Monday, March 17, 2008

Volume 45 - Locksmithing - Just a service industry?

In September of 2001, I wrote an article that was published by the Doors and Hardware Magazine entitled "Can Independent Entrepreneurs Survive Industry Consolidation?" In this article I spoke about the fragmentation of the Hollow Metal Door Industry and the various types of integration that was taking place and would take place over the next decade. I also illustrated the importance of the Contract Hardware Distributor in this Industry and in the supply chain attempting to show that regardless of what happens with consolidation, a well organized and operated distributorship would always be a profitable company.

In the Magazine, Locksmith Ledger, December '07 issue, a very similar article was written, "In a World of Merger Madness" stating that no matter what happens within an industry, individual businesses should keep their eye focused on their businesses always looking towards improvement within the Industry."

Interestingly, I wrote an article not accepted by the Locksmith Ledger stating those similar sentiments regarding the business of Locksmithing. The following is that article that asks a very serious question: Locksmithing - Just a service industry?

As a business entity, the Locksmith Industry is being pushed further and further toward the 'service provider of 'install only' direction versus the 'selling of products for revenue' direction. As an owner of this type business one should be asking the following questions: 'How is this present supply chain adversely effecting my business?' and What are my options in attempting to control my own destiny and profits?' Understanding the 'Supply Chain' and the implementation of its consequences, as well as individual segments equates to volumes of information and debate. This article is simply meant to stimulate thinking on possible solutions to combating the problem of limiting revenue streams.

It is common knowledge that the Locksmith Industry must compete with the 'Big Box Houses' and preferred distribution, where a great many hardware manufacturers sell direct not only at pricing advantages but also availability advantages, since most locksmiths have to purchase through pre-ordained distributors or wholesalers, thus limiting their 'selling revenue stream.' This predetermined supply chain is an obvious goal of the Manufacturing Industry to limit distribution, yet increase sales and profits of their products. Obviously, this means the 'Big Box Houses' or other types of large distribution that can purchase large quantities of product, as this is really the only criteria by the manufacturers of products, work at a huge advantage.

This selection theory further states that certain manufacturers, in fact, intend upon even further limitation of product in their future plans, regardless of Anti-Trust legislation. Disruption of the supply chain, or specific modeling of this supply chain, although an interesting issue, is really of little importance to a respected industry like 'Locksmithing,' being further pushed into a service arena by the large manufacturers of door hardware products with specific intent. No matter how respected and vital one might think this Industry is to both the new construction as well as the aftermarket construction industry, combating this trend is the subject matter and vital concern of ownership.

The Locksmith Industry however has many options today that didn't exist even a few years ago. The Global Supply Chain today offers availability of product, along with fair market pricing to compete with anyone. This 'Open Supply Chain Market' is far better than that of a controlled and limited chain, thus opening up choices and options the basis of all business growth. With Globalization, one has a choice, the same as a Fortune 500 Company, to participate according to your business plan, and not according to someone else's business model.

Remodeling of this current Supply Chain should be of great interest to the Locksmith Industry, if one is to combat this squeeze to simply become a 'service type provider.' It is of vital importance to this industry to understand your 'value added' service within the commercial, as well as the residential, construction market; this must include new construction as well as the aftermarket construction segment. The time is now to formulate a business model that involves access to different revenue streams, rather than simply attempting to find a 'middle-ground' or compromise situation due to the restraint of trade and pricing issues. Being timid about your business is simply not acceptable. It is time for this industry to realize that for the first time in history, the Locksmith Industry is not captive to large corporate door hardware Industry dictates. There is no longer such a thing as 'business as usual,' unless you choose to remain a single revenue stream business. Single revenue stream business plans, regardless of how the business was pushed into that corner do not make fiscal sense. Industry shifts, mergers and acquisitions only emphasize the importance of this business model readjustment.

With regards to the question of "What are my options in attempting to control my own destiny and profits?" It is really all about how one 'frames' the problem. The ability to properly frame an issue or problem will go far in the ability of those who choose to tackle an obstacle, in avoiding the typical pitfalls that limit one's ability to reach a solution; such as Locksmiths being forced into being a service company, due to some anonymous corporate boardroom's model and goal of limiting distribution of product for control of a supply chain. The Locksmith Industry has to seriously think about its future and survival, beyond a service company, and to act by investing thought into a vision that includes multiple revenue streams.

Thus, we arrive at 'basic business 101', which states the ability to purchase at attractive pricing is directly proportionate to ones revenue possibilities tied directly into one's cost structure. The ability to purchase products at a fair price directly from the 'source' is simply necessary to sell product as another revenue stream, complimenting the service side of the business. This entails the ability to purchase a quality product with superior guarantees/warranties that meet or even exceed those offered only to 'preferred customers.' This also means being treated as a business partner with the source manufacturer, something which is now offered within the 'Global Economy Model' versus the 'Standard Operating Model.'

From the purchase side of this equation to the Sales side, simply states: there are only three ways to increase sales:

(1.) Increase the customer base

(2.) Increase the amount of goods or units that your present customer now purchases

(3.) Increase prices

Anyone that has been in business for any successful length of time realizes that increasing prices has become more difficult, mainly due to the restricted supply chain thoroughly analyzed previously. This option, however, becomes more feasible for the Locksmith when purchasing 'direct' enters the equation. One can actually continue to sell at present price points, while increasing and having a positive impact on the bottom line by being more prudent on the purchasing side of the formula. This ability to purchase direct also provides you assistance to more easily defend your regional 'turf' or regain your historical client base needed for your businesses future growth. One can then choose to concentrate on expanding out to new markets, new customers, or possibly utilizing 'add-on' benefit extras in order to build out from your established core expertise. However, until this step is made, your Locksmith operation will be forced to compete at the lowest levels of the Supply Chain 'playing field' other than the service side.

If you are willing to work on a continuous improvement of your service capabilities, process, product offerings, cost reduction programs and monitoring, added to your ability to communicate your company's unique value package, then your customers will inherently be able to differentiate why you are better than the rest of the growing options and competition that exists with the marketplace. This will allow you to establish a new or larger customer base, such as more 'negotiated' work, or even 'bid' work depending upon your organizational structure or your own personal future growth goals for your business.

In order to accomplish better pricing, with warranties/guarantees equal to the 'big boys', one has to find a reliable source of product with pricing that adds to one's bottom line; as stated, a strategy established to sell to new customers, as well as more product offerings to one's present customer base. Possibly a source that can introduce your business to potential sources of revenue as was recently accomplished at the construction of a new student center at I.U.P.U.I., Indiana University-Purdue University Indianapolis; the University of North Carolina (UNC) Genetic Center in Raleigh, North Carolina; the Pontchartrain Convention Center, Metairie, Louisiana; or the Stowe Mountain Lodge, Stowe, Vermont where introductions were made not only to Locksmiths and the Contract Door Hardware Distributors, but also Millwork Finishers, all by a Source Manufacturer that understands the value brought to the market place by the Locksmith Contract Door Hardware Industry.

When was the last time one of your Manufacturers/Suppliers brought business to your doorstep? When was the last time you evaluated the model on which your company was established?