Volume 37, Issue 12, December 2002
The Tail is Wagging the Dog
by Bob Lawrence
This is my last regularly scheduled column for USGlass. My passions and arguments have been put to print often enough. So, I’m taking off the gloves for this one—a blunt message is in order.
Some Industry Observations
I want to preface this article with some observations I’ve made of virtually everyone to whom I’ve sold for more than 30 years: most of the glass shop owners, glass fabricators and manufacturers in our industry are good, solid, responsible citizens. At the other end of the spectrum are the ethically challenged and/or selfish people who currently get too much attention for their ability to move product cheaply.
I have learned that responsible people in this business don’t care how much of a discount they might get on a quote for materials and services; they care only that their responsible competitors do not have an unfair advantage when they get cost quotes for the same job.
They also care, however, that too few suppliers have enough courage to distinguish those who are not responsible competitors and treat them as such. I am referring specifically to companies that have little experience and/or show signs of being ethically challenged. Should they receive the same considerations that responsible companies deserve? No! These are the people who will mislead vendors into thinking that they can buy much cheaper than they can, cheat the customer out of the quality they deserve and even take advantage of their employees. Then there are the poor-service and poor-quality suppliers with no choice but to believe these liars; doing otherwise would leave them with no sales.
Pricing Concerns in Abundance
I have learned that despite serious efforts to improve revenue by every primary glass manufacturer, not one has developed an effective plan for improving its return on investment so fellow primaries would follow suit. The glass manufacturers have backed themselves into a corner. Their ineffectiveness is one of the primary reasons the entire industry has not kept up with inflation as is suggested in every round of increase announcements and surcharge letters. To them, I say: GET A DOSE OF TESTOSTERONE, the tail is wagging the dog!
To help offset the shortfall, manufacturers have entered the Age of Surcharge Schemes. Two years ago, we got the energy surcharge to offset yo-yoing natural gas prices. The newest wrinkle is the equipment surcharge to offset the fact that the transportation industry is uninterested in giving you the same cost that helped to drive its biggest competitor out of business, and now you can’t find enough equipment to ship your goods. (Equipment magically appears with a $250 stipend, come January 1). I received another letter suggesting that every wood case in a shipment cost $50 … a noble, environmental reason, except that it is yet another surcharge.
Let me share a mathematical calculation about what will take place, assuming you charge the same for every load of glass. Do you realize that the combined energy and equipment surcharge cost will amount to $467,500 per day in shipments from North American plants that will produce 850 truckloads of glass every day? At a hypothetical glass shop mark-up of 40 percent, the revenue taken out of the pockets of those glass buyers is $238,892,500 if the current surcharges stay consistent through the year.
To the glass manufacturers I say: DITCH THE SCHEMES … just let your prices truly reflect your cost plus reasonable profit—and keep them at these levels. You’ve had enough experience; your new price should include a sufficient enough safety factor to average out the fluctuations of natural gas prices expected during the course of a year and get a reasonable return on investment. If transportation demands you to pay another $250 per load, add it into the square-footage price! OK, so wood crates will cost 5 cents more a foot—WE DON’T CARE, just do it!
If you need another 2, 3 or 4 cents a square foot to maintain a decent research and development budget, to support the Primary Glass Council, the Glass Association of North America or any of the glass associations or to do a more effective job of representing this industry to the public and building trades and architects and code councils, just add it, and stop pussyfooting around! And, tell that blowhard of a customer who’s threatening you by saying he’s going to take his business elsewhere if you raise your price to stuff it.
Your secondary customers (our customers) are ready to accept a fair price and have been for years. In this competitive environment, they’ve seen their costs go down, which is good; but they have also seen their competitors’ prices go down, which is bad; their mark-ups don’t get them the same returns as before.
As much as they are skeptical (which your acquiescence has justified), your direct customers will understand a solid increase justifies the fact that they need to pass on increases of their own. The blowhards have been keeping the fabricators prices down long enough.
I am concerned that we already are seeing the new generations of proprietary high-performance products being priced like a commodity. How is the primary manufacturer to retrieve huge investment costs in production equipment if this strategy continues on these special products and newer ones yet to debut?
Some Final Guidelines
I have a parting set of guidelines that I hope would be embraced by primary glass manufacturers and fabricators:
• Look at your customers and determine whether they are capable of representing you adequately enough to keep your “deep-pockets” company out of court; determine whether they embrace continuing employee education in order to adequately support your secondary customers’ intellectual needs;
• Does this customer conduct his business responsibly? Does he have integrity and ethics? Is he a contributor to both the community and glass industry?;
• Does this customer recruit and retain quality employees?;
• Are customers of your customer enthusiastic about doing business there, and does he offer his customers excellent service and a fair price?;
• Does this customer understand that your relationship is a partnership of two companies with a common goal of achieving a fair return on investment?
What is described above is the ideal, responsible customer. Manufacturers should embrace the prospects of creating a new category for the above customer: he should pass an annual “audit” for meeting the requirements that qualify his company for this special category with special prices and exclusive access to proprietary products. This strategy will put the volume back into the hands of the responsible glass fabricators, glass shops and manufacturers who use glass … as it should be!
See you on down the fairway!
Bob Lawrence serves as president of Craftsman Fabricated Glass Inc. in Houston. His column appears quarterly. Contact him at firstname.lastname@example.org.
© Copyright Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.