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What's happening in the world?
That's a question Bob Kulka asked regularly as part of an engineering team that recommended capital equipment purchases at a Michigan manufacturer.
The question gave Kulka the broadest palette possible to start the company's regular business-planning process, an exercise that helped identify new markets and exploit current ones. The result gave a picture about where the company would be several years out and also presented a starting point for discovering what kind of equipment the company needed to get there.
That method has been preached for years by Rod Jones, previously as a marketing consultant and today as chief learning officer at Mori Seiki University (www.moriseiki.com), Rolling Meadows, Ill. Starting with the question above, he says, the thinking could go as follows, moving from the broadest possible perspective to actual parts that can be machined or fabricated:
What's happening in the world?
The populations of the world—particularly China—are moving from the country to the city. The country needs roads and new farm machinery in order to feed this new population. The population will continue to grow, and the need for food will never abate.
People need to eat.
What companies make equipment that helps feed these people?
What parts are involved in this equipment?
And finally, what do we need to make those parts?
This, says Jones, represents an exercise in logic that allows companies to focus their business, to give a sense of where things are headed within the next three to five years or longer. And, he says, it should lie at the heart of the machine-tool buying process. When it comes to equipment, the last thing a shop wants is a piece of machinery sitting idle on the shop floor for no good reason.
"My research has shown a fair amount of buyer's remorse when it comes to machine tools," Jones says. "It usually doesn't happen because the company didn't need a machine at all; they do. But it's the size and type of machine that creates the trouble. The machine tool didn't match their business."
To avoid this conundrum, a few industry marketing gurus have put together careful recipes for the equipment-buying process. Its goal is to strip away the emotions from the whole procedure and carefully chart equipment attributes based on a shop's needs.
This doesn't just involve a simple Excel sheet comparing specs. Instead, it compares qualities weighted as to how important they are to a company, narrows the search and ultimately helps choose the best equipment with, ideally, the least risk and biggest potential payoff.
IT STARTS WITH THE BUSINESS
Knowing which qualities are important to a shop depends on the business plan. The plan can take many forms, of course, but the best, says Jones, start with market-wide questions, as mentioned in the previous example. The questions, from the broadest "What's happening in the world" to the component-level "What do we need to make those parts" represents actual phrases a shop sifted through. That shop ultimately landed a contract with a major OEM's booming international business supplying the agriculture industry in Asia. The company was careful to focus on the world's vital needs that will never go away—food included—stable businesses serving customers that aren't likely to disappear. The demand isn't fleeting; it's long term. People need to eat.
After years as an engineering manager (and other roles) at a Michigan manufacturer, Bob Kulka launched his own business-planning consultancy, Jackson, Mich.-based iMeasured (www.imeasured.com), last year. Kulka's previous employer went through a similar process as described above. "The business we were in focused on power-seat and anti-lock brake components that, while high-volume and once lucrative, were starting to become a commodity," he explains. Management saw the writing on the wall, so executives looked toward the explosive growth in the Asia-Pacific region.
"Some fundamental questions came up. We saw Asia was going to need more roads and more general infrastructure, more mining, agriculture and off-road equipment. Then we asked ourselves, who's involved in the mining, agriculture and construction industries? Who are the industry leaders? We identified Caterpillar, Cummins and Bosch. So then we took it to the next level. What types of products do they make, and what do they need on the component level?"
Boiled down, "it's a common-sense approach that asks how and why the world is growing, and how your business can connect with that growth."
The need for this, he says, has grown since the rise of the global marketplace. "Since a lot of manufacturing has gone to other places, there has been a big shift in the size of the domestic market, so it takes a lot more effort to analyze what's left."
The solid business plan helps companies identify what Kulka calls a shop's "core" technology. "I identify core technology as equipment you can make money off of with varying types of customers over a prolonged period," he says. "This technology really identifies how you want your company to grow."
Investing in core technology inherently carries with it less risk than non-core equipment, for obvious reasons. Non-core technology often involves "rush" machine purchases based on one or several large contracts. "Core" purchases could involve an immediate contract, but it also would serve the long-term business goals of a company, and potentially be used for a variety of customer products.
