Starting a new business can be a challenging endeavor, especially for entrepreneurs entering a crowded market with large, well-established competitors already in place. As the manufacturing industry experiences shifts in the way they operate, how can CNC machining businesses secure contracts and grow within the industry despite today’s challenging obstacles.
Here are some tips and suggestions for small CNC machine shops to continue growing their businesses.
1. Develop Partnerships
For many start-up machine shop owners, the early days can be an uncertain time in which numerous concerns, such as volume expectations, client lists, or even floor plans, have yet to be resolved. In these circumstances, existing friendships and business connections can be valuable assets.
Whether having friends steer clients in your direction, enter into partnerships, or simply provide advice on business practices, relying on your current connections can give you a useful leg-up. Many also build their network through industry events and webinars.
2. Target Your Segment of the Marketplace
It is generally a good practice to focus on the specific types of purchasers that will buy your products at the best volume rate. For example, if your shop specializes in producing gear shafts with a diameter under five inches, try to establish relationships with companies that purchase this product at a rate favorable to your production cycle and turnover.
Targeting your market niche will help you make the best use of your specialty. A good example of a company who targets a niche market is Fanuc Spares. They focus only on this specific manufacturer and specialize only in replacement parts. This proved to be a very successful model for what may seem like a limited market. Another marketing method is leveraging emerging technologies such as the internet, videos and social networking which can help improve your shop’s visibility online and reach more buyers. Share videos touring your shop floor — you can have a video created by Epicor to help prospects get a look at your operation.
3. Don’t Rush to Expand
Purchasing machines that are not yet cost-efficient or enlarging facilities without the staff needed to maintain them can slowdown business growth and actually hinder long-term expansion. In many cases, it may be better to concentrate on making steady gains rather than giant leaps forward, as even a small shop with fewer than a dozen machines or employees can still meet or exceed the national productivity average. It’s important to also communicate your growth plans — even the small ones — to your entire team.
4. Diversify According to Demand
While it’s sometimes a bad idea to take on a job outside the capabilities of your shop when you’re just starting out, new projects that seem within reach and will provide a cost-efficient result can be a helpful way to diversify your operations. If, for example, a lathing shop has the training and funds to undertake a profitable milling or plastic fabrication contract, then the resulting diversity can help provide sustainable growth even during periods when one sector of the market is on a downswing.
5. Remain Open to New Technology
Even though a new technical innovation can be costly in terms of additional training and initial set-up, recently-developed equipment may have a positive long-term effect by simplifying production methods or providing the means to accomplish tasks that were once considered impractical. New technology can sometimes help a business remain competitive, especially if the innovation gains widespread notice.
Shop owners might want to consider purchasing more manufacturing equipment to fulfill existing and future orders. This can be a difficult decision to make, as future growth isn’t guaranteed and buying equipment has many upfront costs. On the positive side, however, new machinery equipment will increase production capacity and improve cycle times, which will in turn create more opportunities for your business. Business owners must weigh the risks versus the rewards — and again, communicate your efforts to your team accordingly.
If investing in new machinery isn’t an option, see if you can modify and update your current equipment. This approach requires a much lower investment than purchasing new items, but it can still help improve your production capacity and cycle speeds.
6. React to Your Competition
Being aware of your main competitors is a valuable practice under most circumstances, particularly in times of economic volatility. For example, market fluctuations can cause a slowdown in commercial manufacturing, while leaving military production relatively unchanged (and vice-versa). In this case, competitors from one side of the spectrum may bring their operating standards to the other, forcing companies to accelerate their production rates or lower prices in order to maintain market share.
7. Be Flexible in Multi-Stage Processes
Companies that combine both internal fabrication and machining operations can often save time or money by acquiring equipment that incorporates secondary work into its primary function. For example, using a cutting laser can often reduce the need for post-fabrication finishing, such as smoothing or evening edges.
8. Integrate Your Operations
While vertical or horizontal integration is beyond the reach of many small CNC businesses, it may still be helpful to bring as much of the manufacturing process in-house as you can. Streamlining measures, such as organizing a production schedule around a machine shop’s in-house capabilities or prioritizing jobs based on your own production center rather than an external supplier’s availability, can help smooth workflow and ultimately improve output.
9. Initiate Scalable Growth
In many cases, successful business growth is not dependent on the size of the products being manufactured, but on the depth of the fabricating process. It can be beneficial to evaluate the services or products you provide to your customers, and see if you can expand the reach of those services. For example, if you are producing steel tubing for your purchasers, see if you can also provide them with the fasteners used to join these components together. Securing more expansive contracts from existing relationships can be a secure and scalable method of growth.
10. Step-by-Step Value Addition
CNC machining is essentially a multi-staged process in which there is the potential for value-added work at each stage. Consequently, a shop’s potential for expanding its business largely depends on how many of those value-added steps it is able to perform. A small business seeking to expand can evaluate its manufacturing strengths and take advantage of any opportunity to insert itself into a value-added production stage. This approach, coupled with gradual service integration and streamlining, can be a valuable way to expand your small CNC business.
Equipment isn’t the only part of the physical shop floor that needs to be changed if you’re expanding your business. Storage facilities and warehouses should also be considered once you grow to accommodate additional production. If adding on to your current shop floor isn’t an option, off-site warehousing might be the way to go. These facilities can be beneficial in lowering the additional costs of maintenance and overhead that are usually associated with running a warehouse.