Capital investment: Why manufacturing companies should first consider customers

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When a company wants to grow, it often looks first to capital investment. Purchasing new equipment will add capabilities and capacity, which will increase profits, right?

It might. Just remember that of all the risks involved in expanding your business, capital investment is the riskiest. It’s important to approach this investment thoughtfully and with plenty of information on which to base your decisions.

Listening to the Voice of the Customer

When I rejoined the manufacturing world 10 years ago after years in the medical device field, I immediately noticed a communication gap between manufacturers and their customers.

Business owners and executives often make significant investments to buy equipment and improve their facilities without any voice-of-customer activities.

VOC activities have one main purpose: to collect feedback and data on customer pain points. They include things like written surveys, interviews, and sample demonstrations. One important note: Separate your VOC activities from sales calls. Rather, you should be executing them throughout the year at events like tradeshows, training sessions, and advisory board meetings.

The key benefit to you as you seek to make wise capital investments is that you’re collecting feedback from customers on bottlenecks they are facing so that you can identify which purchase solves the most problems for them. That way, you can pinpoint potential solutions to them with the investments you’re considering rather than guessing and hoping that what you buy meets their needs.

Every purchase won’t have the luxury of this process. Sometimes, needs are urgent and obvious. But the more you can use data-driven decision-making, the higher your return on investment.

Evaluating ROI

When I re-entered the manufacturing industry, I was shocked at the number of purchases, both small and large, that businesses made without any metrics or documented expectations for ROI.

When I worked as a product manager for medical devices, my main job was to propose product development ideas to leadership. If the products I presented didn’t have a likely ROI of 18 to 24 months, they were rejected.

If a business spends money, it should be to make money. The advantage of small business is that we aren’t bogged down by process. We can react quickly, make decisions, and write checks without a lot of bureaucracy. This helps us maintain a competitive edge.

However, short-changing some due process can literally put people out of business when the stakes are high. Find a tool that works for you and, at a minimum, implement some processes around decision-making. At a minimum, use some kind of ROI calculator to plot out how your purchase will pay for itself.

Also, include multiple titles in the activity—people from various departments who can speak into the decision-making process with clarity.

Go Where the Puck is Going

A high-level executive I worked for in my early 20s was a big hockey buff, and he repeatedly said (à la Wayne Gretzky), “Go where the puck is going, not where it is.” I don’t remember much else from our all-company meetings, but that has stuck with me. Why fight with everyone else for market share? Solve the problem with a solution that doesn’t yet exist, and you win.

My first manufacturing job was for my parents’ company—a large metal tube fabricator. They had always bought equipment only when they ran out of capacity in existing machines. When I worked for them, I convinced my father to take a different approach and buy a $500,000 piece of equipment that had no work waiting for it.

Why was I so confident? Well, I had spent 12 months in the field doing the important VOC work, and I uncovered a pain point that wasn’t getting addressed with the current offerings—either from us or our competitors. Dad pulled the trigger, and I went to work selling customers on design changes that would solve their issues and could be fabricated with this new equipment.

I remember the day it got delivered. I thought, “Either this will be a game changer, or I’m toast.” I’m still alive to tell the story, so you can guess how it worked out.

Do the Homework, Take the Risk

As revenue grows, your business will need to purchase new equipment and software systems. You will have to implement new processes. Head count will expand in both existing and new positions.

These aren’t easy propositions. They require diligent homework—research that your customers should have a huge say in. The companies that fare best when the money starts coming in have a detailed strategy around spending it. Do the necessary VOC activities beforehand, and you can reap benefits far beyond what you currently enjoy.