I think the trend toward industry consolidation will continue. So as a distributor, our continued growth at McJunkin depends on waking up every day and finding ways to add value to our customers and contribute to their improved profitability. The cost pressures from our customers are not going to go away.
THE MANUFACTURER: Educating End Users
Steve Twellman is president & CEO of Zy-Tech Global Industries based in Stafford, TX, a VMA member and manufacturer of gate, globe, check, and ball valves.
VM: How are changes in the supply chain affecting you as a valve manufacturer?
Twellman: As a valve manufacturer, our company today must have a two-part focus. The first is making quality products. The second is dealing with the transition in valve manufacturing to low-cost countries. End users are demanding audits of our quality processes, so we spend a lot of time performing these audits. Another factor increasing the time we spend on audits is the desire of many end users to pre-qualify potential manufacturers before one is finally chosen. That means we have to make sure that end users are comfortable with our quality processes.
The cost of conducting audits keeps increasing for us. Our hope is that end users will eventually have the trust and confidence that our quality processes will work, even when we move our sourcing. End users should identify manufacturers they can trust to deliver quality valves, over and over again.
As a manufacturer we must also have the flexibility to be able to supply the end user's chosen distributor. This can be a concern for us, because it means our company cannot always leverage the relationships we've established with certain distributors. As the supply chain is evolving today, we may have to deal with a distributor who has no established relationship with us. And we may have to supply product to that distributor on behalf of only a single end user. By contrast, our established distributors buy in volume for multiple users, and they buy items throughout our whole product line.
The result is that end users wind up paying for increased warehousing costs, which manufacturers and distributors must pass along to them. So in truth, end users are adding costs back into the supply chain rather than cutting costs. Often times, end users only look at the price of a valve. But there's more to it. Logistics and warehousing have to be figured into the price.
VM: How can manufacturers address the challenges confronting them as supplier relationships continue to evolve?
Twellman: End users today are trying to control all aspects of the supply chain. At the same time, consolidation is occurring among end users. So with fewer customers on the street, and with those customers wanting to control all of the relationships, today's marketplace presents some real challenges for valve manufacturers.
Valve manufacturers must do a better job of educating end users, so they'll understand how their practices can actually add costs. As manufacturers we've got to promote a better way of managing the supply chain, rather than today's practice of having to constantly divide our business among many different distributors. After 13 years in distribution and now 22 years in manufacturing, my view is that end users are "dissecting" the supply chain.
VM: What does the future hold for valve manufacturers?
Twellman: I think the future will continue to bring more consolidation among end users, distributors, and valve manufacturers. In the United States, the industrial markets are mature. These markets are only so big, and the size of the pie isn't increasing. At the same time, everyone's objective is to increase their own share of the pie. So consolidation will continue.
MARK WARD, SR. is president of Message Media Group in Greenville, SC. With more than 25 years experience, he has authored seven books and written more than 1,000 feature articles for some 50 trade, professional, and association magazines. Ward can be reached at www.messagemedia.us.