Customers in the forging community often treat the procurement of forgings as they would a commodity product. This article discusses the pitfalls of selling forgings as a commodity and promotes the reasons to sell forgings on their value, not their price.
If wrought metal is so valuable, why do customers treat forgings (closed die, open die and rings) as commodities?
We have explored the value of forgings in past issues of FORGE. John Walters and I demonstrated in 2015 that forging is advanced manufacturing, yielding products with exceptional properties. Continuing in 2017, readers may remember the “invisible strength” (durability and toughness) of forgings in military aircraft. With so much value afforded to forging customers, why are forgers forced into corners by purchasing agents with respect to delivery and price while negating the inherent value of forgings?
In our digital world, we have become accustomed to immediate gratification with instant delivery and competitive prices. That paradigm is fine for consumer products and catalog industrial products. For highly engineered products like forgings, however, pointing and clicking does not yield the same result, especially for aircraft landing gear, turbine shafts or ship-engine crankshafts. Instead of pointing and clicking, a better approach is calling on customer buying teams and employing a different conversational framework.
For the past 14 years – after the pleasantries, introductions and objectives of a typical meeting are completed – my conversations have sought to understand the customer’s world. I really want to learn of the big challenges and business issues facing my customer. Are they growing market share? Are they generating top-line revenue? Are they profitable?
For my commercial clients, these topics are typically measured in percentages and dollars. For my federal clients, these topics are typically framed as mission issues, such as the ability to fly and to fight, which harkens back to serving in the U.S. Air Force. Regardless of the issues – business or mission – executives are charged with addressing them for the organization to survive and thrive. When digging deeper into these strategic issues, one observes there is an array of problems that, if solved, will address the business or mission issue. Table 1 lists some issues from the industry and government perspective.
Once we understand the business or mission issues, the conversation pivots to problems. Working with a major original equipment manufacturer (OEM) on a project involving aerospace forgings, we discovered an array of problems facing the company. To reduce production lead times, improve quality and reduce cost, the OEM worked with its forging suppliers to identify and address specific problems. A vexing one was the part-over-part variability for a short-run production of 10 large, open-die forgings. Hold that thought for now before we uncover the solution and dig deeper on forging-related problems that, if solved, address business or mission issues.
Problems facing forging customers are wide and varied. Pick your favorite problem: metal lead times; metal pricing; metal quality; energy costs; labor costs; forging press tonnage; etc. Knowing there is a list of potential problems facing a forging customer, a forge can “co-create” solutions addressing these problems. Table 2 demonstrates the connection between a potential problem, its impact on the business or mission issue and possible solutions.
Back to the problem discussed previously, the OEM inquired which simulation package the forge was using to design the forging process with the intent of reducing part variability and attendant costs and lead times. As it turned out, the forge was not applying simulation to the design. Ultimately, the forge applied simulation to the process design, which achieved the part required of the OEM, reduced waste and reduced lead time to meet the production schedules to satisfy the customer’s acquisition schedule. This is just one example of characterizing a problem and identifying a solution.
Regardless of the problem, it is most important for the forge to identify the specific problem before formulating a solution. During this portion of the conversation between the forge and the customer, it is important to start attaching value to the business/mission issue and its underlying problems and solutions. For example, value attached to business issues could be market share owned by the OEM or the profitability of the products it sells.
Similarly, value can be attached to problems. For example, the cost of defective parts can be quantified in terms of labor costs and manufacturing costs associated with the defective parts, which is especially high with scrapped hardware. Costs increase significantly if defective parts reach the ultimate customer and fail in service, resulting in warranty costs associated with recalls and repairs. A worst-case scenario is a failed forging that causes an accident resulting in damages or death. Litigation and subrogation costs are huge. Working with a customer, a forge can associate value with mission issues and problems.
For major issues and problems, attaching value is extremely important since the forge and the customer can start calculating return on investment (ROI). All too often buyers fixate on the price of forgings and not on their value. By knowing the value of the issues and problems at hand, calculating the ROI illustrates that the higher costs of forgings, which is attributed to their unique properties, is far less than the cost of the issues or problems being solved. By flipping the conversation from price or cost to value, the forge can illustrate to the customer the value they will accrue while solving the immediate problems connected to business issues. It all connects together: Issue, Problem, Solution.
Finally, two more elements are needed to secure the purchase order: power and plan.
- Power. Notice that I mentioned that large OEMs are often buying forgings via a teamed approach comprised of buyers, engineers, quality assurance, etc., with each stakeholder overseeing their respective interests. For a successful deal, the forging salesperson or team should engage all of the customer’s team members (designers, buyers, QA, etc.), especially those that wield, as we may affectionately say, Power. Those with the greatest sway in the buying process need to be on board from Issue to Problem to Solution while attaching Value to each element. With these pieces in place, the forge can plot a course forward working with the customer.
- Plan. After meeting with a customer’s buying team, it is advised that the forge document the meeting with a mutual plan to ensure that all parties are on the same page and there is a path forward for the customer to ultimately realize the value of forgings. Again, the buyers will try to box forges into a corner on price and delivery, forcing the commoditization of the forgings. Remember, forgings are important because of their strength, toughness and durability. Therefore, it is important not to backslide into price and delivery. Keep the Value front and center. Hammer out a plan that incorporates the customer’s buying process but brings the value your forge offers to the forefront.
The process is complete. The Value of forgings is realized when the ultimate customer buys the prod-uct dependent on wrought metal. Almost as if by magic, the forging customer’s mission issue will be resolved through innovative solutions offered by the forge; solutions that Power purchased through a Plan of action. It’s that simple. Change the conversation about forgings from price to value!
1. North American Forging is Advanced Manufacturing, FORGE, Feb. 2015, p. 24-28
2. Invisible Strength: Forgings’ Hidden Value in Military Aircraft, FORGE, Dec. 2017, p.14-17