Understanding the concepts and language of financial reporting
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Provide some ideas on how to deal with requests for specials in terms of getting buy-off or acceptance from engineering and production.
The first answer is you better not be doing it. The second is you better make it formal. You can't win custom games in the equipment business as I've understood it. The reason is you can never get the markup on the engineering content. On the other hand, it may develop some standard need that you have to fill. In other words, it can be a pathway to product definition. But you have to have a formal process, usually called a CES—custom engineering specifications. You have to have buy-off ahead of time during the quote process, not afterwards. The special has to have a strategic purpose or it is a foolish thing to do.
My assumption is that the specials customer has written in great detail, the specifications required. Otherwise, you can't properly respond and obscenely high prices is where your response needs to start. It's hard to say no to a customer, but the price may get the customer to say no themselves.
There are two answers to this question—one for equipment and one for materials. In the equipment business it is a bear. When you talk about specials it is significant re-engineering. There is also a fair chance that you will only sell one. Bob Graham said, "I never made money on a special, no matter how much I charged."
In materials it is quite different. In materials custom is good, because that is the way you lock a customer in for life. If you make it a little bit different for the customer then you are making a formula or a type or a substance that nobody else in the world is making for them. I've locked in more materials customers into long-term repeat business because of specials.
The question asked, "how do you get it bought off internally," which is a very good question. Selling is always a 50-50 deal. Half to your outside customer and half to your internal people. If you forget the second half you will fail. In the materials business you educate them on how important it is to securing long-term business that is difficult for competition to penetrate. Thank them for running that last special and let them know of the payoff to the company. It's an education process.
In the equipment business you have to learn how to make custom products with standard options. That has to be way over 80% of what you do. You do specials, but only for strategic reasons, not tactical ones. Can that special be added to your standard library of options? Getting some money only once is at best an even trade. More likely you will ship $5 for every $4 you get.
You have to be willing to say no to the customer. However, I don't believe you should do it with price, instead do it with delivery. "We would be glad to do this project, but it will delay the delivery six months.