SMU Data and Models

The Truth About Selling Steel: Value Added

May 11, 2016

One of the most over used and misunderstood terms in the steel industry is “value added.” What exactly does “value” and “value added” mean when discussing steel distribution in particular?

When asking the question, the first response I tend to get is about the “value proposition” or how perceived value relates to price, service and quality. Fifteen years ago I may have agreed with the concept of adding value by improving the experience received by the customer. In other words being more competitive, delivering steel on time every time and providing consistent material that looks the same as previous shipments and makes the part without the customer needing to adjust their machinery or tweak their tooling.

Today every competitor has the ability to be price competitive and the act of lowering a price does not necessarily add value to the relationship. Every supplier has the ability to deliver steel on time as expected by the customer. The quality of the material is much more consistent than what we saw in the past and multiple suppliers have the ability to meet quality requirements.

The customer expects competitive pricing, on time delivery and steel with the quality needed to make their part. Anything less would be a challenge for a supplier to remain viable with that customer.

Jeff Fain, National Accounts Manager for Pacesetter Steel provided an interesting perspective when asked to define “value added” through our LinkedIn relationship. Mr. Fain told me, “John, in my opinion, value is not something extra a supplier proposed as a “what if.” A value is the ability as a supplier to respond to the customer’s interest beyond the commodity, service, and quality.”

He continued, “In my opinion, value is not value, unless the customer acknowledges the available resource offered by the supplier has worth beyond what standards are “expected.” A value has no economic worth unless it represents a solution, interest, or specific need that resulted from idea sharing, and collaborating to solve your customer’s problem.

“Once a need ‘above and beyond’ the standard is identified, the service provider is able to provide meaningful solutions to address the customer’s specific interest, the result can be identified as a Value.

“There is a difference between a value proposition and an identified application of resources to respond to a customer’s challenge.

“My last opinion is, unless the receiving party acknowledges a solution is valuable, only then can a monetary value be associated with the Value. Anything else is a suggestion or proposition if applicable.”

In today’s market pricing information is readily available and so competitive prices are expected. The process of offering lower prices (or beating the competition) is expected.

The process of delivering material on-time is also an industry expectation. Does delivery of the product early constitute adding value? Not unless the customer can acknowledge it as being of value to their company.

Quality is also expected by the customer and adding value can only be achieved through a mutual discussion of the customer’s needs that are not currently being met before providing suggestions (propositions) which may, or may not, ultimately lead to adding value. In order for the solution to be deemed as adding value the customer must acknowledge the value and place a dollar value to it.

Finally, over time the solution to a specific customer need will be met by multiple companies and will become the new standard or expectation for that customer. You will only be able to hold off your competition for so long before what was once a value added product or service is commoditized. Therefore, it is imperative that you and your company continue to innovate in order to improve the customer experience and provide your company the opportunity to improve margins in unique ways.