This week I had the chance to catch up with John who runs a successful high tech manufacturing company. Years ago we helped him reverse engineer a large chassis to reduce costs significantly. These days, John has made huge steps to upgrade his management team and as a result he has had impressive sales growth. This summer has been slower than expected for both of our businesses. It’s expected as most decision-makers leave for their summer vacations, but it still leaves us owners wondering how much business will return. John is not worried about foreign competition for three reasons.
1. Quality remains a concern.
Recently John “lost” business to an Asian competitor only to have his customer come back to him. Apparently the Chinese “stainless steel” was rusting and the customer now faced a very expensive replacement scenario. Luckily John’s team not only can replace the part, but they can also handle the on-site service of removing and replacing the units. At ETM, we’ve seen parts arrive damaged from overseas and the customer has no way to repair them. The low price plus the rework cost far exceeded our price, so the customer sourced future business with ETM.
2. Customers are still worried about theft of intellectual property.
In low tech worlds, copying intellectual property is considered normal business practice. Just ask Gucci about their purse knock-offs or the fashion industry about runway masterpieces that are copied overnight in India. Copying is now becoming more high tech – 10 years ago when I toured the Taiwan consumer electronics show, we would see 20 copies of last year’s hot product. When I visited individual booths, the Chinese manufacturers would brag about how fast they could reverse engineer products. John’s customers are very aware of increasing sophistication of their competition’s engineering teams (and the differences in moral codes between the cultures).
3. The “real” price difference is not as large as expected.
John’s customers as well as ETM’s have accepted that inventories have been reduced or eliminated permanently. As a result, demand fluctuates significantly and high volume manufactures in low cost regions cannot react fast enough, nor does it support their business model. Smaller orders with higher variability are the norm for local manufactures. Once shipping costs, freight, duty and logistics costs are factored in; the cost difference is not as great. Have a problem and need your engineer to visit the factory and now the costs are in favor of the local manufacturer.
Our job, the one for John and me, is build our organizations so they thrive on high mix, low volume to meet the needs of our customers and thwart our foreign competitors. This means upgrading our management teams and investing the tools, technology & training to support this new manufacturing model. At ETM, we have invested in a new Director of Operations who is transforming the way we do business. If you would like to see more of what we are doing to support your needs, contact me for a tour.
from ETM Manufacturing http://etmmfg.com/3540
from American Quality Management http://aqmauditing2014.tumblr.com/post/129228573485
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