You know what I’m talking about. Your biggest, most demanding customer tells you: “We like your work and we want to elevate the relationship from vendor to partner.”
It’s not a bad deal: You’ll get a serious increase in sales volume – which you could really use, even if you do have to make some kind of concession on the profit margin.
To get there, you’re told, you’ll have to adopt their proprietary invoicing system. And you’ll need to deliver parts more frequently, and in smaller lots.
If you don’t have an ISO quality certification, you’ll need to go through the customer’s own quality program.
And if you don’t already own a $120,000 set license for the top-end CAD system the customer uses, you’ll need to acquire one – along with some basic training – because that’s what “partners” need in order to accept designs.
As you digest all this, you also realize you’ll need to invest in new equipment to handle the increased volume and intensified service requirements.
How does the conversation end? Your new partner says something like this: “Let us know when you’re in compliance, and then we’ll send you a contract.”
It’s unrealistic to hope that your new “partner” is going to co-sign a loan on any equipment you buy to support the relationship. But would it be too much to ask if they could send a notarized document to your banker to back up your claim that the work will be there to repay the loan, or to let the banker know just how good you had to be in order to get the business?
And if you didn’t already need the most robust CAD system money can buy, would it really be unreasonable for the customer to pay for it under terms of the contract? Perhaps the largest CAD users – the kind of customers we’re talking about here – could use their combined buying power to urge the software developer into some kind of a receive-and-process version of the system for small companies that aren’t going to use it for any other purpose.
I just heard an economist state – and not for the first time – that manufacturing today represents a larger percentage of the U.S. Gross Domestic Product than it has at anytime since the end of World War II. Our big manufacturers – the Boeings, Caterpillars and General Electrics (let’s leave Ford and GM out of this for the moment) – are enjoying one quarter after another of record earnings.
And no small part of that is due to the tremendous support they get from their job shop and contract manufacturing “partners.” It’s a climate that isn’t going to change anytime soon, either.
Manufacturing in the United States follows an exaggerated version of the 80/20 rule: the largest 2 percent of companies account for 80 percent of manufactured output, according to the U.S. Census. These elite companies are outsourcing as much as they can to businesses like yours.
For example, Boeing is hoping to get out of manufacturing altogether – focusing strictly on design and assembly. Which is why it’s desperately searching for machine shops that can undertake the vast amounts of titanium and other specialized cutting required to produce an airplane.
Other manufacturers of all sizes are echoing this behavior. Which is good news for your business.
Still, it’s getting to the point where just paying for your spindle time isn’t enough; that’s only a small part of the work you do on their behalf.
I don’t know what it would take for your big customers to provide new levels of non-monetary support. But they are placing the growth of our entire nation’s manufacturing sector on your back. It’s in their own longterm interest to redefine what “partnership” really means.
Rosenbaum is publisher of American Machinist. He is coauthor of “Supply Chain Excellence,” which was just released in a second edition in October by AMACOM Books.
