large amount of inventory that was needed to manage the long lead times for new parts. Jake needed to establish the value of the company’s higher cost, but longer lasting product.
Perceived Solution
The sales force and his inside customer service personnel demanded lower prices or lose customers. Clearly the only way to compete with the new global competitors was to lower the price near their levels.
The problem was that the quality of design and materials Jake’s group used to provide better life were more expensive. Jake believed the higher quality product was the reason custom product customers returned time after time. Besides, if price reductions were made at a few customers soon all customers would demand the lower price to stay competitive? Still cutting prices appeared to be the only solution.
Process Tools Deployed
Jake knew he needed a better way to maintain and add new customers. The methodologies deployed were value stream mapping and profiling to determine the value proposition. Value stream mapping determined all the value added and waste activities in the process from initial quote through the shipment of the product. Profiling painted a picture of characteristics / benefits of the product and services through the eyes of the customer. These product characteristics and benefits were thrown against the competitors' and Jake's products and services.
This matrix tool created a value proposition gap.
Findings
The gap findings were shocking to Jake and his team.
• Customers no longer needed the sophisticated adjustment characteristics of Jake's products because the customers had shifted to better aligned equipment.
• Maintenance management at these larger customers were rewarded for today's results and saving money tomorrow had been reduced as an incentive.
• Buying decisions were being taken out of the operations / maintenance personnel and given to sophisticated buyers who were bonuses by unit cost savings.
• Large global customers were more tolerant of overseas products and sister companies overseas used the competitor products successfully.
• Customer's engineering staffs and decision makers were reduced in size so they were not available to meet with several times to get the custom design optimal.
• Jake's products were understood to be longer lived and higher quality.
• Jake's engineering services were being used to design the custom equipment for the resource strapped customers.
• Jake's team had established good relationships with the decision makers over the years of their solving problems.
Solution
Create a value proposition for each major customer. Some of the characteristics of that proposition were:
• Individual custom solutions were replaced by customer models with common characteristics that solved the customer problems while reducing selling confusion, reduced design resources needed, allowed increased minimum order quantities for components to increase allowing buying opportunities, and allowed applications of lean manufacturing such as standard work and manufacturing cells.
• Maintained custom feature tweaks that allowed non-commodity pricing where Jake's company product was perceived by the customer to be better.
• Deployed new product configuration software for the models on secured web connections to minimize the time between the customer decision makers and the applications resources. The eliminated waste and reduced cost while allowing greater pricing as an additional service.
• Jake's company developed a cost reduced model from a low cost country source and used the product to defend against penetration at existing accounts, up selling the custom product and introducing lower cost materials that worked into the custom product for cost reduction.
Results
The customers were maintained with few price decreases. The education on the value added proposition further entrenched Jake’s group at the customers. The web based material provided was easily used by the maintenance personnel to support more spending with their management groups.
The development of the value added proposition for the customers was only one part of the industrial service success story. On Friday, an article on establishing the optimum product supply chain for those services will be posted. Join me every Monday, Wednesday and Friday for a new look at leveraging your human capital to attain a sustainable competitive advantage.
Situation
Jake drove his dark blue pickup truck back home following a successful boating day with his key customer. The mess of fresh water lake perch on ice in the truck bed cooler attested to the successful fishing. Jake seethed and fretted inside over the message left by the customer. “Why are your products so much more expensive than your domestic competition? I hear those Chinese custom products are holding up and they are half the price.”
It was not fair! His product group provided the best long lasting solution in the industry. He backed the product with the strongest and most talented engineers in the business. Now the customers who saved a bundle of money with his productive and long lasting custom solutions were questioning his price. He had always charged a fair price!
The market had grown stronger as the industry consolidated to compete globally. A handful of survivors were emerging. These organizations were global in reach and demanded cost reductions for their business. The specifications were harder to influence despite the expertise of his applications engineering group. The problem was aggravated by the large amount of inventory that was needed to manage the long lead times for new parts. Jake needed to establish the value of the company’s higher cost, but longer lasting product.
Perceived Solution
The sales force and his inside customer service personnel demanded lower prices or lose customers. Clearly the only way to compete with the new global competitors was to lower the price near their levels.
The problem was that the quality of design and materials Jake’s group used to provide better life were more expensive. Jake believed the higher quality product was the reason custom product customers returned time after time. Besides, if price reductions were made at a few customers soon all customers would demand the lower price to stay competitive? Still cutting prices appeared to be the only solution.
Process Tools Deployed
Jake knew he needed a better way to maintain and add new customers. The methodologies deployed were value stream mapping and profiling to determine the value proposition. Value stream mapping determined all the value added and waste activities in the process from initial quote through the shipment of the product. Profiling painted a picture of characteristics / benefits of the product and services through the eyes of the customer. These product characteristics and benefits were thrown against the competitors' and Jake's products and services.
