DIEMAKERS GET DOWN TO BUSINESS
Steel rule die manufacturers must confront the challenges of price pressures and technology investments.
A two-part industry survey, developed and conducted by the International Association of Diecutting and Diemaking (IADD) and packagePRINTING, gathered diemakers' perspectives on the business climate as of June 2001, and then reassessed the landscape after the September 11 terrorist attacks.
Who are today's diemakers?
In tallying the results of the survey, the expected profile emerged of an industry of small, established, family-owned companies. The highest percentage (46 percent) of responding die shops has 25 employees or less, and has been in business an average of 27 years. Seventy-seven percent are family-owned, and the majority of respondents (69 percent) had sales in the $1 million-$10 million range in 2000.
More than half (54 percent) have seen major management changes in the past three years, with 31 percent reporting the reorganization of divisions or departments; 17 percent citing a transition to next-generation management; and 6 percent seeing the sale of a division or of the entire company.
Steel rule die manufacturers reveal that, most often, business comes from a wide array of sources. Seventy-one percent report having accounts of varying sizes/from varied end-use markets. Just 23 percent say their customer roster consists of a small number of large core accounts. Only 17 percent glean the majority of their work from a single end-use market.
Characterizing the business climate
As of June 2001, the business outlook appeared challenging, but not without a few bright spots. Fifty percent of responding die shops said business has been steady over the past three years, and another 29 percent noted business had grown during this period. Share of market reports also brought some good news, with 56 percent seeing increases over the past three years, and 35 percent holding steady. Annual growth also favored the positive, with 52 percent citing an increase, and 38 percent holding steady.
Not surprisingly, profit margins emerged as the darkest part of die shops' economic picture. Over the past three years, 46 percent of shops have seen a decline in margins, though 38 percent say they have held steady, and 17 percent report an increase. Labor is far and away the operating cost with greatest impact on diemakers' profits, cited by 46 percent.
The economic slowdown that dominated 2001 was most often characterized as moderately affecting die shops. Many respondents said the slowdown only amplified a downturn that was already afoot in the diemaking sector. "The current downturn in business actually began a little over two years ago," elaborated one respondent.
A closer look at the impact of the national economic slowdown revealed virtually no effect on manufacturing, with 92 percent citing no plans for production shutdowns or mandatory employee vacations. More than two-thirds said no layoffs have resulted from current conditions, and over half are preceding with planned marketing initiatives despite the downturn. Equipment purchases seem to be bearing the brunt of the slowdown, with more than half of responding die shops reporting a cut or a complete halt in technology investments.
Overall, the terrorist attacks of September 11 produced a moderate business disruption, with 63 percent experiencing business delays, and 25 percent experiencing business loss due to these events. Staffing was the leading aspect of operations affected, with 46 percent of shops reporting either staff layoffs or additions to combat new business dynamics.
Diemakers emphasized the attacks only further amplified the economic downturn already in effect, and that the post-September 11 drop in business rebounded quickly. Many plan to retool marketing strategies in the wake of the attacks, including the reallocation of sales staff, and increased use of direct mail, teleconferencing, Web sites, and e-mail as alternatives to travel for meeting sales objectives. Others mentioned revamped long-term planning approaches, with some intending to plan for just the next few months, and then regroup. Inventory and delivery times have been affected by customers' "wait-and-see" stances.
How today's diemakers compete
The leading current business objective for diemakers is to expand their companies' customer bases—a goal shared by three-quarters of the respondents. One-third are striving to expand services to existing customers, and more than a quarter would like to expand into new markets.
Half of responding die shops are banking on service, whether customized, specialized, or value-added, to set them apart from competitors and lead them to their expansion goals. Another third believe quality will make their work consistently stand out from that of other shops.
Diemakers choose to market these competitive strengths in a wide variety of ways, led by developing a Web site (used by 46 percent), conducting onsite events/demonstrations (used by 35 percent), and exhibiting at trade shows (used by 31 percent). There was a definite undercurrent of renewed sales/marketing determination in diemakers' comments. "We are forced to be more aggressive by stronger selling and marketing," wrote one respondent. Commented another: "We have strong business strategies and are determined to succeed."
Diemakers see the strongest routes to new business this year as through technology investments (cited by 35 percent) and by diversification (cited by 15 percent). The biggest perceived barrier to expansion is price pressure, cited by nearly one third of respondents, and described disparagingly as "lowballing," "underquoting," "cut-throating," and "commoditizing." Other barriers included the slowing of the economy and absorbing the cost of new technologies.
Some diemakers, however, see a silver lining to these barriers, and are content to wait out the current "survival of the fittest" landscape. "The slowing of the economy will weed out weaker die shops," points out one respondent, "especially those who cut-throat their prices and lose the small margins of profit they had before." Another respondent says one of the biggest opportunities for his company will be "taking business from failing die shops."
Absorbing the cost of new technologies may be challenging, but this challenge may force the consolidation necessary to ultimately spark industry growth. "Increasing costs of technology mandate a larger business," writes one diemaker. "Small shops can't afford capital investments necessary to keep up with the competition," acknowledges another. A solid number of diemakers characterize consolidation as a necessary element in the industry's positive evolution.
Diemakers should seize the opportunity to carefully examine their marketing plans, find common denominators among the benefits they bring to their varied customer bases, and leverage these strengths more aggressively. Shops should also continue to promote the educational and technological resources they can offer to the many converters who will be pursuing transitions into new markets. Effectively turning these strengths into new business, however, may require creative alliances or even consolidation with competitors.
Editor's Note: This material is excerpted from a presentation by Susan Friedman at the IADD 2001 Annual Meeting.