We have enjoyed many of Steve’s posts via Linked In, this one I just HAD. TO. SHARE.
I was contacted recently by a potential customer asking for our hourly shop rate. When I asked him why, he said it was so that he could compare our services against that of our competitors. I told him that our hourly rate doesn’t really matter when looking at the overall cost of manufacturing a part and choosing the right supplier.
He did not understand what I was talking about so I went on to explain it like this. Let’s say that Company X has a new state of the art Whatzit machine and Company Z has a 10 year old Whatzit machine. Company X charges $ 100.00 per hour on their machine, Company Z charges $50.00 per hour on the machine that they have. Which company are you going to choose? I’m guessing that you have decided to go with Company Z because they charge only $50.00 per hour. But, did you know that with technology improvements a new Whatzit machine is actually 50% faster than they were just 10 years ago? This actually makes the price the same between the two companies… or at least close.
But what if the pricing wasn’t the same? Let’s say that two companies quoted production of a part and Company A came in around 10% cheaper than Company B. Do you automatically give the project to Company A? If you do, you’re certainly not alone. Many companies do this all the time and the lowest price always wins. But is it really a lower price if you have a lot of rework? Is it truly a better price if the project is late? Here are some questions I like to ask to really find the lowest overall cost:
Does this company have a track record of on-time delivery?
How is their quality and what is their rejection rate?
Can they track my material and offer material certification?
How easy are they to deal with?
Will a real human answer the phone?
Are they convenient to get to or are they located in the middle of nowhere?
Are they ISO certified and do they have a Continuous Improvement plan?
Are they the newest kid on the block or are they an established, stable company with an Outside Board of Advisors?
All of these questions (and likely more) need to be answered to make sure that you are dealing with a reliable and reputable company that is going to provide you with a good value and be around to service you for years to come. I’m not saying this is the only way to evaluate a supplier. I’m just sharing some things to think about.
In the precision machining business, nobody sets up their machines based on the quality or price of your barstock. They set up their machines based on your delivery (service).
Ability to provide your product on time and to specification is the true determinant in the real world of execution. Thats why there is a gap between the dream world of business plans (what we think we can get) and the real world of monthly operating statements (what we got).
The delta (difference) between the two is a failure of some supplier to service (provide what needed as needed as planned.)
Quality: Either the quality of the product meets requirements, or else you will get claim/return and won’t get the order (again).
Price: You will meet the market price for whatever comparables exist for the same requirements- or else the lowest priced comparable product will be selected.
Service is the only differentiator in my experience;
Therefore it is only your ability to serve the customer with immediate delivery/ provision as needed that is a differentiator.
PS.: Consumers consider service to be part of the landed cost, and don’t want to pay extra for it. In the industrial sector, service is a given.
We all know that customers want ever decreasing prices.
GM and Chrylser bankruptcy and bailout showed us how that thinking turns out.
So what do customers really want? Here are my top three ideas:
Customers want solutions. They don’t want to buy your product. They want to solve their problems.They want to see their problems go away. Are you selling products when they are looking for solutions? How is that working out?
Customers want service. They want it now. Lead time is so, so , 20th Century. It is a global, inter-networked- 24-7 world today. Some body has what they need. The first one to say yes gets the order.
Customers want value. Not cost. Value. Customers will pay for what they value. Not just pay for what it cost you, but for what they value. Is it really a “deal” if you have to take the “gi-normous” soda when all you really want is the sandwich? How much “soda” are you pushing to your customers when all they want is the sandwich?
Solutions. Help them solve their problems with <gasp!> the products that you can deliver this week. Service. It is no surprise that all mature economies become more and more service oriented. People want to be served. Customers are people. Value. The customer tries to get you to lower your price. you think that it is about lowering cost. What the customer really wants is higher value.
Thats what I think.
Service.Not promised delivery. Delivery!
Value.Not a deal where they get crap stuff they don’t really need.