MARKETING MATTERSCEO JOURNAL
Price Can’t Do It Alone “ O
ur lives would be so much easier without those pesky customers.” I hear
this comment, in one form or another, all the time. And while everyone pretends to be joking, it’s clear that many metalcasters do believe it to one extent or another. In fact, blam- ing customers is a tried and true mechanism by which some CEOs dodge responsibility for poor financial performance, forestall admitting their approach hasn’t worked, and avoid the changes needed to consistently achieve double-digit profitability. Nowhere is this more of a problem than in attitudes about price. Many in our industry continue to charge prices that are too low because they fear customer retribution and loss of busi- ness. But once they become convinced their prices are too low and can be raised without causing a mass exodus of business, raising prices is often all many want to think or talk about. For those metalcasters, not only does their focus on price increases boost the bot- tom line, it also reinforces counterpro- ductive attitudes about “pesky custom- ers.” In other words, focusing on price is another way of blaming customers for poor financial performance, dodg- ing responsibility and avoiding real and necessary change. But price can’t do it alone. In fact,
improvements on the cost side of the ledger are even more important to sustainable profit maximization than revenue enhancements. Tis is so in part because reductions in the cost of goods sold are controllable and sustainable. More important, and by virtue of the operational performance improvements that always occur as cost and waste are driven out of the business, they are highly protec- tive of the customer and business base. And it is that protection which makes profit-oriented market pricing sustainable. Put another way, charging market prices without significantly improving cost, quality, and delivery performance will, at a minimum, prevent metalcasters from reaching
DAN MARCUS, TDC CONSULTING INC., AMHERST, WISCONSIN
their full profit making potential and could, at worst, spark the mass exodus of volume they fear most. But driving out waste and cost is
far more difficult and time consuming than raising prices, and requires real leadership and commitment. It also requires management teams to give up many long held and cherished assumptions about the way business works and success is achieved. Tese changes are ex- tremely difficult to make because they are deeply and profoundly per- sonal. Tey require that CEOs and their management teams admit their mistakes, change their minds, and begin to behave in different ways. Shrinking the
Manufacturing types in turn must
Improvements on the cost side of the ledger are more important to
sustainable profit maximization than revenue enhancements.
cost of goods sold in a serious and sustainable way be- gins with marketing. Specifically, and along the lines of “garbage in equals garbage out,” selling non-compatible work is the typical metalcaster’s single biggest generator of waste and excess cost. Instead, they should adopt the marketing proposition that only care- fully selected accounts and jobs are worth having. Tey need always and every day to ask “I know we can pro- duce that part, but should we?” and “I know we can sell to that customer, but should we?” and “I know we can get the business at that price, but should we?” On the finance front, metalcasters need to give up the belief that volume and fixed cost absorption are the keys to success. While this may be true for the small handful of ultra high volume foundries, for the vast majority of metalcasters it is margin rather than volume that is the key to sustainable profit maximization.
accept that scrap is the worst pos- sible thing to have in the plant, and that non-compatible parts must be exorcised from the part population and their like barred from ever returning. Moreover, they also need to accept that overtime is very nearly as bad for their business as scrap, and they need to all but eliminate it. Next, a new ap-
proach to opera- tions management is required to drive out waste and cost first by reflecting high quality and low overtime in the production schedule. Beyond that, I particularly like the concept of schedule at- tainment as the number one goal of operations because it mar-
ries scheduling and manufacturing effectiveness, drives the elimination of waste, improves operational control and consistency, and profoundly and positively impacts on-time depend- ability and customer satisfaction. Finally, CEOs and other manag- ers need to embrace “improvement” as their essential function if their businesses are to shed waste and cost and achieve double digit profitability. Improvement means change, and that brings us back to where we started – with CEOs doing the right thing by stepping up to take responsibil- ity for improving financial perfor- mance, admit that a new approach is needed, and drive the changes needed to consistently achieve double-digit profitability. To be sure, one of those changes needs to be higher prices, but price can’t do it alone.
Keep the conversation going. Reach the author at
tdcmetal@wi-net.com to comment on this or any CEO Journal column or to suggest future topics.
April 2012 MODERN CASTING | 39
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60