Key Manufacturing Task Example

The Market Segments

The company, we will call them Sirius Corporation, is one of many smaller firms in an industry dominated by giants such as Siemens and General Electric. The "Name Brands" often have very long lead times and a significant backlog.

All Segments

For manufacturers of large power transformers, product design and features are fairly standard. Different manufacturers offer unique features but this rarely dominates a customer's buying decision.

Most potential customers reference several industry standards such as ASTM D 3487 and IEEE Standard C57.12.90. Conformance to such standards is a Qualifier. Without such conformance, a manufacturer cannot compete in this market.

Quality is not a major issue in the normal selling process. When the product meets the usual specifications, quality is acceptable. Quality can, however, have a significant cost impact. If a transformer does not meet final test requirements, it must be emptied, disassembled and repaired-- a very costly process.

Large Utilities & Constructors

Large utilities and construction companies such as Bechtel are the largest market segment. Delivery speed is usually not a decider, as it is in most markets.

Most power transformers become a small part of very large construction projects. Construction firms plan and schedule these projects years in advance and the delivery of transformers is rarely on the critical path. The nine months or so lead time for a power transformer would be considered very poor performance in some industries but is perfectly acceptable in this market.

Delivery reliability is another matter. While transformers are a minor part of most construction projects, they are physically large. Customers order well in advance and suppliers have ample time to build the product. But, customers do not want the product early because it is difficult to store. Customers will not tolerate late delivery at all. Late delivery may stall a half-billion dollar project.

Once the delivery time is agreed, meeting it is critical. A firm's historical performance in this respect is a major deciding factor in the buying decision.

The large utilities and construction companies use a short list of "preferred suppliers." Generally, these lists contain only the largest companies and well-known brands. Sirius is effectively excluded from this market segment because of their size. This qualifying criteria greatly reduces price competition in this segment.

Small Utilities

There are many smaller utilities and rural coops that will purchase from smaller manufacturers. Their projects are smaller and often not managed as well as those of the large utilities. Delivery speed is often an important decider in this market. When delivery speed is not critical, price competition tends to dominate. 

In their analysis, Sirius further segmented this market into those customers who planned adequately and did not require short lead times (Normal) and those that typically ordered at the last minute or later (Fast).

Emergency Replacement

Lightning strikes, poor maintenance and random events occasionally destroy a substation transformer. When this happens, delivery speed is crucial.

The needs of large and small utilities are essentially identical in these instances and the large utilities tend to ignore their "preferred supplier" lists. Price also becomes almost irrelevant.

When a large-utility customer has good experience with smaller suppliers due to an emergency situation, they may add the supplier to their preferred supplier list. While this is not common, it can be important for the growth of the small manufacturers.