This matrix tool created a value proposition gap.
Findings
The gap findings were shocking to Jake and his team.
• Customers no longer needed the sophisticated adjustment characteristics of Jake's products because the customers had shifted to better aligned equipment.
• Maintenance management at these larger customers were rewarded for today's results and saving money tomorrow had been reduced as an incentive.
• Buying decisions were being taken out of the operations / maintenance personnel and given to sophisticated buyers who were bonuses by unit cost savings.
• Large global customers were more tolerant of overseas products and sister companies overseas used the competitor products successfully.
• Customer's engineering staffs and decision makers were reduced in size so they were not available to meet with several times to get the custom design optimal.
• Jake's products were understood to be longer lived and higher quality.
• Jake's engineering services were being used to design the custom equipment for the resource strapped customers.
• Jake's team had established good relationships with the decision makers over the years of their solving problems.
Solution
Create a value proposition for each major customer. Some of the characteristics of that proposition were:
• Individual custom solutions were replaced by customer models with common characteristics that solved the customer problems while reducing selling confusion, reduced design resources needed, allowed increased minimum order quantities for components to increase allowing buying opportunities, and allowed applications of lean manufacturing such as standard work and manufacturing cells.
• Maintained custom feature tweaks that allowed non-commodity pricing where Jake's company product was perceived by the customer to be better.
• Deployed new product configuration software for the models on secured web connections to minimize the time between the customer decision makers and the applications resources. The eliminated waste and reduced cost while allowing greater pricing as an additional service.
• Jake's company developed a cost reduced model from a low cost country source and used the product to defend against penetration at existing accounts, up selling the custom product and introducing lower cost materials that worked into the custom product for cost reduction.
Results
The customers were maintained with few price decreases. The education on the value added proposition further entrenched Jake’s group at the customers. The web based material provided was easily used by the maintenance personnel to support more spending with their management groups.
The development of the value added proposition for the customers was only one part of the industrial service success story. On Friday, an article on establishing the optimum product supply chain for those services will be posted. Join me every Monday, Wednesday and Friday for a new look at leveraging your human capital to attain a sustainable competitive advantage.
Tuesday, April 7, 2009
Marketing Custom Products
This is the first case study in a series of three focusing on the marketing; establishing the value proposition; and determining the optimum product supply chain for custom products.
Situation:
Jake was having a bad day in the early spring. His service business was now stable after the horrific collapse of the market with bankruptcies. His base customers had reopened with the demand for their products was improving. His headache was that his business unit had no penetration at additional customers for their expensive custom products and services.
The market was declining each year as more modern products were introduced. Jake had the new alternative product but struggled with the transition to the new product while the traditional mainstay was profitable. The problem was aggravated by the large amount of custom inventory needed to manage the long lead times for new product and establishing the value to the customer of the company’s higher cost but longer lasting product.
Perceived Solution:
Jake and his team talked to the sales force and attempted promotional programs along with discounted products and services without successful results at new customers. Customer service was improved and the expanded programs worked at current customers indicating the products were high quality and a good value. No new customers were penetrated.
Process Tools Deployed
A problem solving process tool was applied to the problem. Customers were surveyed on how they make decisions on suppliers. The questioned centered on what they believed were the advantages and disadvantages of the company’s products verse the competitors. The information was captured in a disciplined manner and analyzed using a paredo analysis.
The cross functional problem solving team then addressed the factors using the customer focused business strategy model. The model was used to identify the characteristics of the best channel to market for non-customers.
Some of the key characteristics identified where appropriate to most industries and companies:
1. Downsizing at the company had left their engineering staffed overburdened with work, so the qualification of a new vendor was difficult.
2. Customers were looking to the vendors to supply broader value added services and solutions to their industrial service and maintenance demands.
3. Industry experts within the competing companies were the most trusted source of referrals for suppliers and service recommendations.
4.Industry experts on efficiency and performance were also seen as good sources of information when considering new products.
This data was utilized to develop a new market channel for the penetration of these products into new customers.
Solution
The solution was to develop a customer symposium consisting of a variety of industry experts to assist the maintenance personnel in managing their business. The first symposium hosted by Jake’s service business with the partnership of a monitoring system controls company, an electronic measurement company, an equipment builder, and a lubricant company. Since that date other partners have come and gone including industry experts, cooling system companies and advanced product maintenance experts.
The format of the program was the presentation of critical product data and successful maintenance practices by these providers. There was no attempt to close agreements or solicit future orders directly. The presentations generated a great deal of discussion and interaction between the participants from the various competitors.
