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SNHU - MBA-515 - Business Environment, Innovations and Entrepreneurship
Written by: Chris Bell - December, 2016

Contract Manufacturing SWOT Analysis Internal Factors



SWOT Analysis


WesBell Electronics is a wire and cable distributor with an expanding line of contract manufacturing through copper wire harnesses and cable assemblies. Staying ahead of technology with the company's website has been a key factor to gain new customers and create new opportunities on a national level. In the past technology has been easy to copy and it creates competition, which creates a threat and an opportunity at the same time. Their website was copied by many, and as they expanded into contract manufacturing, they decided to bring those services online with technology that the industry had never seen.

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Even though they reinvest their profits, as a small company, they have trouble competing with their biggest competitors on a national level. Their biggest strength in contract manufacturing has been to turn their small customers' manual processes into machine driven technology so that it saves them money. However, bidding on competitive annual contracts with General Electric can be much more difficult for WesBell due to their current size and capacity level. "First variant: for the strengths and opportunities of the project the level of estimates is right relative to the average. And in their relationship decision makers adheres to the generally optimistic position. At the same time, weaknesses and threats assessment are located to the left relative to the average level. At that the decision maker tuned pessimistically regarding the possibility of their implementation. This is the most favorable case for the subsequent analysis. (Chernov, 2016)"

Contract Manufacturing SWOT Analysis

Strengths


WesBell is a family company with 30 employees. The owner's son got out of college with a Master's degree in web design and database administration. He immediately brought the company's products online, built numerous pages and reached new customers across the USA. They had an eBay account selling small spools of copper wire used in electronic devices and electrical cables for contractors and installers. They had a 1000-page website with many types of copper wire. Their competition was nonexistent in the search engine. It became the marketing strategy for the company and worked for more than 10 years. This is a major strength for the company because its biggest competitors were not yet online. WesBell's competition had a business model that focused more on visiting OEMs and creating annual contracts. WesBell's business plan has always been to service the small customers as if they were large and then grow together. Therefore, their online customers were quickly surprised at the level of service, follow up and friendly support compared to other online retailers and especially competitors. All of the 15,000 customers that found WesBell, after the first 300 customers, were due to the website and online accounts such as eBay.

A second strength of WesBell is understanding their niche of helping small businesses and continuing down that path. A common customer is a start-up company working in the basement of a home with an owner that builds all of the products by hand. U-Turn Audio is a good example of this type of customer that ended up growing into an incorporated company. U-Turn created a turn table record player using wire harnesses. The first order was a small spool of wire and WesBell started to service the wire and build extensive wire assemblies for their products. Not only are large corporations more difficult to penetrate for WesBell, but the volume is so large that their 10,000 square foot facility may not be able to handle the orders in a timely fashion. They do in fact sell cut wire to General Electric and Tesla Motors, but not large volume contract assembly work. So, there is another opportunity to consider in the future.

Weaknesses


WesBell's size is a weakness when it comes to winning large contracts, but it's also a weakness when it comes to producing orders for certain customers. All contract manufacturers have busy months and slow months, so no matter the size, capacity is always a topic of discussion. For WesBell though, when a customer calls to order 100,000 feet of wire it becomes a serious burden on their warehouse processes, so typically, large orders are shipped directly from the manufacturer to the customer. More often than not, the customer cannot order directly so it saves on freight and transit time. However, adding services to the wire such as removing some of the insulation, cutting the cables to length, adding connectors and following specification sheets for large orders, can be almost impossible with their current capacity.

WesBell is located in New Hampshire which can be difficult to get products into customer's hands quickly. They continue to gather feedback from customers about a second location in California and most agree that it's necessary to compete in that area. Even if WesBell can produce every order on the day it's received it still takes 6 days to ship it to California, and the added cost of 3,000 miles of transit can be the determining factor of winning an order. This weakness isn't as big of a problem when dealing with small companies but it will be for large companies so it needs to be addressed while discussions of growth continue to happen. WesBell must constantly ship overnight packages across the USA for customers that need material the next day.

