July 12, 2013
Choosing your customer wisely allows you to focus on that limited range of capability and take on that occasional “stretch” project with limited risk of failure or loss.
Contract manufacturers by nature are presented with a wide variety of applications, often extreme or seemingly impossible. Each customer and project can have unique requirements. How do you manage the big range of potential customers, projects, and manufacturing challenges?
One way to increase effectiveness is to focus on what you do best. It is natural to want, and sometimes need, to take on projects that stretch capabilities, but most companies really excel in a limited range of capability. By operating mostly within that range, they find it becomes much easier to quote accurately and minimize production risk. People already know how to produce such work effectively, materials are familiar and likely within convenient reach, and equipment is already in place.
Choosing your customer wisely allows you to focus on that limited range of capability and take on that occasional “stretch” project with limited risk of failure or loss. The following five steps will help you define and target customers that closely match your capabilities.
Why are you in business? What is your outlook? Where do you want your business to be in five years? What are your strategic directions?
Mission and vision are sometimes used interchangeably, and the meaning of each is also debated in business press and academia. For the purpose of this exercise, let’s define mission as “why your company exists” and vision as “where you want your company to be in five years.”
Mission statements need to be simple, concise, and easy to understand. What is it that you do? One example might be: “XYZ Inc. provides high-quality manufacturing services, creating value for both our customers and our employees.”
Likewise, the vision statement also should be concise and easy to understand. Here, though, it’s time to be more specific and strategic. What would you like your company to look like in five years (or whatever timeframe you choose)? What revenue, equipment, and capabilities would you like to have; what skills would you like your employees to acquire; and what new technologies would you like to employ? Where would you like your facilities to be located, and do you see any expansion beyond your current market areas?
Clearly defining and communicating your vision with your team allows everyone to understand your strategic direction and to work toward it. This includes finding customers and projects that are aligned with that direction.
Where do you excel? Where do you struggle? Knowing this helps identify customers and projects best suited to your capabilities. Having a good understanding of weaknesses helps you to identify areas to either improve if it is essential to your mission and vision, or identify as potential risk when taking on a project.
Strengths and weaknesses can guide you in accepting or rejecting a project. Having a good understanding of what you are really good at will give you confidence in quoting work aggressively or conservatively to cover potential risks. This already may be an informal or subconscious practice. In effect, you already may be choosing your customer based on how you price projects. But beyond this, here are some factors to consider:
There are, of course, many more activities or potential areas of expertise that you can use to differentiate your firm from competitors. Taking time to really know your strengths allows you to approach prospects with a very high degree of confidence. It also allows you to match your capabilities to specific customer needs once they are identified.
Knowing your customers’ requirements is essential to understanding what adds value in their business and what capabilities you will need to satisfy their requirements. This can be accomplished only by paying close attention to their needs, beyond the buyer’s office.
What is the customer’s supply chain strategy? How important is every item they request? Some things will have much more importance than others, and it is critical to know clearly where to focus your attention. How important is delivery, quality, or cost? If you know that delivery is critical, make that a focus of discussion.
What is the customer’s growth plans? In a rapidly growing enterprise, you might find more opportunities for offering value-adding activities, such as delivering a completed subassembly. This simplifies ordering and scheduling for your customer when it is likely struggling to hire and train new employees. Your services become even more valuable under these conditions.
Clearly understanding the customer’s needs will also help you to identify which customers and projects are best aligned with your capabilities. You can uncover the hidden or unspoken needs by paying close attention to what is said, but the best way to see what is really important is to be on the customer’s shop floor, communicating face-to-face with the people who use your product or services.
Now that you know your mission/vision, strengths/weaknesses, and customer requirements, you can proceed to outline a profile of your ideal customers. What services do they require? Where are they located? What industries are they in? What financial strength is required? How much risk can you tolerate with a customer? How much complexity is involved? What are the people like to work with?
Here you are looking for a close match with your capabilities. By matching potential customers to your capabilities, you will already be in a strong competitive position to gain their business. Outlining your ideal customer need not be complicated. A few key points to act as a guideline will help you narrow your search to those companies best aligned to your business model.
Some ideal customers may eventually seek you out. In the meantime, you have to go find them. That’s why your marketing and sales activities must completely align with your strategy. Identifying what industries those customers are in is your first step.
The Internet is a fast and easy way to quickly research industries to target. Industrial directories and databases are available as well. Often you can search using NAICS or SIC codes to filter industries that match your criteria.
Once the industries are identified, you can apply some filters. If you have identified a minimum size in terms of revenue or employees for an ideal customer, it is usually easy to filter based on those criteria. If you want to focus on a specific geographic area, say within a four-hour drive of your facility, you can search within specific zip codes or by address.
Many online research tools and databases are readily available to help you in your research. Subscriptions can be very reasonable and well worth the investment. Some even provide basic financial and credit information. The best include key contacts and ownership details that allow you to quickly reach decision-makers.
Start with the targeted industries, narrow the list of prospects with filters that are based on the ideal customer criteria, and be prepared to approach those prospects with well-defined value statements. By knowing your own strategy, identifying your capabilities, and matching your marketing and sales efforts, you have a better chance of finding your ideal customer.
Concentrate your sales efforts on gaining those customers best matched to your business model. Perhaps you will never be able to develop a customer base comprised only of ideal customers, but with a conscious effort you will notice having more customers that are aligned with your business model and fewer that just don’t fit.
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