The current challenges with the US and global economies have affected most manufacturing firms of all sizes in a variety of ways, some positive and some negative. On the positive side, well-run and diversified companies have been able to survive and even grow because they have not been overly reliant on any single market sector. These companies have also had the opportunity to take market share and customers from their competitors, particularly if their competitors are struggling.
The negative impacts of the current economic downturn have spotlighted the weaknesses companies have and, in particular, the reliance on one or two major customers. To understand this situation, take a look at the world of lower tier automotive suppliers. I have personally worked with numerous smaller manufacturers in Ohio who have been heavily affected by a drop in orders from an automotive OEM or Tier One suppliers. The main culprit is what I call “Single Customer Syndrome”.
What is Single Customer Syndrome?
If your company relies on 80 % of its total revenue from less that three customers, then you are a candidate for this syndrome. Why is it of concern? The answer should be fairly obvious, if your main customer has a problem with the demand for their products, then your company will likely be one of the first to know. Put another way, “if your main customer sneezes, you are likely to catch the flu”.
Take this simple test to determine your current condition:
- Are your sales reliant on three or less customers?
- Are they all in the same or similar industrial market segments?
- Are these market segments related to the US domestic automotive industry, or are the primary segments you serve trending down in terms of growth?
- Is your sales team largely “inside sales” and mostly responsible for the care and feeding of your main customers?
- Is your company’s history largely based on serving these customers and market segments?
If you answered yes to most of these questions, your company likely suffers from the Single Customer Syndrome.
How to Avoid Single Customer Syndrome
- The first step is acknowledge your current condition and the weaknesses you have internally in terms of markets, customers, products, services, marketing, sales and processes.
- Sit down with your management team and ask yourself the questions above and list the weaknesses you have as a business that inhibit your ability to find and develop new customers in new markets.
- Now reverse the process and ask your team what strengths you have that can potentially be leveraged to help find new customers. If you are an automotive supplier, you are in better condition than you might think compared to potential competitors because you probably have an ISO 9000-2000 certification, have begun implementing some of the elements of Lean to take waste out of your processes and use other procedures that you have been required to adopt.
- List all of your customers and scrutinize the smaller ones that are in different market segments than your main customers. Are any of them very profitable or appear to represent new growth potential? Does your company appear to match-up particularly well with any of these customers? If the answers are positive, then you have the beginning of a market diversification strategy, i.e., to find more customers like these in specific market segments. If not, then you will need to do more analysis and research to find other potential market segments to go after.
- Take a hard look at your marketing and sales processes. If they are mostly internally focused and represent little experience in finding new markets and customers, then this is your first order of business to change.
- Do you have team members who excel at outside sales or have the potential to do so? These people deserve your attention, they should be developed and given new skills and support to become “sales hunters”. You need more of these people to diversify your business.
- You should also consider integrating your sales and marketing efforts, so they mesh to generate new sales opportunities. Sales needs support from marketing and vice versa. In particular sales team members need help with market research, understanding decision-making drivers from potential customers and other intelligence beyond websites and brochures. Marketing needs direction from sales in terms of what new opportunities are presenting themselves from first hand experience.
By following this approach your company will begin the process of diversifying your customer base and minimizing your reliance on a small set of customers and markets. For more information on strategies and techniques to accomplish this, take a look at my columns posted on the Manufacturing Line site at AllBusiness.com, follow this link: http://www.allbusiness.com/manufacturing-services/4967954-1.html