With only 30 employees WesBell is at a serious disadvantage to its competition in terms of knowledge, processes, procedures, quality and cost of materials. "From the mid-2000s, new management methods such as cross-functional and knowledge-intensive business processes became important in pursuing international competitiveness. (Lee, 2016)" All of those factors incorporate knowledge because knowledgeable people figure out how to cut costs, buy cheaper products with higher levels of quality, implement processes, and implement quality control procedures that make sure the product is perfect before shipment. Knowledgeable staff can invest wisely and create plans for the future, lead with enthusiasm and create strong management teams with communication in mind. WesBell has proven that hiring a few people with Master's degrees pays off with the added knowledge that spreads throughout the company.

Opportunities


WesBell started in 1988 as a distributor of wire and cable products and distribution has remained more than 80% of their business since conception. Over the years they offered new services as customers requested, but didn't want to compete with contract manufacturers because they were selling to CMs as customers. However, later on, WesBell started to promote and seek contract manufacturing opportunities because it was like adding French fries to complement a hamburger. The opportunity to service all of the distribution business is very high because wire and cable products always need to be cut and connected. Copper, as a conductor of electricity, is nothing if it isn't connected to something, so servicing the wire or cable is always necessary before installation. WesBell recently launched a new website that offers wire and cable products along with a list of services after each product is added-to-cart. The added services will be added profits and WesBell is the first-to-market for this type of offering.

WesBell has avoided the cost of marketing because their website brought in enough new customers to keep them growing from $3 million in sales to $9 million in sales over the course of 6 years. However, added competition online has plateaued their growth and flat-lined sales. Scribble Creative Group created their new website with a personal touch of pictures and design. They also created a new logo for the company and plan to dig deeper into marketing over the next year. This presents a huge opportunity for WesBell to gain customers in new ways and to gain customers that immediately understand their services and capabilities from their online presence.

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Threats


Global competition is affecting most companies in some way, but it affects WesBell when large OEMs decide to send their contract manufacturing to Mexico and China. WesBell tries to claim that their quality surpasses that of low-labor workers in foreign areas, but sometimes that's not enough to win the job. It's a serious threat to their company in the perspective of growth so they must keep up with cutting edge technology, automation, equipment, knowledgeable staff and much more. However, as their customers are being stolen from overseas competition, WesBell is also gaining overseas customers in China, Mexico and abroad.

About 5 years ago the demand of copper increased drastically which increased the price-per-pound and inflated copper wire prices throughout the industry. While it was an intensely competitive market during the time, researchers were busy finding alternatives to copper that were cheaper and just as efficient. Aluminum turned out to be the new hot commodity in the market that was cheaper and lighter than copper. A slightly larger size of Aluminum was used in place of copper, but the point of the threat is that copper can be replaced if and when needed. Aluminum became intensely popular until the price of copper came back to reality, however Aluminum was never fully accepted throughout the industry as a perfect alternative.

While WesBell was selling products online for 10 years there became numerous websites that copied the format, structure and product offerings as WesBell. There ended up being multiple websites that sold the exact same products with the only difference being the phone number and company name. This intense competition demands change so WesBell created a new website that added services to all of the products. Even though WesBell turned a serious threat into an opportunity, they must consider the fact that their new website can be copied again. WesBell needs to continue innovating, automating and thinking outside the box for the day when competitive websites mimic the newest version of their wire and cable website. While the competition figures out how to mimic the new programming code, WesBell will be busy researching and developing something new and improved. However, until then, the threat remains.

Strengths to Exploit


Technology is at the top of the list and seeking out small business sales is second. WesBell's website has been the determining factor of growth over the last 10 years due to customers calling them rather than WesBell cold-calling customers. While all of the new customers were pouring in over the years, WesBell found that the biggest strength was to seek out the small businesses that haven't yet automated their processes or services. Turning manual labor into machine time is a huge savings but it only comes with a large upfront investment, one that WesBell had already made. Small businesses don't usually have the capitol to invest in machinery so we become a quick asset to their business model.

Another form of technology has been their CRM (Customer Relationship Management) system to track customers, contacts, product classes and industry sectors, which has helped pinpoint their niche market of small business sales. Technology has been WesBell's form of marketing through their website, and they believe it will catapult forward with the newest investment in an improved website with improved functionality that allows customers to buy services online. It also closely pinpoints their target market of small businesses seeking out cut wire and harnesses without having to build them in house.


