Net-Working with specialty subscription websites

Deshazo Crane Co. is a manufacturer of overhead cranes and custom automation equipment. Last summer, after receiving a number of large orders for automated equipment, the company’s machine shop found itself overwhelmed with the amount of parts it needed to make. A sales rep remembered hearing about a website that helped connect customers and suppliers of machining services—MFG.com. He casually suggested it as a possible solution. That water-cooler conversation wound up changing the way the company did business.

“We registered for an account and almost immediately got a phone call from MFG.com’s customer support team,” said Daniel Drennen, project manager at Deshazo, Alabaster, Ala. “I was surprised by their responsiveness and struck up a conversation with their representative.”

While Deshazo had some initial concerns regarding quality and affordability, the first delivery of parts quickly put those to rest. From that point forward, the company’s president of automation decreed all future subcontracting would go through that website.

That’s a great story—but what exactly makes this type of website worthwhile?

New Kind of Marketplace

“The fundamental thing is that it’s a marketplace,” said Chris Mitchell, chief marketing officer for Marietta, Ga.-based MFG.com. Bringing buyers and suppliers together may not be unique in and of itself, but Mitchell believes his company has a distinct edge in terms of scale.

“I’m not aware of too many other contract manufacturing marketplaces with global reach,” he said. “We not only bring OEMs and suppliers together from all over the world, we provide the tools to enable the interaction. It’s almost a matchmaking service for manufacturing companies.”

For a fee—typically $300 to $600 per month—suppliers can bid on request for quotes for virtually anything, from simple components to complex, tight-tolerance specialty parts to full assemblies. Buyers can create and post RFQs free of charge.

“I have not been able to convince our shop to place an entire control panel on the marketplace for bid,” said Deshazo’s Drennen, “but based on our experience so far, I’m confident we would find qualified, competent vendors who would be able to complete the work.”

Pobody’s Nerfect

No system is without its shortcomings, and there are inherent risks, disadvantages and pitfalls to virtually everything. Online, direct-procurement marketplaces are no exception. And while Deshazo is a success story, a shop’s experience may vary considerably, depending on the desired results and the work it’s willing to put in.

For example, Tomball, Texas, contract manufacturer Crow Corp. has been using the internet to grow its business since the late 1990s. The company started with an online advertising package from Yahoo, at a time when that was the dominant search engine. Around 2001, the company became aware of more-specialized services and decided to take a chance.

“The internet was really catching on in a huge way around then, so lots of companies were selling services with the anticipation of the big boom,” said Keith Jennings, Crow president. “The prevailing notion was that there was lots of money and business to be made, which sounded good to us too.” [Editor’s note: Jennings is the author of CTE’s Manager’s Desk column.]

The site Crow selected was GlobalSpec.com. At the time, it was based on an early version of the concept refined by sites like MFG.com—a community of buyers and sellers where jobs could be listed and bid on.

“We tried it, but we found that we were paying less and getting more inquiries from our regular online listings, which also gave us more direct contact with our customers,” Jennings said. “The problem we found was that a lot of the buyers would put together an RFQ and send it out to numerous potential suppliers. That’s great for the buyer, because you only do the work once, but, as a supplier, we were always competing against a lot of other manufacturers, and it usually came down to nothing more than the lowest price.”

Crow’s pricing typically fell in the middle of the pack, he continued, and the shop wasn’t comfortable making significant sacrifices to either quality or profits to compete in that sort of marketplace.

“Our work is good, and our reputation will speak to that, but the way those systems were set up at the time, you didn’t really get to speak with the customer directly,” he said. “There was no way to negotiate or follow up or get another shot at the job. We just did not find a lot of value in that particular system.”

Crow eventually moved all of its online business to Google advertising, which still generates new business.

Manufacturing Tools

While Mitchell acknowledged Jennings’ concerns, he believes MFG.com has a system in place to help shops overcome those potential obstacles.

“Because it’s the internet, you can find yourself competing with shops all over the world, some of which are in countries where labor is incredibly cheap,” he said. “What we’ve seen from time to time is suppliers who think that when they join, it’s like turning on a spigot and new jobs will come falling into their laps; but it’s a competitive place and it’s a different way of pursuing business. You need to learn how it works in order to be successful.”

MFG.com provides free training to members to help them succeed in the environment. Mitchell said when companies don’t take advantage of that training, they tend not to be satisfied with the results. Suppliers can subscribe to the processes and geographic regions they’re interested in and filter the resulting RFQs so they only see jobs they might be interested in bidding on—based on factors such as workpiece materials, part sizes and run sizes.

However, setting those filters properly is complicated, and MFG.com’s training helps eliminate the trial and error that might cost parts manufacturers valuable business opportunities. The training also covers basic processes, such as submitting an RFQ, and best practices based on internal metrics, such as how often to log on to check for new job postings and how to best respond to messages.