Moving from SELL WHAT YOU MAKE to MAKE WHAT YOU SELL (where the customer drives the solution at the quote and order level)– what are the drivers for differentiation in this segment? There are several:
- Industry Standards – many product designs can meet the performance requirements for multiple end-use markets, but require adaptation to meet the exact industry specifications. In rotating equipment (pumps, motors, seals, etc.), the same hydraulic design for a pump may need to be highly varied to meet the different requirements of Chemical Process (highly corrosive ) or Mining (highly abrasive), or a Power Plant (super reliability ). If any supplier were to attempt to pre-design and develop each of these solutions it would create a significant demand on people and systems… there are simply too many variations to accommodate a full range of specific hydraulic solutions for each industry need. Back to my CIO experience, in that company we maintained almost 1 Million Manufacturing Bills of Material (along with their drawings and routings, etc.) to produce 16,000 finished pumps per year! The overhead and error rates were simply too high to be competitive, and too manual to be agile and adaptive.
- This movement is further driven by Globalization – Adding to this industry segment need for differentiation has been the trend toward globalization. The simplest examples have always been in the measurement standards (metric, standard, UK, etc.). But there are other forms of differentiation that have added to the difficulty for manufacturers using a repetitive, “sell what you make” model… for a pre-standardized product. Staying with pumps, CE requirements forced very specific design and documentation needs into the process; and many geographic markets had their own nuances in these same areas. Then we add commercial variation to product variation – language, currency and customs differences that must be accommodated to participate in the global markets. Each of these adds an element of differentiation to the quote and order cycle. The needs expand from physical geometry and hardware requirements to include much needed supporting data and a wide range of technical and commercial information. Each of these is a form of ‘differentiation’ at the quote and order level – and if not handled efficiently creates errors, delays, and margin erosion.
- Another Major Driver is Customer Preference – in manufactured products that become part of a larger solution (e.g a chemical process system, or a building design) the customer engineering or manufacturing influences may dictate the final design based on function, aesthetics, or even compliance with maintenance standards. There are considerations for ‘first cost’ vs. ‘total cost of ownership’, where the same base design can be adapted accordingly by featuring (or de-featuring) the same product.
Each of these examples presents the opportunity to be more competitive vs. a commoditized or standardized offering – the customer can have ‘exactly what they want/need’. Your company’s ability to handle these adaptations – and to present the business cases that best meet the buyer’s needs are critical to winning in these markets – and then the ability to efficiently execute on fulfillment of these needs determines profitability and customer satisfaction. The most dominant market share will go to companies that can efficiently and effectively manage Mixed-Mode orders… standardized, configured, and highly specialized… all in the same operations.