If a product is unique or has a significant differentiation, a fab shop can diversity revenue and decrease its revenue concentration. For an industry where many get most of their sales from just a handful of large accounts, revenue diversification is a big deal. mathisworks / DigitalVision Vectors / Getty Images
The custom metal fabrication industry has a spectrum of business models. The traditional sheet metal job shop builds to print. Move across the spectrum and you’ll see more and more design work. Some of it could be design for manufacturability (DFM). That starts with a shop’s in-house processes, like tweaking a radius for the shop’s press brake tooling. But as customer relationships grow closer, shop representatives might visit customer plants to observe final assembly and how they, as the metal fab supplier, could make life easier for everyone.
At the other end of the spectrum, a custom fabricator will focus on custom design as well. That is, they visit customers, discuss what they need—be it a material handling solution or another kind of custom equipment—then fabricate something from the ground up.
Some fab shops also produce a product line of their own. The thinking goes that an in-house product line diversifies the revenue stream and gives the shop something they can control. When contract work is light, the fabricator can ramp up the jobs related to the in-house product and, hence, keep machines busy.
“That’s great, but what does the market need? How do we make sure we’re focused on what customers truly need, and how do we develop a solution or service that really provides a better way to do that?”
So said Paul Miklautsch of BOLDR Product Management, a consulting firm in Cincinnati that focuses on product management for B2B manufacturers. Speaking this month at the FABTECH show in Orlando, Miklautsch delves into the ins and outs of product development, tailored for the B2B sales channel. Some fab shops do launch consumer products, but most live in the B2B world, where developing and selling products through B2B channels simply makes sense.
Why do product launches fail? Miklautsch described several key reasons. First, being manufacturers at heart, fabricators mistakenly focus on specifications and features. “Customers don’t care about a product’s features. They care about the benefits.”
A product can have amazing features, but how do they really benefit the customer? Miklautsch described one pneumatic valve manufacturer for the industrial sector that tried to expand into the life sciences business. “They found it just wouldn’t sell. The valve had a guaranteed life of more than 1 billion cycles.” But as it turned out, customers in the life sciences business didn’t need 1 billion cycles; only 10 million would do, “and they needed the product in a smaller package so it could fit in different applications. This is an example of a company attempting to sell what they saw as the best product out there, but they didn’t realize that certain markets needed something different.”
Here’s where market research comes into play. “The objective of this research isn’t to validate your idea,” Miklautsch said, adding that the goal is to see if the idea truly addresses a real market need. Ideally, the market research shouldn’t occur after months of product development.
It’s an easy mistake to make, of course. Custom fabricators get into the business because they like, and often have a passion for, solving problems by making things. They assume others will see the same benefits they do, so they move forward with design iterations without conducting an objective analysis. Does this new product solve what customers view as a real problem? Would using it require challenging the status quo or a shift in procedures? If customers don’t see a particular issue as a problem, or they need to make major operational changes to make use of the product, it probably won’t sell too well.
A related consideration: Be wary of commodification. “You’ve got to be careful when developing products where you’re just competing on lead time and price,” Miklautsch said. “How are you really going to differentiate?”
This can involve both the product quality and the level of customization that customers desire. A fab shop might launch a product with amazing features, but customers really don’t need them. Turns out, other suppliers—those who might have the scale and global supply chains to compete on price—can meet their needs just fine.
The same applies to lead times. Quick response for custom or contract work can be a great differentiator, but what about quick delivery of a fabricator’s in-house product line? If a shop supplies a product that competes solely on quick response, a competitor can beef up its inventory to deliver quickly as well. This might not happen immediately, but it’s likely to happen eventually.
So, fab shops that launch products of their own need to differentiate themselves in some way. This often involves some level of customization, which, as Miklautsch described, can be a bit of a balancing act. A product that can’t be customized is ripe for commodification. At the same time, a shop that spends hours or weeks working with a customer to customize to the nth degree will have a tough time developing a profitable product line.
“Here, it’s about mapping out the customer journey, so you really understand the differentiation you’re offering. What customer interactions are required to ensure you have a customized product that makes sense?”
The challenges abound, but so do the benefits. A custom fab shop (or any domestic manufacturer, for that matter) that successfully adds a new, profitable product line adds value to the overall business. If its product is unique or has significant differentiation, a shop can diversify revenue and decrease its revenue concentration. For an industry where many get most of their sales from just a handful of large accounts, revenue diversification is a big deal.