Michael Collins 1 Oct 19, But what if one of these big customers decides to force discounts to the point that the SMM cannot make a profit? Or if the customer is like Wal-Mart, which compares the SMM's price to a Chinese supplier and force it to either match the Chinese price or lose the business? Or if the customer suddenly decides to source the products from Asia instead of buying from the SMM?
Or if the customer operates in a cyclical industry which, like housing, drops during a recession and business dries up for several years. Diversification is a strategy that should be adopted by all SMMs, as markets, industries and customers adapt to globalization. But you must have a well-planned diversification strategy, or you will find that there are many paths to many new markets -- and some of them lead to dead-ends.
Here are three examples of how a variety of manufacturers diversified and found new market niches. Davis Tool in Hillsboro, Ore.: So Davis decided to change the company strategy to offer quick turnaround on custom or low-volume jobs. He knew that many of his company's customers were operating on a just-in-time basis and could not live with the uncertainties of using foreign suppliers. As a result of the new strategy, Davis Tool has reduced its flow time average time a work order is open from 40 days two years ago to 17 days today.
As well, it has diversified into many new market niches and customers. Nimet Industries, South Bend, Ind.: A job shop in that offers proprietary anodizing and nickel finishes, Nimet employs 75 operators in a 60,square-foot plant.
Its primary strategies can be described as follows:. For many years the DECC Company was a contract manufacturer applying coatings almost exclusively for automotive components. Whether pursuing business in industries as diverse as military or commercial laundry, the company found that it could pick and choose which markets it serves based on the near universal need for coatings.
The focal point of the strategy is the company website which provides enough information to generate hundreds of leads on new applications. On the site, prospective customers can ask what kind of coating could be applied to their products.
If the lead turns into a request for quote, Mallema and Michalak begin to examine it as a potential new market niche. For example, through the website, they discovered an application in the commercial laundry industry: This results in hours of costly downtime, as maintenance crews are forced to shut down an entire dryer to scrape the plastic from panels.
A laundry company asked DECC if there was a coating that would prevent the plastics from sticking to the drum. After this success, Michalak learned of the Clean Show, an industry trade show that is specifically targeted to the laundry industry. They developed some specific literature, attended the show and began gathering leads. From this initial marketing effort, they connected with some of the OEMs who manufactured the commercial dryers and began providing their coating service to them directly.
As a result, DECC now has an arrangement with one of the largest manufacturers of laundry systems in the world to be their exclusive supplier of coated dryer panels. The diversification strategy used by DECC is a great example of identifying a new application from a lead, quoting the application, successfully testing and applying the product, and then tailoring marketing needs to the specific customers in that particular niche. Since , the firm has grown from around 50 employees to about 85 people currently.
There are two objectives in adopting the strategy of diversification. The first is to put the company into a position of not allowing a few customers to dominate your business. The second objective is to find more customers and market niches for growth. How three small- and mid-sized companies leveraged a market diversification strategy to drive growth. More information about text formats. Text format Comments Plain text. Web page addresses and e-mail addresses turn into links automatically.
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