How Bad Do You Want to Save 20%?
Last week I wrote about the raw material price increase and the prospects for 2017. This week the Fed signaled they are going to be increasing rates due to the strong economy. Price pressure is everywhere. We feel it, too—so as a service to our custom sheet metal fabrication customers, we’ve been brainstorming ways we can make a significant reduction in their sheet metal costs.
With some cooperation from our best customers and a little hard work on our part, we’ve come up with a way to help save them up to 20% on their custom sheet metal components and assemblies. The interesting thing: they aren’t that interested.
Last week I had lunch with the president of a major OEM near Boston to ask his advice. He was brutally honest and shared that his material costs had gone up in December, and he was worried about his team hitting their cost targets. “A 20% costs savings is a big deal,” he commented. Even though I thought our ideas would not work for his company, he still wanted me to meet with his VP of manufacturing and VP of supply chain. I called the following week and the operations guy was excited, “Sign me up, just make sure the VP of supply chain attends.” So I called the VP of supply chain to set up the meeting. “Well, we really don’t buy that much sheet metal,” she said. “How about you call us when you’ve done [all the hard work] with your other customer?” and she wrapped up the call quickly.
So now, we’re battling a few challenges on multiple levels:
- Raw material price increases
- Creating tailored solutions for each customer (more work for ETM and for each customer—for a positive end purpose)
- Finding—and reaching—the decision makers in each company
- Guiding buyers to be willing to look at a new way of “quoting” instead of relying on status quo of simply reviewing re-quotes
- Getting consensus between departments within each organization (needs, goals, and philosophies are at odds within many companies)
Shifting Status Quo
As you can see, much goes into trying to find optimal and innovative solutions to benefit all parties involved. If I had to make a general observation (and one that, frankly, surprises me), all too often it seems that people who have been quoting their whole career see re-quoting as the only way to solve a price increase problem; they view change myopically, and aren’t open to other options. I get that they view their status quo as the most “efficient” process to do the work in the way that they are used to doing it, but the net can be appreciably different if they are willing to work with us for more positive cost outcomes.
Next week we are meeting with the sourcing manager of a large equipment company—and the great news—she is already impressed that ETM Manufacturing has approached her with creative cost savings ideas. Her company is under the same raw material price increase pressure as my other customers. In fact, the top four managers in her division are meeting specifically to evaluate outsourcing to Asia to solve the price increase problem. She is fully aware that re-quoting will only cause more problems. She knows her customers are used to three-week turn arounds, so eight weeks from Asia won’t work. She also knows that shipping costs, inventory carrying costs, and quality inspection costs will also be part of the “Asia price.” Plus, with eight weeks of inventory in transit, her company is at great risk if any design change occurs.
But … How?
How do we do it? Well, this might sound like any old “company line,” but we do it with a lot of hard work, plenty of cooperation, and tons of communication. You can't save this much in costs by posting a quote on MFG.com and praying for a supplier to make a mistake on the quote. As our website illustrates, we map out the entire process, noting where value is created and where costs are wasted. Then, with brutal honesty, we cut out all the waste.
- No inventory—anywhere
- No set-up—anywhere
- Transportation costs as close to zero as possible
- Less people
- More work
- Faster response times
- Lower costs
If you have exhausted your re-quoting efforts to fight rising costs and want to make a difference with your supply chain, ETM Manufacturing may be the right fit for you. Contact us to explore this more for your next custom sheet metal fabrication project.