As the saying goes, “What goes up, must come down.” Unfortunately for the moldmaking industry, this is often true as it relates to shops’ current and forecasted revenue. Data collected through Harbour Results’ latest Harbour IQ pulse survey shows that capacity in the mold shops surveyed reached a low of 66 percent in early 2016, but it is expected to rebound to 78 percent by the end of the year. This is further evidence of the cyclical nature of the business, and mold shops will likely experience future capacity and revenue peaks and valleys.
The challenge for mold shop leadership is figuring out how to balance the highs and lows, better forecast business, and maintain a more consistent book of business. The key is aligning operations, sales and business, so that they are inextricably linked and operating as one cohesive unit. Although this is not an easy task, it is achievable by any mold shop, regardless of size, as long as it is supported and driven by leadership.
All too often, we find that a shop believes it has an effective business strategy, but in reality, this strategy is just a set of goals, such as sales targets or productivity numbers, with no path or guidance on how to achieve these targets. On shop visits that we conduct, sales people often tell us they don’t really have a clear perspective on the ownership’s strategy.
It is vital for leadership to understand the current state of a business and then dig into the operational data. A good way to start is to look at current business data and establish a set of operational and sales data points that can be used to set the overall business strategy. Information to analyze includes:
• Customers and products/molds that deliver the highest level of profitability.
• Profitability comparisons between production of one product/mold and another.
• Product/mold types that flow most effectively through the shop.
• Unique processes that drive increased business.
• Industries that drive business to the shop.
• Core competencies and company differentiators.
From the data review, shop leadership can build a strategy for delivering the revenue and profitability results required to grow and invest in the business. Then the sales process can be established using the same data. Specific data to review include:
RFQ hit-rate data. Shops should do an analysis of the company’s current hit-rate data from requests for quotes (RFQs) across customers, jobs, type of work and so on. This could provide insight to help drive strategy. A hit-rate analysis simply examines the number of quotes submitted per customer, number of quotes won per customer, total value of quotes submitted and total value of the business won.
This analysis can show from which customers a company wins the most business and those from which it rarely or never wins business. The shop then can determine if its business is appropriately diversified among customers and/or industries. This data, along with the company’s overall business strategy, will arm a shop with the information needed to identify its own unique set of sales opportunities and challenges, which will serve as the foundation for building an effective sales process.
It’s important to note that this data can also be used to determine the quote volumes necessary for a company to achieve its revenue goals. In other words, understanding the RFQ hit rate and the average revenue per quote won helps a mold builder identify the number of quotes per month required to meet certain revenue targets. Also, by monitoring quote volumes, a business will be able to more accurately predict future capacity and align operations to customer demand. This is among the first steps in aligning business, sales and operations, which is essential for managing the highs and lows.
Market data. In addition to reviewing quote data, companies need to gather and look at general data from the markets they supply. This market data can come from multiple sources, such as industry conferences or market intelligence companies such as LMC Automotive, and can include information on predicted timing of product launches and future trends. Such data can help companies identify future quote opportunities, as well as how to predict a quote and build timelines. In the automotive industry, for example, mold shops can use information about future vehicle launches, including models and production timing, to identify a potential project and determine when that project might be put out for bid. It’s important to truly understand the market to which a business is selling its products or services.
Customer communication. Interacting with customers is another critical activity that needs to be included in a mold shop’s sales process. This might seem obvious, but all too frequently companies do not take advantage of the opportunity to exchange information with customers, better understand their needs and ask for additional business.
Mold shops need to make it a practice to visit their customers’ operations as frequently as possible (twice a year, minimum). While on site, they should speak with people throughout various departments to understand any challenges or uncover new business opportunities. During such a visit, the shop might stumble upon business that it wouldn’t otherwise know about.
We have heard over and over again from original equipment manufacturers (OEMs) and Tier-One suppliers across multiple industries that building strong relationships is the key to securing additional business. By better understanding a customer’s wants, needs and priorities, shops can identify and deliver increased value, providing innovative new processes, improved design, and expertise and knowledge.
Connecting the Dots
Collecting and analyzing operational and performance data (revenue per full-time equivalent employee, planned to actual hours and capacity) and allowing that data to drive the business and sales strategies, automatically links a shop’s business, sales and operations. This eases demand planning, production scheduling and capacity planning, enabling better business decision-making.
The final piece of the puzzle is continuous feedback and communication. Data collection and analysis must be conducted on a continuous basis so changes can be made as needed. At the very least, shops should focus on feedback in three key areas:
1. Pricing and quoting. Are you hitting your goals? If not, look at the data to determine why not, and make the necessary adjustments.
2. Client plans. Are you hitting your client-level goals, and why or why not?
3. Overall sales strategy. Are you succeeding in the products and markets you targeted? Are you getting the necessary financial returns in those markets?
To optimize profitability and avoid a business trough, a shop must match demand (sales) with supply (operations). To do this, leadership must be committed to the process, invest in the necessary sales and operations resources, and use data to support strategic planning and decision-making.