Building Relationships in Emerging Markets
Parts for products in emerging markets can offer higher profit margins than those for legacy applications. The key is to get in tight with the product development engineers in those emerging markets.
In my article, “Why Tie Payroll Hours to Machine Tool Hours?” I investigate J&R Machine’s method of capturing and using machine-monitoring data to calculate what it calls its productivity index, a ratio of a machine’s run hours to its operator’s payroll hours that helps guide a variety of important business decisions.
As helpful as that is, the Shawano, Wisconsin, contract shop also benefits from standardization, as the story explains. For example, J&R Machine doesn’t pursue all types of jobs. Rather, it focuses on complex, turned parts less than 10 inches in diameter and shorter than 20-inches long. It also has standardized the type (and specific models) of equipment it will purchase for that work moving forward (only live-tool turning centers and horizontal machining centers).
Standardization of the type of work it pursues helps J&R Machine’s sales and marketing team target the most appropriate new business opportunities—especially in emerging energy markets—because it knows exactly what types of parts are in the shop’s wheelhouse. In fact, Parker Tumanic, vice president, says identifying opportunities in emerging markets is another important part of the company’s business plan.
Profit margins for legacy-type parts are typically low because these jobs are generally awarded based on price alone. Conversely, J&R Machine searches for customers that buy on value, not price, which is typical when new products for new applications are still in the design stage.
To that end, Mr. Tumanic explains, once key players in a new market have been identified and approached, it’s important to work to build a relationship with their product-development engineers. Although initially he and his team might be communicating with a potential new customer’s purchasing agent, they more than likely will be introduced to the company’s engineering group, because the parts being designed might never have been made before, and there are often questions as to how best to manufacture them.
That’s where J&R Machine’s design for manufacturability (DFM) experience comes into play, which can result in a win-win-win for the shop, its customer and its customer’s product-development engineers. In one example, a part initially required significant, time-consuming CMM measurement routines. The shop suggested it could make a simple fit/function gage to minimize CMM inspection, and the engineers appreciated and accepted that idea. They then demonstrated to the company’s purchasing department how much money that change saved in the overall production process. Helpful suggestions like these help establish and then build relationships with a new customer’s engineers.
Mr. Tumanic says there’s no need to pick up numerous customers in an emerging market right away. Initially winning just one or two might be enough, given the higher profit margins compared to a shop’s existing work. The key is to continuously monitor the profit margins of current jobs while keeping an eye on emerging markets that might offer more profitable opportunities and help boost the shop’s bottom line.