Editor’s Note: The views expressed in this column are solely those of the author.
From the beginning of the 20th century to the mid-1960s, American manufacturers had a 28 percent share of the world market and 95 percent of the domestic machine tool market. By 1986, “the U.S. share of the world market was less than 10 percent, and their share of the domestic market had dropped from 95 to 49 percent. In five short years, from 1981 to 1986, the number of U.S. machine tool plants shriveled by one-third because of bankruptcies, takeovers, and reductions in capacity.
During this tumultuous time in the early 1980s, Japanese and other foreign machine tool builders began exporting low-price, standard machine tools to the U.S. market. Japanese companies, such as Mazak (Yamazaki), Mori Seiki, Kitamura, Okuma, as well as the Korean company Daewoo, grabbed big parts of the U.S. machine tool industry.
By 1988, the Japanese had constructed nine machine tool plants in the United States, recognizing that establishing manufacturing plants in close proximity to customers and markets was the best long-term solution.
So, what happened?
How did so many established American machine tool manufacturers lose so much business and the ability to compete? And how did a small entrepreneur start a machine tool manufacturing company in America during this period — and not only survive but grow into a world leader?
Gene Haas started his own machine tool manufacturing business in 1983, and displayed his first CNC machining center in 1988 at the IMTS show. Haas Automation was the first American machine tool company to build standard CNC machine tools, and openly publish the price list. Haas also began focusing on the neglected job shop market, offering very short delivery times, superior parts and service, and lower costs, compared with other American machine tool makers
From the very beginning, Haas and his company could see the value of monitoring customers and competitors. Here are just a few examples:
- Distributor reports: Haas diligently collected service reports from every distributor.
- 90-day monitoring: In addition to distributor reports, the Haas factory also monitored all newly installed machines for the first 90 days of operation.
- Adopt-a-Mill: A manager and an engineer would select a customer and call them once a month for one year to find out how the customer’s machine was performing and what he liked or disliked about it.
- Site visits: In addition to these programs, most Haas managers visited distributors and end users.
Haas was very good at monitoring customers and competitors. He saw that the Asian manufacturers were gaining market entry into many of America’s largest industries with standard (not custom) machines.
Haas avoided the customers and markets that wanted highly specified machine tools and saw that the larger machine tool manufacturers had ignored small job shops. Seeing the need for a product for the job shop market, Haas knew that his market required a simple, compact machine at a very economical price, that could be delivered in a very short time.
The Haas Automation story is not only instructive in its lessons; it contains many elements that American manufacturers—in various industries—should focus on to compete in the global economy: Customers now have many product alternatives from all over the world from which to choose.
Lean methods and other continuous improvement processes have been the key to survival in most manufacturing industries, but there are limits to process improvements. Suppose you have employed lean manufacturing principles to reduce waste and lower costs and have high-quality products but are still losing orders to competition. In that case, something else might be wrong.
The problems may be external to your plant and processes and you may have to examine why you are losing orders and how you match up to your competitors, product by product. Start by answering three basic competitor questions.
- Do you know why you are losing orders?
- Do you know how many direct competitors compete against you, model by model, or service by service?
- Do you know how your prices compare to competitor prices in an apples-to-apples comparison?
If you cannot answer these basic questions, then you will find out at the point of sale whether you have competitive advantage or not. It goes without saying that it is very expensive to find out that you do not have a competitive product or service at the point of sale.
The competitor matrix
A good place to start to learn more about your competitors (or learn more about what you don’t know) is to create a simple matrix showing the information gaps. On the top of the page, list all of the direct competitors for a specific model. On the side of the page, list some key specifications, speeds, capacities, sell prices, and other factors you know are important in a customer’s buying decision. Now, fill in the information gathered from their literature and websites.
This exercise is a quick way to identify the information gaps shown as (?) that need to be filled in before you can truly assess how your product compares to the competition from a customer’s point of view.
Once you fill in the information gaps to compute a sell price, you will have the same information the customer looks at in a buying situation. Getting an apples-to-apples price comparison is absolutely necessary if you’re going to find out whether your products or services are competitive in the marketplace. If you don’t have the time or staff to gather this information, perhaps you should consider hiring a third party.
This example shows a completed competitive matrix and the value of finding specific information with comparative pricing. Acme had made the classic mistake of setting a base price for a machine that looked to be $10,000 to $15,000 below most competitors’ base prices. However, when the machine was reconfigured with options to match the competitor machines, the total price was above all competitor prices and not competitive in the eyes of the customer. As a result, the company required a complete redesign to gain a competitive advantage.
Don’t get blindsided
If you believe in the fundamentals of continuous improvement, shouldn’t finding out how competitive your products are in the eyes of the customer be a part of the continuous improvement process? The bottom line is that you need some kind of competitive advantage with your products and services to grow or stop losing orders.
You can learn more about monitoring customers and competitors in the Growth Planning Handbook, by Mike Collins. Mike can also be reached at mpcmgt.net.