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Goodwin: Exactly. And these guys have added value. A lot more added value than we do, so they'll be prepared to pay more and that's going to drive the price up.
Matties: And the demand for quality is so much less with batteries. If the supply line is hardening on terms and pricing, are you seeing the same from your customers?
Goodwin: No, my customers want longer terms, lower prices still, of course they do. We have creative ways of funding our business in the UK and Europe at the moment. Interest rates are relatively low here in the UK. There are ways we can do things to assist our customers.
Matties: I'm just wondering if the demand is more along not so much pricing, but a higher level of service, what that service demand would be from them, if that's the case.
Goodwin: There's not much you can do to change and improve the service levels from the UK model. Generally speaking, you order it today and it either ships today or it ships tomorrow, which means I have to make sure I have all the right materials in place at the right time to meet that. That comes from market knowledge, customer knowledge, history, gut instinct, bit of science, bit of black magic, it's all in there.
But in Germany, if you look at our average lead times two years ago they were 10−12 days. Not because that was our processing lead time, but that's because the customer ordered today and wanted delivery 10−12 days out. Half of our business is still like that. The other half of our business now is getting closer to the UK model. Some people are taking working capital out of their business and we have to step in and supply materials just-in-time.
In all of business units, we measure our performance to OTIF—on time in full. So, we are measuring performance to promise, so on time for us is on time to the first promise we made when you rang us and said, “I want the laminate.” I want to know about performance to promise, I want to know if I'm delivering on time and I'm delivering in full. Generally speaking, it doesn't drop below 99%.
This means we know our customers, at least. We know our supply chain, but we still air freight a reasonable amount of our materials in from China. It's a service business.
Anyway back to where we go from here… we’ve brought on copper foil, drill entry and exit materials, and we've got a lot of contacts in the Asia market to develop the non CCL business further. We're bringing a lot of products from Asia that, even after we've transported them, stocked them, converted them, marketed them, allow us to be more competitive than some of the more traditional manufacturers of these products here. A prime example is we have a great lubricated drill entry material “Centrum” that really should be making some competitors sweat a little bit. It's being used by all the high-end customers here and is proving to be a great product.
Matties: And how big is that business?
Goodwin: It's a small part of our business, but it's growing.
Matties: You see that as a growth area?
Goodwin: It's important again from a service perspective. Our customers increasingly compete in a global market. They need to be competing with guys in Asia and they need all the advantages they can get. So, if we can bring some of those to them, we already have all the infrastructure, all the overhead of distribution operation, all we've got to do is add some of the products in. But, our core focus remains Ventec materials; we're a laminator. That's our core business. Everything else is an add-on service for the customer, and we've drawn some lines. We're a materials distribution business; we don't do drills, routers, all those kinds of things. We're a materials company. We understand conversion of materials. If you're delivering laminate, you can generally deliver the back-up and entry. You can bundle together deliveries, and there's clearly a saving in that.
There are some good guys in the materials business, but can they provide you with what you need, in the quantity you need, at the quality you need, on the day you need it, regularly every time with some ancillary products, like your back-up, your entry, your release films? We've got the distribution platform here and in Germany and in the United States, and if you've got the platform, you need to leverage that investment. We're doing that, and the customers have a need for it. If they didn't, they wouldn't be buying from us. And they are, increasingly.
Matties: When a fabricator asks you what's the best advice you can give them about materials, what do you tell them?
Goodwin: There are two things you need to look at. You need to look at standardizing panel sizes. From a Western perspective when you're selling at a premium to your customers, because you're making the board in three days, five days, or whatever, don't get hung up about the material size. Obviously, you want the lowest material cost you can get, but if you have to buy a panel size that's the wrong panel size or not the ideal panel size, the real estate is a small part of what you're doing, so standardize your panel sizes. There are still too many panel sizes, and what does that do? That limits your ability to compete with service, because we can't keep every panel size, cut to size, ready for your order on the shelf. If you've got standard panels, there's a higher degree of a chance that we've got that cut to size on the shelf. Which means, pick, pack, ship…and the fastest possible delivery.
If all the orders for cutting a 22x18 arrive on one day within eight hours, I can't cut them all out there, but I can ship as many 18x24 panels as you want, all day, every week. You know, 22x18, 24x18. Is the addition of lead time worth worrying about? Pay the difference. I shouldn't have to pay, but you as the customer, you should just take that onboard. It’s part of the business. I still think that's the key one. Most of our bigger customers now have standard panel sizes.
Also, share your data. There's black magic and there's also a lot of science in what we do. I was reading an article on my way back from China a month ago about supply chain management, and it's all algorithm-driven, big data. There's still a human element, by the way, and that's the black magic.
Matties: You can minimize that.
Goodwin: Yeah. We are constantly investing money in our IT systems to drive planning, but the planning can only work on historic data. So, I either get that from our own sales figures or I get it from my customers sharing information with us.
Matties: And sharing that information is obviously the best course.
Goodwin: Data is the key to this. I just want to say, the more data you share with me, the more responsibility I'll take for the supply chain. Because then the failures are down to me, not down to a lack of information. And if I fail, if I'm putting myself out there as the guy who wants to manage your supply chain and I fail, the costs belong to me, that's part of the deal. Share data. De-risk the business. Partnering up with someone also drives cost down. You can do it by constantly leveraging the competition, or you can do it by partnership, cooperation and trust.
Matties: Well, Mark, we’ve had a great discussion today. Thank you very much for your time and insights.