Volume 36, Number 4, April 2001

Lawrence Logic

Winds of Change

Revisting the Power of the Clowns

by Bob Lawrence

My first opportunity to express myself to the readers of USGlass magazine was in a letter to the editor I wrote Deb Levy last year (see “Send in the Clowns,” March 2000 USGlass, page 6) concerning the subject of market clowns. As this group continues to wreak havoc on our industry, I decided to revisit the subject for this month’s column.

A few years ago, there was a dreadful cost comparison made among glass and lumber, gypsum, cement and metals. Since the advent of float technology, glass has become the only building product to lose to annual inflationary adjustments. This statistic deserves review as our industry’s performance was a disappointment given the gains we should have made with last year’s sales.

Looking Back
An average float line will produce approximately 450 tons of glass. Every day in North America, 45 float tanks produce well over 800 truckloads of glass, 365 days a year. Once a float line becomes operational, the only reason to interrupt production is to make emergency repairs. Otherwise, a float line will produce glass continuously for approximately 10 to 14 years before needing an expensive cold rebuild. Float lines don’t slow down when sales are off. They are designed to operate at optimum speed, or the line will produce an unacceptable product.

Our industry has experienced a couple of bad recessions over the past 20 years. Those situations demanded prudent decisions, but no one wanted to be the first to idle a float line.
Instead, glass manufacturers began a highly competitive battle to extract orders from competitors for all the extra glass they were producing. This upset price stability. Manufacturers were forced to cut costs in an effort to maintain any semblance of profit, so they slashed sales and technical support for customers, research and development, etc. The cost-cutting continued throughout 2000. These reductions dramatically affected the ability of some manufacturers to participate in the timely creation of inspirational new products of the future.

The recent booming economy has created big opportunities for the construction industry. Last year, float plants ran at capacity rates well over 95 percent. While dramatically improved over recent years, the industry’s profit performance has been acceptable only because of those extensive cost-cutting efforts, and because last year set a record for tonnage delivered.

Should the industry be happy? Of course not! Last year should have been an outstanding year of net profit for everyone. Instead, it was mediocre for many considering those tremendous sacrifices.

This industry is sitting on an opportunity gold mine. With energy costs receiving a great amount of press, high-performance glass will get a lot of attention over the next few years. To take advantage, fabricators and distributors must make additional capital and infrastructure investments. But who wants to invest more if the returns are not satisfactory, even after a banner year of sales?

Looking Ahead
How did our industry get into this situation? Where should we focus our attention? Despite the great practical thinkers among us, the glass industry still is influenced by a cancerous type of marketer. This marketer was able to gain a foothold during the previous recessions, when manufacturers were struggling for sales.

At the very least, our industry should concentrate on generating a reasonable return on investment, and re-establish budgets for expansion, for attracting and keeping quality personnel and for research and development.
But first, we should consider the marketer who brought our industry to its knees. I am talking about market clowns—those manufacturers, distributors fabricators and glass installers who, while playing up to a higher image, have little sense of responsibility for our industry, its employees and retail customers who have had to compromise on products or services they received.

The clown’s most vulnerable competitor is every responsible company that has an infrastructure investment of exceptional people able to offer technical advice (insurance to manufacturers that proper use of products is kept within specified parameters) and those who will promote the benefits of products, quality and service. These companies also have quality fabrication equipment, as well as the pay and benefits necessary to attract and keep capable personnel to ensure that customers are well cared for. Clowns know they don’t have all that unnecessary overhead, or expensive employees to satisfy customers’ quality, service and intellectual needs—they leave that responsibility to quality competitors. Why? Because they choose to, and because they are allowed to operate without a competent and intellectual infrastructure. Clowns have the simplest of weapons at their disposal—the ability to undercut pricing and provide marginally-fabricated products.

Clowns have another weapon: the fear that “if I don’t use the clown’s cheap price for quoting, my competitor will and I’ll be out of the job.” His vendors also have fears: “I know this clown is irresponsible and bad for the industry, but how can I pass on his business when I need to maintain sales volume to make up for these poor margins?”

Consider this example: a responsible customer invested a lot of time, effort and money with an architect to be sure glass, aluminum and caulking were specified and detailed properly. When the job was ready to price, another company that uses the clown as its vendor undercut the price so much that the profit was extremely unattractive.

Because of their relationship, the responsible customer appealed to, and received, special consideration for this job from a different vendor. The responsible customer got the job. On a future job, the clown and his customer know they weren’t competitive before, so they offer an even cheaper price. In a very short period of time, the product is trading at a very unsatisfactory margin of profit for everyone in the chain of distribution. So, how is the industry’s return on investment ever to improve if the clown continues to drive the market?

Some say responsible companies should be able to sell service and quality at a higher price—they do, because they have to. But with the clown’s bar set so low, many infrastructure-loaded companies are forced to settle for very low profits because even a quality-conscious customer will only pay so much for service and quality. For years, the clown has been getting attention from customers for his price, and from vendors for his ability to move volume, yet no vendor wants to admit he’s their customer.
Vendors who have felt pressured to get into bed with the clown do so at high risk, and often are forced to participate in the domino effect those clowns have on prices up and down the chain of distribution. To get a shot at the clown’s business, vendors have to be cheap. The clown does not pay anyone a premium unless he can’t get it anywhere else. As we have witnessed all too often, when a clown goes down, there is usually a lot of money at stake, and no one is interested in his unappealing assets.

Neutralizing the Clown
With the new generation of performance products getting national attention, an exciting marketing opportunity exists for the future. This kind of opportunity is seldom available, so we should not pass it up. Some manufacturers are investing heavily in the development of new technology and high-performance glass products. They have made giant investments in plants and equipment to produce these products. Try to envision the dramatic difference between having responsible distributor/fabricators representing these new products, and how the clown could affect that balance if he is given equal footing. If manufacturers want to preserve some assurance of a reasonable return, a fabricator or distributor should have to demonstrate a solid infrastructure that represents the manufacturer intellectually and competently BEFORE he is granted access or competitive costs for these new products. A positive trickle-down effect will then strengthen and nurture a responsible chain of distribution. Maybe then the winds of change for our industry will begin to carry the pleasant whiff of stability and integrity.
See you on down the fairway ...

                                                

USG