The participants were intentionally fifty percent current customers and fifty percent potential customers. The current customers became the best sales people for the product and services offered by the participating companies. Ideas for new products and services were test marketed during the product presentations.
The presentations were always directed at solving a customer problem , deploying effective products and services to accomplish the solution. Competitors' services were spoken in factual terms and where their product was better those advantages were disclosed as well. Throughout the years as the participants went to new locations or to competitors they took Jake’s products and services with them.
The unexpected consequence of the symposiums was the referrals for business between the various presenters' companies as one penetrated an account, they were asked for referrals. On occasion in a difficult situation with a customer, the company called on the experts who had worked on the symposium to help solve the customer problem.
Results:
The symposium is credited in the first five years in developing a fivefold increase in customer base for the service business. Each year, the symposium generated an average $1M+ in additional sales through the contacts and the presentation of proven solutions.
The symposium as a market channel to develop new customers was only one part of the industrial service success story. On Wednesday, an article establishing the value proposition of an industrial service and rebuild product will be posted for view. On Friday, an article on establishing the optimum product supply chain for those services will be posted. Join me every Monday, Wednesday and Friday for a new look at leveraging your human capital to attain a sustainable competitive advantage.
Situation:
Jake was having a bad day in the early spring. His service business was now stable after the horrific collapse of the market with bankruptcies. His base customers had reopened with the demand for their products was improving. His headache was that his business unit had no penetration at additional customers for their expensive custom products and services.
The market was declining each year as more modern products were introduced. Jake had the new alternative product but struggled with the transition to the new product while the traditional mainstay was profitable. The problem was aggravated by the large amount of custom inventory needed to manage the long lead times for new product and establishing the value to the customer of the company’s higher cost but longer lasting product.
Perceived Solution:
Jake and his team talked to the sales force and attempted promotional programs along with discounted products and services without successful results at new customers. Customer service was improved and the expanded programs worked at current customers indicating the products were high quality and a good value. No new customers were penetrated.
Process Tools Deployed
A problem solving process tool was applied to the problem. Customers were surveyed on how they make decisions on suppliers. The questioned centered on what they believed were the advantages and disadvantages of the company’s products verse the competitors. The information was captured in a disciplined manner and analyzed using a paredo analysis.
The cross functional problem solving team then addressed the factors using the customer focused business strategy model. The model was used to identify the characteristics of the best channel to market for non-customers.
Some of the key characteristics identified where appropriate to most industries and companies:
1. Downsizing at the company had left their engineering staffed overburdened with work, so the qualification of a new vendor was difficult.
2. Customers were looking to the vendors to supply broader value added services and solutions to their industrial service and maintenance demands.
3. Industry experts within the competing companies were the most trusted source of referrals for suppliers and service recommendations.
4.Industry experts on efficiency and performance were also seen as good sources of information when considering new products.
This data was utilized to develop a new market channel for the penetration of these products into new customers.
Solution
The solution was to develop a customer symposium consisting of a variety of industry experts to assist the maintenance personnel in managing their business. The first symposium hosted by Jake’s service business with the partnership of a monitoring system controls company, an electronic measurement company, an equipment builder, and a lubricant company. Since that date other partners have come and gone including industry experts, cooling system companies and advanced product maintenance experts.
The format of the program was the presentation of critical product data and successful maintenance practices by these providers. There was no attempt to close agreements or solicit future orders directly. The presentations generated a great deal of discussion and interaction between the participants from the various competitors.
The participants were intentionally fifty percent current customers and fifty percent potential customers. The current customers became the best sales people for the product and services offered by the participating companies. Ideas for new products and services were test marketed during the product presentations.
The presentations were always directed at solving a customer problem , deploying effective products and services to accomplish the solution. Competitors' services were spoken in factual terms and where their product was better those advantages were disclosed as well. Throughout the years as the participants went to new locations or to competitors they took Jake’s products and services with them.
The unexpected consequence of the symposiums was the referrals for business between the various presenters' companies as one penetrated an account, they were asked for referrals. On occasion in a difficult situation with a customer, the company called on the experts who had worked on the symposium to help solve the customer problem.
Results:
The symposium is credited in the first five years in developing a fivefold increase in customer base for the service business. Each year, the symposium generated an average $1M+ in additional sales through the contacts and the presentation of proven solutions.
The symposium as a market channel to develop new customers was only one part of the industrial service success story. On Wednesday, an article establishing the value proposition of an industrial service and rebuild product will be posted for view. On Friday, an article on establishing the optimum product supply chain for those services will be posted. Join me every Monday, Wednesday and Friday for a new look at leveraging your human capital to attain a sustainable competitive advantage.
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