When a big manufacturer needs a tiny part – like a sensor to activate a hands-free faucet – it often turns to a company like QualTech Technologies. Based in Willoughby, Ohio they’re what’s known as a contract or “build to print” manufacturer. They don’t make their own products – they make the parts other manufacturers need to make their products. It’s been a great business for decades. But the margins are razor thin and you’re constantly at the mercy of other companies.
David Vance, President and Owner of QualTech, got tired of waiting for the phone to ring and riding the unpredictable ups and downs of demand. So, he decided to innovate what it means to be a contract manufacturer. This is the story of how he took his company on an incredible journey from being a low-value commodity manufacturer to a high-value supplier. Fueled by service innovation and a whole new business model, QualTech is now an essential supplier to one of the largest appliance manufacturers in the world – and they’re charting a profitable, innovative path for the future.
Making Parts Better
It all started when Mr. Vance realized he shouldn’t just be making parts – he should be making them better. So, he started analyzing his customers’ specifications and designs and presenting suggestions to improve them. That’s exactly what happened with a massive appliance retailer.
“We started to work with their early designs and said, ‘You want to move this part over here, because it will go through the testing facility easier,’” Mr. Vance says. “There is something called design for manufacturability. We would say, ‘You have this big transformer in spot A, but if you move it to spot B, the machine will solder and build the part better.’ So, trust was the main driver on the project, trusting us to come to meetings with prepared, fully vetted work so that we make their product functional, in terms of engineering and manufacturing.”
By consistently improving designs and adding value, QualTech became integral to developing several products and eventually became a key supplier. The relationship is so strong now, that if you’ve ever used one of this retailer’s products, you’ve most likely activated a QualTech sensor – quite an achievement for a small shop.
Innovating the “Contract” Business Model
“Shut up and let the client tell you what they need,” Mr. Vance asserts. “There's no greater advice I can give to somebody.” By truly understanding what clients need, you can then become a full-fledged partner, rather than “just” another supplier.
To meet the unique needs of customers, Mr. Vance realized he needed a different model. QualTech was organized to be a traditional “order taker,” when it needed to be a one-stop-shop for everything from providing design expertise to large manufacturers to “doing it all” for start-ups and smaller outfits that don’t have in-house capabilities.
“For say, a very young startup company, we can not only build their product from a printed circuit board standpoint, but we can encapsulate it, or turn it into the finished product. And we could actually take their literature, their packaging, and we could send it right to their distribution warehouse,” explains Mr. Vance. “These companies don't need a shipping and receiving facility. They need to concentrate on sales and marketing. We made it so that when they receive orders, they come directly to our system to be fulfilled. Our end customer never actually touches the product. They are copied on a purchase order, and we do the rest. Most of the time, a contract manufacturer would not go that deep into a customer’s business cycle.”
It took a great deal of painstaking innovation to build a platform capable of seamlessly connecting QualTech’s systems with other companies. QualTech also had to invest in new technologies such as 3-D printing to help with design, prototyping, and product testing. This innovative way of doing business has brought in some massive contracts and earned the company a whole new level of profitability – and most importantly – trust.
“There's an incredible amount of trust involved, because we're literally in charge of their livelihoods at that point.”
It Starts and Ends with Exceptional Service
Even more than product innovation and business model innovation, Mr. Vance says innovating the way you serve customers and build relationships is critical.
“Every single decision we make is based on service. If I preach anything else around here, it's to add value when you talk to somebody,” Mr. Vance says. “Talking about the Browns and Guardians, what you did this weekend, those are all nice, but save them for once you get along; start by establishing that your relationship is of value to the client.”
Show your clients what a good contract manufacturer looks like – offer to design the product, manufacture it, and provide the intellectual property of the final part. Ultimately, add value by providing services that smaller customers don’t have the internal capabilities to do, and larger customers don’t want to do. Plus, get the basics right – meet every deadline and return every phone call.
This simple, thoughtful approach recently helped QualTech acquire a major new client, a maker of radio station equipment. This client had so many years of bad service that when QualTech stepped up with their naturally helpful approach, the customer was stunned – taking and returning every phone call Mr. Vance made, knowing they’d benefit from the conversation.
“I offer every client, after I design their product, to build it. And what we actually build isn’t unique – anyone can solder stuff – but our approach to helping clients is. There's a great book, Stop Selling and Start Helping, and that would be our mantra if we had a one around here.”
A Model for the Future
Innovation has turned QualTech’s fortunes around. It’s successfully moved up the value chain and carved out a more secure and lucrative future. And this is a journey many more contract manufacturers can – and should – make, says Ethan Karp, President & CEO of MAGNET.
“The vast majority of manufacturers in Northeast Ohio are contract manufacturers. The challenge is that many of those companies, if they are not investing in differentiating themselves, they're not going to be competitive in a few years. And if their customers have a bad year or their customers don't want to use them anymore – they’re out of business. So, more contract manufacturers need to think about what they are doing and how to do it differently. If a contract manufacturer can reduce its cost close to everyone else and have seamless service, faster prototyping, more sophisticated sensors to optimize quality, better lot tracing, better cyber security, and shorter lead times because of smart investments in innovation and technology – that will be a win for the company and the future of the region.”
As QualTech’s story shows, it’s absolutely possible to bust out of the order taking box. But it takes a true willingness to innovate everything – from in-house technologies to your business model. And more than anything, it takes an unwavering commitment to customer service that moves you from supplier to partner.
