Transactional or strategic?

Author Keith Jennings
Published
June 01,2016 - 12:00pm

We’re getting lots of random requests for machined parts, and that segment of our business remains busy.

One recent example was a business acquaintance of mine who contacted our shop requesting machining work. I had not seen him in a while and wasn’t up to date with his professional activities, but his parts request made it clear he was still freelancing some adventurous projects.

He informed me about his latest venture, developing aftermarket replacement parts for an industrial product line. He explained that the patents had expired for these items and his market research confirmed vast potential. His proposal sounded good and I knew him personally, so we moved forward.

Several days later, we met to review drawings and verify that all of the requirements were within our capabilities. As with any entrepreneur, he was confident this would be a win-win opportunity and we should be sharing in his excitement. We’ve heard lots of big stories over the years, but, occasionally, a project actually develops into something, so we were willing to listen. Of course, he needed his quotation and first batch of prototypes as fast as possible, even though these were complex parts.

Two days later, we sent him the formal quotation with a few terms and conditions to sweeten the offer, but ensuring we were fairly compensated. As with most products like this, there’s always something that will be corrected or changed before the final part is approved. This gentleman is smart, but he can’t launch such an effort without a shop’s expertise, so we quoted accordingly.

After a couple of days, his response was a common one. He wanted to issue a purchase order for a small set of prototype parts at the high-volume price, even though we don’t machine prototype quantities at production prices. He assumed we’d be so convinced of the pending “opportunity” that we’d willingly make his test run at the lower price.

While we were confident it had potential, we can’t alter our pricing model based on promises. The good gentleman replied that we were looking at this situation as “transactional” and not “strategic” and that was a mistake.

I responded that our approach is very strategic. When this great opportunity turns into a first production run and we receive the first big purchase order, we’ll be glad to credit any and all prototype costs. As the manufacturer, we have upfront costs that must be paid and clients should expect to fund their own golden opportunities.

I responded with a courteous “this is our best offer.” Again, he replied that we’re only thinking transactional and not strategic—as though if we were strategic, we’d be willing to make prototypes on the cheap.

In the end, neither side buckled and he ordered the prototypes from a shop that claimed the parts would be ready within 3 days at the cheaper price—although we’re still supposed to receive the production work, as our shop is better set up for that.

Frustrating? Yes. Uncommon? No. Many want free expertise and will offer great stories to get it. I’m waiting for his next phone call to get the production work and make it a long-term relationship. We appreciate his confidence in our company and hope it becomes a strategic relationship—one that includes prompt payment.

Author

Manager's Desk Columnist

Keith Jennings is president of Crow Corp., Tomball, Texas, a family-owned company focusing on machining, metal fabrication and metal stamping.