The Hardware Dilemma

Yesterday, I was talking to a manufacturer who was explaining their situation and it was the same story I have heard so many times before. The bulk of the business comes from two accounts and these accounts are becoming ever more demanding leaving the manufacturer with less margin after each encounter. Does that sound familiar?

They want to stay in the industry, but have been forced to source product offshore to remain competitive. The refrain is always the same, "What can we do?"

What they want me to do is offer a silver bullet that will give them continued volume growth with constantly improving margins and they want it to be an approach that is proven to work in this industry.

The truth is that there is no one solution. There are many solutions and they all require enough intestinal fortitude to innovate, experiment, change and work hard at a new approach. There are no easy answers.

This is not new information. I watched the same thing happen in the textile/apparel market in this country in the 1970's. I watched it happen again in the bicycle business in the 1980's. Now it is happening in the Hardware / Hardlines industry and there are options available. Here are just a few:
1. Reduce your costs with Lean, high engagement approaches and cost reductions in the channel of distribution a la Dell. This is not easy, nor is it quick, but it is a viable option for the short term.
2. Move your product to commodity status and reorganize to survive in the commodity world. There are lots of people earning a living with commodities.
3. Segment! Develop multiple offerings for different parts of the market. Segment so narrowly with customization and service so that it is virtually impossible for offshore competitors to even attempt to enter your space.
4. Innovate! Concentrate on developing new products in succession and move them into the market rapidly. Make your money before the cheaper knockoffs arrive from offshore and then move on to the next new product or application.
5. Move to the high end position with product, quality and service second to none. Set yourself appart. (This is a variation on the segment idea but rather than serving multiple markets, just service one.)

There are other options and I encourage you to add them to this post. There are also lots of examples that these approaches can work, but it all starts with the decision to change and the willingness to take a risk.