Weaknesses to Mitigate


Employee knowledge is the first weakness to mitigate in order to use that to mitigate the rest of their weaknesses. "As it emerged that the dispersion of knowledge contributed to improving product quality and productivity, the importance of research and development (R&D) was emphasized, stimulating innovation. (Ornaghi, 2006)" Knowledgeable staff will be able to find cost effective ways to increase their size and capacity along with their issue of shipping logistics. It would be easier to go back 5 years in time in order to make more qualified decisions, but that's not possible. We must make decisions now that affect our future, and knowledgeable people to help with those decisions makes the process of growth easier.

Size and capacity is the next weakness to mitigate because it will allow WesBell to conduct more business if and when it arrives. They have a new website launched and a specific target audience to call upon, so they need to be ready for additional sales. It wouldn't look good for the company to have to deny a large order because they can't handle the volume, nor would it look good to attempt to complete the order and risk poor quality, late delivery or other false promises. Perhaps, with a knowledgeable person in place, WesBell could consider starting a second and third shift to be prepared for large orders.

Logistics is the most difficult, most expensive, and last weakness to mitigate. "Transportation plays a connective role among the several steps that result in the conversion of resources into useful goods in the name of the ultimate consumer. It is the planning of all these functions and sub-functions into a system of goods movement in order to minimize cost maximize service to the customers that constitutes the concept of business logistics. The system, once put in place, must be effectively managed. (Fair et al., 1981)" The system needs a knowledgeable person to implement it, to run it and to continuously improve it. Added locations, expedited shipping methods, renting warehouse space, etc. can all be used to improve logistics, but a strong plan needs to be in place to prove that it will in fact increase profits or customer satisfaction.


Readiness to Compete


WesBell's biggest competitor for distribution is Anixter (NYSE: AXE) which, on average over the last 3 years, made $170 Million in net profit through $6 Billion in revenue. This is important because WesBell has a similar income statement if you cut 3 zeros off both revenue and net profit. WesBell made about $250,000 on $9 Million in sales. Their readiness to compete shows that they understand how to make the same profit percentage as the biggest player in the game. Most contract manufacturers buy wire products from Anixter and components from large component distributors such as Digi-Key. However, WesBell is set up like Anixter, as a distributor with the ability to buy direct from manufacturers and compete with contract manufacturers for basic services. They don't compete on all levels with CMs, as CMs build more complex assemblies that involve engineering and electronic testing, but they compete on the services side with small wire harnesses.

WesBell is ready to compete in the field of technology because of the knowledgeable staff they hired. They knew that technology was the future of all companies and that it was a revolution happening in real time. Their old website was at the top of the search results for all major keywords in the industry, and they created a new website to take it a step further. They knew they needed a team of programmers and marketers instead of one employee with a Master's degree, to create a new website that also offered services, and paid for it as an investment into the future. "Knowledge management rose sharply as a new strategy for productivity improvement. Innovation realized through the creation of knowledge played a significant role in enhancing company performance. (Darroch, 2005)"

WesBell hired someone with a Master's degree to help them build a website, then hired someone with a Master's degree to help them get approved as ISO 9001 certified (a standard of quality, processes and risk management). The thought process of hiring a knowledgeable person to create something knew within the company shows a readiness to compete on each level into the future. Perhaps they will hire a production manager with a Master's degree to improve and grow their contract manufacturing capabilities, and an account with and MBA degree and CPA license to be sure they spend and invest wisely into the future. Hiring knowledgeable people is a good business plan to be able to compete on any level with any company, one step at a time.


References:


CHERNOV, V., DOROKHOV, O., & DOROKHOVA, L. (2016). Fuzzy logic approach to SWOT analysis for economics tasks and example of its computer realization. Bulletin Of The Transilvania University Of Brasov, Series I: Engineering Sciences.

Darroch, J. 2005. Knowledge management, innovation and firm performance. Journal of Knowledge Management, 9(3), pp. 101-115.

Fair, M.L. and Williams, E.W. (1981) Transportation and Logistics. Business Publication Inc., USA.

Lee, C. H., & Leem, C. S. (2016). AN EMPIRICAL ANALYSIS OF ISSUES AND TRENDS IN MANUFACTURING PRODUCTIVITY THROUGH A 30-YEAR LITERATURE REVIEW. South African Journal of Industrial Engineering

Ornaghi, C. 2006. Spillovers in product and process innovation: Evidence from manufacturing firms. International Journal of Industrial Organization, 24(2), pp. 349-380.