Will your key manufacturing accounts be here next year?

Reading the signs of plants moving overseas.

by Scott Benfield

It is no secret that much of the U.S. manufacturing base is quickly and quietly moving overseas. Estimates on the net effect of this movement vary greatly since economists have to factor in the weak economy, a rising U.S. dollar and overcapacity as variables in the equation. In a recent address to the Detroit Economic Club, Archie Dunham, chairman of the National Association of Manufacturers, gave this sobering statistic: “But manufacturing is in trouble. Manufacturing grew at only 1.7 percent last year vs. an average growth rate for the last six manufacturing recoveries of 10.2 percent.”1

The question for industrial distributors with manufacturing customers is, “How can we recognize if our key manufacturing accounts are vulnerable?” To answer this question, much of the work will fall on outside salespeople and distributor management. This article suggests some pertinent questions and quick guidelines to gauge the impact of lost plants in the distributor’s territory.

Asking the simple questions
Manufacturers often don’t divulge their plans to move factories until the last minute. The local press has a field day with the lost jobs, and since many of the companies are public, companies try to avoid giving bad news to the local economy until after the internal decision and plans to move have been made.

To understand if your accounts are planning a move, it is best to ask some simple but telltale questions. Done accurately and quickly, these questions may be the difference between a bad year and a good one or no year at all.

Question 1
Has the corporate parent moved plants in other parts of the U.S. or North America? Many larger public companies have manufacturing facilities scattered across North America. Simply doing an Internet search on the company’s site and under the company’s name can often yield whether or not the firm recently moved sites. If the company has a history of moving facilities abroad, you can expect that this will likely continue.

Question 2
Is the plant investing in new capacity? Much of U.S. manufacturing is working off a capacity glut. Acknowledging this, it is prudent for salespeople to ask production engineers and others in the plant if production is up or down and if there are recent signs of investment in production facilities. Look for new machine tools, automation lines and anything that suggests the firm is reinvesting in the local plant. Salespeople may need to walk the plant floor, extending their beat beyond the tool crib or maintenance shop.

Question 3
What are industry competitors doing regarding domestic manufacturing? Often, it is wise to research industry statistics to understand what competitors are doing. Again, an Internet search on the industry using NAICS codes can be illuminating. Also, check with your local reference librarian about periodicals or stock reports that follow a specific industry on a continuing basis. 

A cutting tool distributor that sold to a power tools manufacturer searched the industry and found many major competitors had moved operations offshore. Management promptly searched for other signs at the local facility to gauge the probability that the plant would move. 

Question 4
Looking at the end product, ask if foreign-made products are taking share from those manufactured domestically. Many salespeople don’t understand how their customer’s end products are used and don’t understand the competitive environment. Find the product managers in the account, talk to end-users of their product, and search the Internet under the type of product to understand where it is made.

Local plants often move because they cannot compete on cost with foreign-manufactured goods. If you find that the account’s market is being flooded with low-cost, high-quality imports, expect that management is considering a move to remain competitive.

Question 5
Are your account information sources diversified? Too often, salespeople fail to call on people in the account other than the direct purchasers or immediate sale influencers.

In their book The New Strategic Selling, authors Stephen Heiman and Diane Sanchez call this the perennial problem of the “one-legged stool.”2 Most salespeople, especially in key accounts, fail to diversify their contacts. When one contact disappears, they are at ground zero in the relationship. The larger the account, the more the salesperson should understand the competitive environment and the customer’s business.

A good way to do this is to broaden the contact list. Talk to key managers in product development, accounting managers and those in plant production who are in the know. This is especially true of MRO distributors that too often aren’t connected to the front door of the account’s operation. In today’s volatile times, it’s not simply who you know but how many you know that could be the advantage.

Question 6
Is your industry researching the issue? Industry associations and other organizations often research current issues affecting the health of their membership. Check with your associations regarding current research on the subject. If you can’t find current research on the issue of plants moving overseas, click on this link to participate in a survey jointly conducted by Progressive Distributor magazine and Benfield Consulting.

You will find a survey that we are preparing to better help distributors serving industrial accounts forecast the impact of plants moving overseas. And, if you include your e-mail address, we’ll be sure that you get updates on our findings as they become available. 

So, give 10 to 15 minutes of your time to answer the questionnaire and you will get plenty usable information in the near future.

Don’t wait
There is a common saying that “good things come to those who wait but not to those who wait too late.” Answering the proposed questions for major accounts is prescient. Quite simply, our advice is not to wait to have a contingency plan. Recent earnings for industrial distributors with a large part of their portfolio in industrial markets are lower than they have been in many years. Answering the six questions in this article makes good business sense. And, we want distributors to have a good business since they are a large part of our customer base.

1 From the NAM chairman’s address to the Detroit Economic Club, March 10, 2003.

2 The New Strategic Selling, Warner Books, p. 412, 1998, Heiman and Sanchez.

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