THE ART OF BUYING
Jones tells a story of one job-shop owner who had a decades-long relationship with a machine distributor. For one machine purchase, however, the shop owner seriously analyzed several other machine models that had more advanced features than ones offered by his established business partner.
He called the new contact with the advanced machine models and told him thanks, but that even though his machines actually gave him more bang for the buck, he would go with his established business partner. The new contact said he was sorry not to gain his business but graciously offered his services for any future needs he might have.
He then called his established business partner and said he was sorry, but he was going to go with another supplier for this job, since that company provided a machine that better met his business needs. That distributor exploded in anger, saying he couldn't believe he was taking business elsewhere.
He ended up going with the new contact and dropping that decades-old relationship.
Whether this approach is fair or even ethical is certainly open for debate, says Jones, but it does illustrate the nature of the machine-buying process, a ritual ultimately hinging on intangibles, like the relationship between buyer and seller. But he adds that for those relationships to grow a business, buying a machine should have its foundation rooted in the business plan.
THE MATRIX
With the business plan in place, the "Product Attribute Ratio Decision Matrix" enters the picture (see page 23). For years iterations of this have been taught at business schools, and Jones has adopted one for the machine-tool business. PAR Decision Matrix for short, it helps narrow down a range of machines to two or three top candidates.
"The matrix is not just a spreadsheet of specs and price," Jones explains. "It's dangerous to just look at specs and price. Here, things are weighted based on how important the feature is and how well it complies with your business strategy."
The first step involves creating a list of machine features and benefits (A) that include specs and attributes relevant to the process needs of a business. These can include items as straightforward as a machine tool's axis travels to the availability of technical support or a vendor's ISO certification. Try limiting the attributes to about 15 or 20 items, he says; too many specs can dilute the process.
After this, give a rating to each attribute, between 1 and 10, showing which features are more or less critical to an operation (B).
In the next columns (C), list the ideal, or benchmark specs, then list machine attributes from various suppliers in subsequent columns (D). For each, rate between 1 and 10 (E) how well each attribute complies with the ideal (9 or 10 means the feature meets or exceeds the benchmark; 5 to 8 means a feature would be acceptable but not preferred; and 0 to 4 shows that the attribute would only be acceptable as a last resort).
Finally, multiply compliance rating (E) to the overall feature importance (B) to give the overall rating. And finally, add the feature scores (F) to give a total at the bottom. Divide the total machine feature score (G) by the machine price (H) to give the final Product Attribute Ratio (J).
The higher that final number, the better the value. Such a chart adds objectivity. It's not just a simple comparison of stats between one machine and another. It adds more weight to certain attributes, less to others and, by so doing, gives at least a taste of the machine's total value—not just price versus specs.
Jones advises of one danger in using the matrix: "If you only use common machine technical specifications, you won't see the whole picture. You must include value-added services to the feature list, such as applications, service and training—basically, the seller's ability to make the machine productive in your environment."
Buying equipment ideally should be team-driven, says Jones, with members from the shop floor to maintenance to the tool room. Regarding the matrix, each team member can be given the chance to rate the importance of a featured item. Jones cautions against simply using an average from all team-members but instead recommends a weighting system that "bases the importance of each department's contribution to the success of the program," Jones says. "For example, maintenance scores may have a greater weight than tool-room scores. Then average the weighted scores for an overall importance rating."
BEYOND THE MATRIX
But even this isn't enough, Jones stresses, for making an informed buying choice. Some features are difficult to rate clearly on paper—rapport with a supplier's sales and service personnel, quality of technical support, established relationships, ability to meet delivery, and so on.
The matrix, he says, simply helps narrow the machine purchase to a few top choices. From here, a judgment call is in order, based on those all-important intangibles.
Both Jones and Kulka emphasize that all this analysis into minutia starts with broad thinking. The root of it all asks two fundamental market questions: Where is the world going, and what is it likely to need to get it there?
With that, let the business-growth strategy begin.
author: By Tim Heston