Services you give away for free today is the revenue of tomorrow.
- The (expert) human touch
- Defined services with value and cost
- No more pricing shell games
Contract manufacturing is a business of followers. An industry that is vital to our modern world, providing everything we use. So why do we abuse them, and allow them to harm themselves?
Value comes from within. You must invest in the future to become what you envision, or customers demand. While that is hard at 3% margins, it might be impossible at 1% margins in your race to the bottom.
After you establish the human touch, you need to develop the value of those assets and frame them in a service offering. Yes, people are assets. Manufacturing companies have long fallen victim to marginal improvements through mediocre planing. Framing a service offering is effectively productizing something you already do, giving it life, power, and profit. Or at least neutralizing the cost impacts of ongoing demands. Customers are only becoming more powerful and demanding.
Contract manufacturing companies continue to wait for direction. Pay first, execute second. In my last article, I outlined a clear path to success. Build a small but elite force that services customers from the cradle to the grave. Build out a framework that you can present with contracts, pricing, and value statements. Productize! It all starts with a presentation and intent.
Customers are not off the hook and should change their approach too. They know the game of demanding more for less. There are more and more tools for market transparency. Customers are focused on what should be cheap versus value add. Contract manufacturing fails is translating what they hear and create proactive steps. Help them. Offer them clear guidelines that highlight where you would pay for value. Create an open dialog shifting the conversation away from commodity issues and into value building ones.
Examples are everywhere. Create or demand contract for service offerings:
- Design services that transcend asking “what’s next”
- Mutual price and supply management with transparency
- Value-added data collection with specialized market intelligence and in-network sharing
- Structured services that ensure product integrity from cradle to grave
- Long term End of Life (EOL) planning and management
I have been on both sides of the table. The words are spoken, notes taken, and actions filed. Then everyone tries to stuff new value into the same old box of per-unit cost. This needs to end and fast. Customers have requested or should be requesting, every one of these items. Manufacturers must provide products and services that define the experience and force customers to accept the terms or reject them.
The punch line is this. Customers who reject the value proposition allow you to stratify your offerings and costs. Service levels are accepted in every single part of life and business. Why is it that customers and contract manufacturers have locked themselves into an endless discussion on unit price and cost reductions?
- Customers are asking for services
- Manufactures want to be paid in advance
There is an inspiration for both parties in this death spiral. Look at startup culture. Startups offer promises all the time and customers buy them. Limited and promised functionality sold with the hope of improvement. Ironically both parties in this story do that every day as a course of business. Just not with each other. Change the culture of following and lead one another to success.
