Moving Your Shop to the Next Level
New technology can be both enticing and threatening. Steve Schneider of John Schneider & Associates, Inc. offers insights for evaluating potential investments.
Q. I am considering a shop expansion, but am unsure whether to make the leap. What considerations should I keep in mind when evaluating whether or not to invest in new technology?
Metal finishers are often confronted with the dilemma of if or when to add new processes to their existing production. It might involve a relatively new technology like barrel trivalent chrome plating, tin zinc, zinc-nickel, tin cobalt or charcoal tin nickel. It might involve a conventional finish like powder coating, black oxide, zinc or manganese phosphate, electropolish or bright dipping.
The decision here is not simply upgrading or changing the performance of chromates, cleaners or existing plating processes. It does not mean adding production capability for a process you have now. What we are focusing on is the decision to add or replace a process or technology which involves capital investment in equipment, manpower, effluent treatment or allocation, or addition of a production footprint. It usually involves an operation outside of your core competency and experience. It might even involve selling to a new customer base.
The anticipated action may be fueled by:
- The desire to diversify.
- A response to a number of inquiries about a finish not offered.
- A desire to further serve an existing customer.
- The opportunity cost of missing an emerging technology.
- Concern that new technologies will make current methods obsolete.
- The desire to grow.
In any business environment, either action or inaction could have a profound impact on a metal finisher. New technology is both enticing and threatening. Being “first” could energize a sales force and generate lots of new business. If, however, a sufficient number of customers could not be found, the recovery of the investment could be substantially delayed or threatened. These “Break Points” are becoming more frequent as older technologies are replaced with newer ones. So what is a finisher to do?
Yogi Berra once said, “It's tough to make predictions, especially about the future.” Well, a serious examination of the following might help you make more informed and confident decisions.
- Determine the total installation cost and add 25%. Include lab and test equipment, increased effluent treatment, plant space, automation, personnel, permitting.
- Determine how developed and proven the new process or technology is, i.e., are you the 1st, 10th or the 50th production installation?
- How would the new process affect waste treatment? What are the EPA limits on the new effluent and is the treatment affordable? Which components of the process might be regulated? Does any metal or chemical in the process change the nature of your sludge and how it can be disposed of?
- What is the chain of use for the part or finish? You might be selling to a contract metal stamper who produces a part used in a vehicle which is sold worldwide. How many in this chain have actually tested and approved the new technology? Might some of them readily adopt the new finish only to eventually abandon it because of unanticipated side effects or premature failure down the line (e.g., corrosion protection, lubricity, ductility, cosmetics)?
- How many prospects have called you for the new finish and are they new or existing customers? If they are an existing customer of sufficient size, does that justify the investment rather than risk losing the account?
- Is the new process covered by specifications directing potential customers to you? If so, how many customers are there and where are they located?
- If an “anchor account” has requested the new process, would it be willing to put some “skin in the game” through a contractual commitment or perhaps underwriting some of the costs?
- Will the “anchor account” expect you to employ the new process only for him and not for his competitors?
- For this project, is your supplier experienced with the equipment, process cycle and chemistry required since all must work together for a successful outcome? Specification meetings before and after the purchase with all the suppliers together are important for latter accountability and responsibility.
- Are you designing the system for future expansion? Space allocation for additional process tanks, rectification, cleaning, power or hoist infrastructure will facilitate increased production at a reduced cost in coming years. Consider what might be required for 150% and 200% of the maximum output of what you are currently planning.
- Are you focusing on the cleaning capability to prepare the range of parts you might be processing? Question whether you might be required to remove buffing or drawing compounds, heat treat scale, rust or high soil loading. Might you be required to prepare both ferrous and non-ferrous metals for processing?
- Might stripping be required and how much? Would it be done on or offline?
- Is there stability in the group of customers you are targeting in terms of intent to keep manufacturing within the range of your shop and is the demand for their product or materials of manufacturing stable? Do their products have a cyclical demand?
- Are there any confidentiality or licensee agreements associated with the new coating?
- Are the metals in the new coating acceptable internationally where the parts will eventually be shipped?
- What is your breakeven point in terms of process utilization or shifts/hours/barrels/racks of production?
- What are the reasonable selling price and gross margin for the new process? Is it better or worse than what is appropriate for your operation? Might it lead to other business?
- What is or might be your eventual competition local or nationwide? How easy would it be for competitors to install a similar process?
- Ruminate on the pros and cons of being the first versus the third local production source for the technology. The first on the block may face the most uncertainty in terms of a learning curve, market determination and acceptance but may also benefit from locking in major accounts.
- Have you studied the new process and picked the brains of your suppliers to become conversant enough to sell, advise and educate existing or potential customers?
- Are any of the components of the process or coating potential targets of local, national or worldwide regulation?
- What are your limitations? What additional in-house expertise is required? You may be a very knowledgeable zinc plater but you are anticipating adding electroless nickel, anodizing or powder coating. Are you willing to hire additional lab or production expertise in these areas?
- How much technical training and back up support will your supplier provide?
- Would it perhaps be better to acquire or partner with a finisher who is already producing the intended finish?
- Are there metals or components of the process easy to obtain or are some in limited supply or subject to price fluctuation so that prices might be quoted along with a surcharge for the fluctuating component? If imported, are the components from stable parts of the world?
- Can you increase your knowledge base or benefit from the experiences of others by contacting one or more existing users of the system and ask advice on (e.g., operating, pricing, installing the system or experiences they have had)?
- Are there seminars or clinics put on by the National Association for Surface Finishing (NASF) or plating suppliers where you can gain knowledge and network with other finishers who are planning on installing the technology or currently use it?
- You will be betting a great deal of time, capital and manpower, so be sure to be prepared to put the required effort into promoting and selling. Don’t expect that the world will “beat a path to your door.” Is your sales staff onboard or do they have reservations about the new process? Are they motivated to call “outside their comfort zones” on new customers and markets or must the sales group be expanded to adequately market the new finish? Might you need a revised compensation plan to motivate them to sell the new finish?
No one knows your business better than you do. If having considered the above and your gut tells you to go ahead, then do it. The exhilaration brought about by change and innovation may well inject new life into your company. Remember the words of Theodore Roosevelt; “Keep your eyes on the stars and your feet on the ground.”
The processes, chemicals and equipment, plus control and troubleshooting.
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