Large companies can hold the key to small and medium-sized manufacturers’ growth, but tackling these orders means negotiating terms, dealing with supply chain issues and managing cashflow. Chris Goodfellow speaks to manufacturers that have won big contracts and industry experts to find out how to win big business.
Landing that big manufacturing contract can make, or even break, small manufacturers’ business. Not only do you have to manage capacity and client expectations on a large scale, but maintain cashflow when orders can take months to be realised.
That doesn’t mean it can’t be done. Small businesses are supplying large international, companies with everything from Formula 1 communications equipment and “foul weather” gear for deep sea fishermen to recycling bins.
Nick Golding, sector lead for the Business Growth Service’s Manufacturing Advisory Service, a government-funded service which helps businesses grow, says the key to winning this business is looking at the value add you offer and targeting companies accordingly.
“When smaller firms are looking to work with larger manufacturers they can sometimes be weighed down by the barriers they believe to be there, whether that’s ‘we’re not big enough’, ‘our brand isn’t strong’ or ‘we don’t have the right accreditations’,” he advises. “These can all be valid concerns, but the starting point should always be ‘what competitive advantage can I offer the customer?’”
Finding the customer and the right contact point can be a difficult prospect.
Emma Woods, technical manager for Phoenix Speciality Oils, says getting your name in front of large suppliers can be the biggest challenge for SME manufacturers.
“The larger the potential client the more likely it is that they’ll be inundated with SMEs trying to be their next supplier,” Woods says. “To be successful you need them to notice you, so strive to become the authority in your own particular industry.”
This means it’s crucial to understand where in the supply chain your offering fits. Lawrence Davies, deputy CEO of the Automotive Investment Organisation (AIO), which assists businesses in the sector as part of UK Trade & Investment, says being a first tier supplier is unlikely as it requires a major engineering resource.
“Companies with less than 50 employees might not have that,” Davies says. “It can be advantageous to think about the second tier.” He adds AIO can help by arranging meetings and industry events to help facilitate these contacts.
The length of time it takes to design, manufacture, distribute and get paid for large orders can cripple a small business’ cashflow, and payment terms continue to be an issue of controversy.
Jon Horsfield, director of Recycling Bins, says it can take two months to move from initial concept to design, six weeks to manufacture and four weeks before they receive payment, adding to the difficulty of dealing with large customers.
“We’re currently dealing with a large supermarket chain,” says Horsfield. “Because the order value is in six figures you tend to have to bend over backwards before you see a penny or a pound.”
Recycling Bins uses a “decent” overdraft facility and capital to enable them to quote at this sort of level, and has the potential to use invoice factoring.
‘Foul weather’ clothing distributor Stormline International is currently working through this equation bidding for a contract with a Canadian company that has the potential to double their business. Not only does it mean dealing with increased production, but being paid on 90-day payment terms and offering a good price.
“There are those growth issues,” Regan McMillan, sales director at Stormline, says. “They [large companies] play a lot harder, there can be a lot more tricky to deal with. You’re one of many; we’re one client they have 30,000 product lines. We’re a valuable part of that, but at the end of the day its about the relationship you have.”
To date, Stormline has been self-funded and has no debt.
Woods warns small businesses to discuss terms at the beginning of the process: “It can be tempting to leave aside talk of payment and contract terms when it comes to winning over big new clients, but don’t. It’s important to set out your stall early on and stick to it. Try to walk the reasonable line between uncompromising and bending over backwards.”
High-tech communications equipment manufacturer Simoco Group is based in the UK, but sells products in over 30 countries.
Chief operating officer Andy Woodhall recommends looking for three-five year supply contracts and says Simoco’s consult, build and operate model means small orders have been built into large contracts over time.
The supply chain
Supplying OEMs or top tier companies often means managing your own supplying chain effectively.
Woodhall advises that stock is a key factor in managing these orders, advising that manufacturers should know their history and run rate, never over commit or leave your warehouses empty, which he calls a “sacrilege”, and ensure they have long-term arrangements with your partners.
If there’s an issue with material or build quality it needs to be dealt with promptly.
“The key challenge is maintaining quality,” says McMillan. “The biggest issue is making sure the materials are up to scratch, that can be a challenge and if there’s a problem it just multiples.”
McMillan says working with distributors has been crucial to servicing an international network of large clients, which range from deep sea fishing companies to mining operators.
“We’ve worked to get ourselves to be their primary supplier of rain gear and that’s happened through working with distributors, and building up ourselves and our products as being class leading,” he adds.
Simoco’s approach is to use a mix of small local sales teams in key markets and local partners.
Woodhall says this mix of direct and indirect sales has been crucial to building up the brand, adding distributors will often carry competitors’ products, so it’s crucial they understand your offering.
“You’ve got to meet them,” he comments. “You can’t be engaging just after looking at a website. We get to know their business and their requirements. It’s key they understand the product and what the key differentiators are. They have to be engaged.”
This means visiting them at least twice a year, regular contact through newsletters, offering a full turnkey range of maintenance and support, and a supplier portal.
Whether you deal with distributors and partners or go direct to big companies it’s crucial your manufacturing business is prepared to deal with the cashflow and capacity issues these contracts can create.
Often manufacturers will build up to larger contracts by starting with supplying small amounts of a product and this provides time to work through these issues. There’s also help available through your peers and government advisory services.