There is NO Value Created By Being A Commodity……. You’ll Die Prematurely

We are constantly amazed by the number of companies we find that work so very hard to become textbook examples of a commodity;  something readily available from a number of sources. They assume that if they do everything their customers ask them to do their future is secure. It couldn’t be farther from the truth.

They spend a significant portion of their customer “face time” with their customers’ purchasing department personnel developing relationships rather than engaged in broad communications to the whole organization to uncover opportunities to develop unique value. They find themselves constantly struggling to reduce their product selling price (and cost) when it should come as no surprise that commodities are driven by the customer to be the lowest price through competitive bidding.

The reality is that although personal relationships are certainly very important to establish and maintain, it is the ability to differentiate and create value that leads to growth and longevity. Most purchasing department personnel have a goal to make virtually everything they buy a commodity to reduce the price, increase quality, broaden availability and reduce lead times.

So the same people most businesses focus their energy on are the people intent on driving them to be a commodity.

So what do we mean by differentiation and value and how are they developed? Early in my career I spent a few years dealing in “commodity” products for the automotive industry. There were numerous sources capable of providing the same capabilities and products. It was a cost reduction war purposely developed by the customer and bought into by the majority of the supply base.

So how did we differentiate ourselves and gain market share?

At the time, scheduling logistics were handled by the production control department of the customer. This was a department separate from purchasing, with hundreds of people, whose job it was to assure the assembly lines were never short of parts. The focus on quality had just begun and the ability to provide quality parts was a major requirement from the customer. Rather than just complying with the production schedules as they were released, we educated ourselves on the ordering process from the assembly plants all the way back to the production control departments. We were one of the first companies in the industry to create a department whose only job was to visit and stay in close contact with the personnel at the plants who were responsible for calculating and managing the flow of parts to the assembly lines.

How did this allow us to create value and increase our market share?

We understood the dynamics from start to finish on how our parts were used and controlled and through our visibility to the manufacturing plants we were also aware of when, where and how our competitors had quality or delivery problems. Having this information we were able to selectively build inventory on competitors’ troubled parts and ship our alternate whenever an emergency and the immediate need for another source arose.

We grew 15% in one year simply from this ability and knowledge!

There are numerous ways to differentiate and create value if the business has the will and commitment to do so. The nature of the conversation with the customer must change to be successful. It needs to move from personal relationship building and discussions on day to day issues to an ongoing open dialogue on how to improve the performance of the customers’ business, not yours.

Your business will naturally benefit from the superior customer value you provide by doing so.

The moral of the story:

Spend at least as much time understanding your customers’ business as you do your own and find and fill the needs they are not expressing on a daily basis.

Next: How to develop the dialogue and create the environment for successful fact finding.

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For more information, call Gary Gauthier at 248-672-1943.