NEWS RELEASE JUNE 2016
Increasing Flow Control and Treatment Product Gross Margins
The best way to raise prices without losing business is to provide a product which justifies a higher initial price. To accomplish this you need to:
- Develop a superior product
- Convince the customer as to the value
Develop a Superior Product
McIlvaine is currently preparing a Decision Guide on choke valves for oil and gas applications. These are tough applications and require custom valves designed for severe service. This is only part of the story according to George Gorman of the Valve Institute. The success or failure of a valve rests not only on the valve merits but on how it is applied. Subsea pipeline valve needs are different from sub-sea Christmas tree needs. Both are certainly different from the needs at the surface or on shore. The best valve choice requires detailed knowledge of the unit operations. When it comes to subsea valves his Institute is dedicated to providing insights on best choices with separate training courses on subsea pipeline and Christmas tree valves.
But what are the needs of the long-time valve practitioner? Does he need an even more robust system? Input from a number of both supplier and end user experts in the McIlvaine Insights discussions leads to the conclusion that considerable analysis and discussion is needed. Muktiadi Rahardjo of Shell is the valve and sealing specialist at the Shell Pernis refinery and, based on this experience, recommends better communication relative to valve issues. He cited a lack of application knowledge on the part of some vendors and the inability to utilize the wisdom existing within the end user community.
If you rank the impact of a product on the process, the valve is at the bottom of the rankings. The product using the valve, e.g. a pump system, will be more important by virtue of the fact that it typically would include a pump and at least three valves. The scrubber company product which includes the valves, pumps, fans, nozzles and scrubbing tower is obviously of most impact on the process. So, if we agree that process knowledge is necessary to provide the best valves, then it follows that even more process knowledge is needed for suppliers of the sub processes What can we conclude from all of this?
- IN ORDER TO DEVELOP A SUPERIOR PRODUCT YOU HAVE TO UNDERSTAND THE PROCESS WHERE THE PRODUCT WILL BE APPLIED.
- TO CONTINUE TO PROVIDE THE SUPERIOR PRODUCT YOU HAVE TO KEEP UP WITH PROCESS CHANGES AND NEW REGULATORY AND OTHER CUSTOMER NEEDS.
- FOCUS YOUR PRODUCT DEVELOPMENT EFFORTS BY PRIORITIZING CUSTOMER NEEDS IN SUCH A WAY TO MAXIMIZE MARGINS AND PROFITABILITY.
Convince the customer that you have the best product
The best product is defined here as the product with the lowest total cost of ownership. This definition is couched in the broadest terms. It has to take into account the severity of the service but also the criticality. A peaking gas turbine which cycles a few times per year and can be easily accessed for maintenance is in a non-critical application compared to the base-loaded turbine which is in operation 24/7 and cycles hundreds of times per year.
It is easy to pick the lowest cost product but much more difficult when you have to assess the lifetime cost based on both severity and criticality. The first step in creating a convincing program is to understand how decisions will be and could be made.
- Decision making is a series of classifications. Whether it is the initial bidders list, the criteria in the specifications or the ultimate selection the decision maker is moving from one set of classifications to the next.
- The elements of the classifications are: what, which, why and how. In order to be successful you have to convince some people of just the “what” and “which” and others you also need to add the “why.” The “how” is the big challenge which provides credibility to the other elements.
- What are the classifications?: If you are going to remove SO2,should you consider wet limestone, wet lime, dry sorbent injection, spray driers, or seawater scrubbing?
- Why is one the best choice?
- How does the product perform uniquely enough to justify the prediction that it will result in the lowest total cost of ownership?
- The what, which and why can be communicated through normal sales channels. The decision guides add clarity. The problem is that the credibility depends on the “how.” It is a lot easier to claim the highest efficiency or lowest maintenance cycle than it is to prove it.
McIlvaine recognizes the challenge of convincing customers that a product has the lowest total cost of ownership and has a whole program to address it:
4 Lane Knowledge Bridge to the End User