Volume 37, Issue 8, August 2002
Treading on Sacred Ground
by Bob Lawrence
Author’s note: This article was due in early July for the August issue of
USGlass. By the time this article hits the streets, it should be interesting to see what actually happened with the glass increase announced in June.
I want to take a turn in support of the float manufacturers, and offer them, delicately of course, a constructive observation of a particular strategy with big players in the glass market. Whether they agree with me or not, I perceive a major dilemma. I am treading on sacred ground here, so if I disappear sometime in the near future, tell my wife that the people who assisted Jimmy Hoffa off this planet might offer a clue as to my whereabouts.
Since there is no way to test the water here, I’ll jump in with both feet. In June, the float manufacturers announced an increase. Without factoring in the cost of natural gas, operating and production costs for glass have increased enough that, even with high volume, there is little profit left for investors. The increase is justified, but that is certainly no assurance it will take place. So, this event may end up as another of many of our industry’s casualties in common sense.
Historical records show that for more than 50 years, glass has consistently been the last among building materials to keep pace with inflationary costs. One of the reasons our industry currently struggles has to do with the annual contracts float manufacturers negotiate with big players for a commitment on large quantities of glass.
The fact that contracts exist is not the reason our industry struggles. It is because not all people who get those contracts understand or respect the implied responsibility they must assume with it; they are the ones who betray the industry and the trust a float manufacturer places in them. To explain the chain of events, I’m portraying what might happen in any number of fictitious cities; any resemblance to actual people or companies is unintended.
Meet the Players
This is what you might witness if you were a fly on the walls of a few glass fabricators’ offices in “Any City, USA,” … but first, a little background on the typical kind of players in this short drama:
President Thoughtful of Grand Float Glass has to deal with dramatically rising costs for employee health benefits, workers’ compensation insurance, research and development, transportation, legal expenses, crating, etc. Among float manufacturers, Grand is not alone in this predicament. Thoughtful is doing the responsible thing for his investors by announcing a price increase.
President My-Way of Established Tempered Glass, a fabricator, has all the same problems, plus idiot competitors with a lot more capacity than the market will bear for crummy glass. Established has been around a long time and has built up a huge volume of business, but is unable to provide consistent quality with the higher volume demands that developed several years ago.
President Budding of Excellent Glass Fabricators got into tempering more recently because his company was starving for a consistent supply of quality tempered glass for the value-added products it manufactured. Although priced higher, Excellent had built a nice volume of tempered business with customers who shared the same concerns for quality and service.
Two weeks after the price increase announcement, Grand’s President Thoughtful is making calls on Excellent and Established Glass. President Budding and President My-Way had been making calls on glass shop customers prior to the visits. The significance of these calls produced quite a different turn of events.
Excellent Glass expected this increase, and fully supported the logic of increased prices and passing them on. After all, it could ill afford to absorb new glass costs and all other operating costs that have been spiraling up. President Budding had already sent letters to customers warning of the impending increase so they could plan future business accordingly and alert their good customers.
Because Excellent had been building a nice reputation and developing a volume of business worth nurturing, Thoughtful took this opportunity for his first visit there. Budding said that he had already made calls on his glass-shop customers in an effort to explain the glass increase. Quite frankly, he reported, the retail glass-shop owners were relieved because they needed a reason to recover the same kinds of rising costs in their business with an increase of their own; so they too were in full support of the increase. It turned out to be a pleasant call for Thoughtful: he was impressed with Excellent’s professionalism, and President Budding’s understanding and support of Grand’s need for a glass increase.
At Established, however, Thoughtful found a much different atmosphere. President My-Way had spent a week calling on his customers, becoming more and more furious that his people had allowed their company to lose market share. Thoughtful heard, for the umpteenth time, that Established should not have to compete with Excellent, or those crummy temperers. (Who cares that customers had expressed concerns about the inconsistent quality they had been getting from Established, or that without assurances of quality, they would use other temperers who offered cheaper glass prices for product that was “acceptable” on jobs that did not demand consistent quality?) My-Way was insistent that customers owed them for all those years of providing glass, so to them: “We are going to show you how committed we are to getting all your business back. We are not raising your prices!” He was not done with them or those “competitors” yet!
There it was: My-Way had decided that his company would not support the increase and leave prices where they were to pressure competitors and to regain market share lost long ago. He knew he had an advantage. Due to its size, Established had an annual contract, locking in its glass costs through the end of the year. My-Way will take this advantage to pressure competitors who would, he thinks, have to absorb the increase.
Thoughtful was stunned by the determined attitude of My-Way, and the domino effect he would cause in the industry. Grand Float had never been a supplier to the cheap temperers that My-Way was complaining about, but the increase, so desperately needed by Grand and the entire industry, would be vulnerable to My-Way’s line of attack.
On hearing of My-Way’s plans, Budding is unwavering: providing consistent quality, excellent employees and service does not come cheap. His customers should never have to make excuses for the product or timeliness of their installations, nor does he want to reduce overhead in the most expensive part of his operation: his ability to provide for the intellectual and customer service needs of his customers. He understands that he can only get so much of a premium for superior quality and service; he is not about to trade that reputation off for a cheap price. So Budding will be forced to ask his float manufacturers to help him stay as reasonably competitive as possible … a request that would not be ignored, and exactly the first response Thoughtful feared would happen … and could not refuse.
Brand X Float Manufacturers also have a big stake in My-Way’s decision. Float manufacturers have to find a home for all the tons of glass pouring out of their furnaces every 24 hours, 365 days a year—more than 850 truckloads of glass every day in North America!
As Established, and other companies like it, begin to show that they are willing to take substantial chunks of business from the fabricator customers to whom X’rs sell glass, the X’rs are forced to respond in support of their customers. This is the second response Thoughtful feared … so the increase dies.
There is the dilemma!
Thoughtful has a right to be furious. For the future, Thoughtful and all other float manufacturers might want to consider alternate strategies: offer annual contracts only to OEM’s, nurture responsible customers who understand, respect and implement the philosophy of how successful Partners in Profit (see box below) should work together, and to see the glass industry’s reputation as the building products industry’s cheap cousin retired during our generation.
See you on down the fairway!
|Congratulations to Richard D. Voreis, who was the first to identify the phrase “Partners in Profit,” which was coined by Kawneer, in my last article.|
Bob Lawrence serves as president of Craftsman Fabricated Glass Inc. in Houston. His column appears quarterly. Contact him at email@example.com
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