Investing in the future - Part 3: Materials - Products
Investment in products is made both in terms of time and money by the window fabricator. The product often defines how well your company performs and is not a trivial investment. Product problems are immediately reflected in reduced output or increased complaints.
Investment in any of the major systems is now a safe but major investment in product performance terms. For the fabricator there is often little difference in the performance of the major systems. The major systems have largely reached a stage where basic product performance can be assumed. No reputable systems supplier would now release a system unless it conformed to the BS 7413 and could be manufactured to BS 7412. This could not be assumed in the early years of the industry and we have come a long way in terms of performance and quality. Competition between systems suppliers is now largely based on price, services, style and fabricator friendliness.
For systems suppliers the 1990's are considerably different to the 1980's. In the 1980's it was all the products you can make from only 7 profiles, but all the products were compromised by being designed for multiple uses. The 1990's have seen more dedicated products and it has become unacceptable to make doors out of tilt and turn profile. The driving forces have been the increased need for security, the reluctance of fabricators to cut down and make do with profiles that are not dedicated to the product and dedicated systems for unique products (e.g. reversible windows). Systems suppliers have also added various depths of profiles and the standard range now includes at least two depths of profile (a 60mm and a 70mm system).
This increase in product numbers has meant a decreasing rate of return on investment at a time of severe price pressure in a stagnant market. New products are under increased pressure to give returns but it is getting more difficult to generate returns from new products. Many systems suppliers may never see a real return on their investment from additional sales and will only substitute sales of the newer systems for sales of their older ones.
The PVC-U window profile is essentially mature as a product. There is no doubt now that the product works and further penetration of the market will be both difficult and slow. In product performance terms the market is heading towards the top of the S-curve shown below. For the systems suppliers this predicts a further decrease in returns until the market is re-structured in a fundamental manner, a process which not all will survive.
In the initial stage of any market the performance of the product increases slowly despite the investment of significant funds, in the middle stage there is a rapid improvement in performance with investment and in the final stage investment of significant funds gives little real improvement in performance. This stage continues until a new technology is developed and the S-curve begins again. The return on investment for the technology is the slope of the S-curve - low at the start, high in the middle and low in the later stage.
For fabricators the increase in product numbers makes the control of investment in stock critical. Stock is an investment made by your own choice - you can liquidate this investment by manufacturing and not reducing the stock but you may be stuck with it if there is no market. Inventory is a hidden investment - stocks are needed for new products and these automatically tie up cash.
Inventory is evil - reduce inventory until you have The return of the JEDI (Just Enough Desirable Inventory).
Additional factors are the increased investment in training, changeover times and the increased possibility of errors and complexity of operations. Some fabricators are attracted by the lower profile price of a slimmer system and introduce one to attack the contract market. The extra investments in stock, changeover time, set-up, training and the higher possibility of confusion on the factory floor are conveniently ignored. It can easily be cheaper to buy in the special products and concentrate your manufacturing skills on what you do well.
The real question is How many products we should be investing in? and the two choices are:
- to try to be all things to all men by offering multiple products - this introduces complexity at all levels but can give stability in a changing market.
- to offer a restricted range and use niche marketing.
For large or small fabricators the complexity of operations can be reduced by concentrating on specific product lines, the reduction in complexity may repay the margin lost for purchased items.
Small fabricators can look for niche markets that they can make their own in product terms. Several small fabricators have used niche marketing and produce only vertical sliding windows - a specialised product of high complexity. The basic rule is to segment the market until there is a good fit between the your skills and a particular market segment.
If you have no unique skills then you are in trouble and need to invest to get the skills.
One often ignored investment is that of investing in your suppliers - this can be a most effective investment. Suppliers are often treated as the enemy when they can be treated as partners in your business. Time and energy invested in getting to know suppliers and their capabilities means that you can get the best out of them and their resources. Good suppliers can provide solutions to problems, reduce costs and open up new markets. Fabricators need to read the information sent to them by the suppliers and use this to get the best out of them. Working in partnership with suppliers can reduce your investment in stocks and can give:
- reduced inventory levels.
- smaller lots delivered direct to shop floor.
- material cost savings.
- higher quality service.
- reduced inspection & administration paperwork.
Fabricators may be concerned with single sourcing and the need for reliable and frequent deliveries but investment in building the partnership can lead to a reduced investment in many other areas. Building supplier relationships is a long term investment and an ongoing activity.
Investment in products is a key to future survival for the window fabricator and thoughtful investment will give excellent returns.
Investing for the future is designed to challenge your concepts and ideas on investment for the future. Various aspects of investment are considered and discussed. The series is:
Part 1: Introduction
Part 2: Machinery - Plant & Equipment
Part 3: Materials - Products (This section)
Part 4: Methods - Procedures and Processes
Part 5: Manpower - People
Part 6: Measures - Performance
Last edited: 11/03/10
© Tangram Technology Ltd. 1998
Our standard disclaimer regarding Internet data applies.