One of the immediate benefits of working with an original equipment manufacturer, or OEM, is they tend to bring consistent, linear demand to the table, demand that is backed by an installed equipment base and one that is in constant need of consumables, service and spare parts. They tend to be well financed and willing to sign contractual supply agreements, making their value to your enterprise twofold; they bring high volumes to your business and they’ll help you justify your company’s investment in inventory. However, like any customer, in any industry, an OEM may have some immediate concerns about dealing with your enterprise. What are these concerns and how can your company identify them and move the process forward?
1. Credibility: Success with an OEM typically involves entering into a contract defining conditions for raw materials, semi-finished and finished good inventory. While this may all appear as positives for your enterprise, it’s important to note that equipment manufacturers are extremely demanding. They dictate terms of service with vendors and often run a “JIT” supply chain strategy – implying that your company must be able to deliver quality parts at a moment’s notice.
While JIT is ideal for the equipment manufacturer – in terms of its abilities to reduce their cost of capital and financing – for your company it can often involve substantial inventory holding costs on all those three aforementioned inventory classes. In essence, you hold inventory for the equipment manufacturer and deliver when they need parts.
One of the biggest fears for an OEM is to work with an unproven commodity. Your lack of credibility is a serious deterrent to moving forward. In this case, the equipment manufacturer may be exhibiting a classic customer fear of the unknown. They may opt to stay with their current source of supply simply because they have little to no history with your enterprise.
This explanation of JIT is from the post: What Are the Costs to Hold Inventory in Just In Time - JIT ?
2. After-Sales Service Support: Buyer’s remorse is an ever-present concern for equipment manufacturers. You may have passed all the initial criteria, but if your company’s after-sales service support is lacking, or has a reputation for falling short of expectations, then the relationship simply won’t last. This is akin to a customer’s willingness to avoid new suppliers regardless of how strong or how well priced their offering is.
Customers tend to stick with what they know, rather than deal with an uncertain future. In this case, you may have a vastly superior product offering, and a price that simply can’t be beat, but if the OEM questions your service capabilities, then you’re dead in the water. In this case, you must immediately confront this concern by showcasing your service capabilities and willingness to provide field-service technicians, if need be.
3. Lack of Staying Power: Equipment manufacturers respect a vendor’s history. That implies that they’ll invariably question your company’s staying power. How long have you been in business? Who are your customers? Can you survive the ups and downs and various business cycles within the market? Most importantly, have you demonstrated an ability to perform in both good times and bad?
An OEM is focused on long-term, repeatable business. They need vendors who consistently produce quality parts and sub-components and they if your business meets their criteria, then they`ll stay with your enterprise for years to come. What they ultimately need is a supplier that has demonstrated staying power by consistently delivering quality parts without fail.
A consignment inventory agreement may help you secure a position as the incumbent supplier with an OEM: Supply Chain Management: Pros & Cons of Consignment Inventory
4. Financing: When you think about selling to an equipment manufacturer, what’s the first thought that comes to mind? Well, you might think about how they offer consistent, long-term business and how they typically stay committed to vendors. In fact, they tend to see their vendors as strategic partners, ones whose solid financial standing ensures they’ll be around for the long-haul. In the back of their mind, they are not only concerned about your staying power, but also about your long-term viability as a company. After all, they plan on using your parts well into the future – that is if you consistently deliver the goods, so to speak.
5. Core Competencies: Last, but definitely not least, is your enterprise’s ability to back up its product offering with excellence in service. Your core competencies must include not only the ability to support that product offering with replacements, but the ability to troubleshoot technical issues. As previously mentioned, an OEM sees their vendors as partners, ones who have the technical competencies to immediately address any outstanding issues. In essence, they look for companies who demonstrate engineering excellence – whether that be from a design standpoint or a mechanical engineering standpoint. Either way, the equipment manufacturer is constantly assessing your company’s core competencies. Again, confront this fear by expressing your willingness to provide technical support via a field-service technician or engineer.
The above video is from the post: Defining Value Assertion and Value Proposition in Business Development
At the end of the day, the OEM is looking for you to demonstrate an ability to deliver time-critical parts. They need vendors who bring engineering capabilities, design capabilities and ones who demonstrate an in-depth knowledge of the market – both in terms of the pricing in that market and where the market itself is headed. These manufacturers may be market leaders, innovators and product specialists. In turn, they are looking for vendors who emulate their mindset, who see quality as a given, and who view a value-added sales strategy as one that supports the product offering with excellence in customer service and support. In this case, the lowest possible price rarely wins the day if that price isn't supported by the vendor. In essence, it's price, quality and service that win out.
Comments