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Strategic Planning for the NDT Business

by Bob Potter*

 

INTRODUCTION
with the increasing pressure on NDT user businesses to reduce their supply base, it is imperative that every NDT business, whether attached to a manufacturing business or acting as an independent third party, has a thorough knowledge of the environment in which they reside. This knowledge may be used in making educated business decisions and establishing the goals and objectives of the business. A strategic and well managed business continually monitors the business environment for changes which could present new opportunities or which could interfere with the achievement of existing goals and objectives. This paper describes one company's approach to evaluating the environment and developing a strategic plan to meet the competitive market it faced at the time. It should be pointed out that as the analysis was performed prior to the attacks of 11 September 2001, the market described has changed somewhat since the analysis was initially performed. The paper defines the essential elements evaluated and the research and analysis required to develop strategic goals and objectives. The method used to perform this analysis is commonly referred to as an environmental threat and opportunity profile. The environmental threat and opportunity profile assesses elements such as technology, socioeconomic and political conditions, human resources, competitors, suppliers and customers.

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Most opportunities involve the chance to increase market penetration, develop new markets or generate growth.

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Environmental Threat and Opportunity Profile
The initial step of the environmental threat and opportunity profile is to identify the weaknesses and strengths or, put another way, the threats and opportunities of each element. Upon completing the profile, goals, objectives and a strategic management plan may be established, which provide the foundation of business survival (Montanari et al., 1990).

 

Getting Started
When performing an environmental threat and opportunity profile, it is imperative to take an interdisciplinary approach. The profile team should include a cross section of management. The number of team members may be as small as one or as large as 20, depending on the organizational structure. When performing a profile analysis in a captive NDT environment, including management from the operations upstream and downstream from the NDT function is recommended.

The more objective views one can obtain from the analysis, the more representative the analysis is with respect to setting organizational objectives and goals.

To initiate the analysis, a baseline should be established. It should be noted that not all of the elements of the environment are relevant for every business. The relative elements depend on the business's size, target industries, target customers and the services offered.

When looking at the domain, the analysis should define all of the businesses, agencies, groups and individuals the management of the NDT function either chooses to do business with (for example, an independent laboratory) or must do business with as a line function (a captive NDT business). These factors contribute to the business's success and, in some cases, the business's survival.

 

A Model Profile
The definition of the domain, as used in this paper, assumes that the NDT business has been functional for some time. While the process defined herein may be used for a newly formed company that is entering a market for the first time, this paper concentrates on the process to be used by existing businesses. The definition should clearly state who the business is, what makes the business unique and where the business is ranked with respect to its competition. The following exercise is a model for an NDT business that serves as both a captive NDT function to an aerospace materials processor and also acts as an independent third party agency. Note that this is only a model and may be tailored to any business.

 

Domain
The various aspects of the domain were established as follows.

The business tests aerospace parts. The internal customers are downstream from the NDT function and include the materials conversion function (anodizing, alodining, cadmium plating and so on). The NDT function validates quality prior to performance of these processes. The external customers of the NDT function include aircraft manufacturers of new parts, aircraft owners and operators. For the aircraft owners (upstream customers), the NDT function includes the performance of inservice testing to determine continued airworthiness of the aircraft.

The business is specialized in that NDT requires specific training, knowledge and certification. The business is well defined in that all tests are performed to predefined customer specifications and industry standards.

The business requires primary contractor and Federal Aviation Administration (FAA) accreditation and/or approval as a condition of doing business.

Approximately 60% of the business is captive to the finishing operations. The remaining 40% is centered on inservice testing and airworthiness determination of aging aircraft. Of the 60% that is captive, a majority of the work is with the second tier suppliers (machine shops) to the primary contractors. A small percentage of the business is directly with the primary contractors.

Based on gross sales, the company ranks third (out of three) in the regional market. The competition is limited in that entry into the market is restricted due to primary contractor and/or FAA control. The company's primary competition consists of local companies listed in the primary contractor's approved supplier lists.

 

PROFILE ELEMENTS
Following definition of the domain, the environmental threat and opportunity profile elements were assessed. The assessment involves rating each element in the business's environment on the basis of its potential to provide the business with opportunities to meet its strategic objectives or threats to its success or survival. Only significant opportunities and threats should be considered. When evaluating the threats, one should consider the effect the threat has on the long term objectives of the business.

Some threats may be considered terminal, in that they could influence the survival of the business. These threats obviously require the highest attention. Most opportunities involve the chance to increase market penetration, develop new markets or generate growth. The following analysis examines each element in the profile and assesses the constitutive parts based on whether they pose an opportunity or a threat (Potter and Breuner, 1998).

 

The Technological Environment
The first element to be evaluated is the technological environment. The importance of technology depends on the degree of sophistication required to produce and maintain the service offered. In the NDT world, this centers on the types and extent of NDT methods available in a particular market. Supporting services such as protective coatings, plating or paint must also be considered. One must question whether skilled and professional staff are required to offer the services and whether they are available or can be trained. Another question concerns equipment: is it state of the art or is it outdated? In our model, the following was deduced.

The opportunities presented by our model are as follows.

Due to the extensive testing, plating, peening and finishing operations, the company is considered a one stop or turnkey shop. Minimal outside support is required.

The company employs seven NDT methods and has qualified testing personnel. Due to this diverse NDT capacity, the company is considered an industry leader in their present market.

The company employs a state of the art testing system with data acquisition.

The company offers third party NDT training and certification services. This service is offered to all customers.

The threats indicated by the model are as follows.

Several modes of the finishing operations are considered outdated and are a carryover from when the company was started several years ago.

The quality program is outdated and requires significant revision to meet current primary contractor requirements.

In order to obtain additional approvals, increased management attention will be required, which presents the possibility of losing focus on the core business.

 

The Socioeconomic Environment
The economic conditions of the country strongly influence the risks that a business is willing to take. Key economic factors include market size, market growth rate and the threat of recession and/or war. The analysis of the socioeconomic environment for our model deducted the following.

The opportunities presented by our model are as follows.

Testing and finishing of parts is driven by aerospace demand. While times of recession may affect new aircraft production, the company also caters to the repair market, which yields higher profit margins. Repair business is driven by the FAA aircraft maintenance manuals and is not affected by times of recession. Aircraft must be periodically tested and deemed airworthy or taken out of service.

New commercial aircraft production was at an all time high at the time the analysis was initially performed, with growth projected to last another 3-5 years. This has changed since the 11 September 2001 attacks.

The threats indicated by the model are as follows.

80% of the company's business is centered on one aerospace primary contactor. If that one contractor cuts production, business would be seriously affected. This is potentially a terminal threat.

Aircraft owners may elect to ground their aircraft in lieu of performing the required testing.

The commercial market relative to new parts production could be affected by times of recession.

 

The Political Environment
One of the most important forces in a target market are political and legal issues. The laws and politics of a country and potential government intervention can greatly affect the conditions of doing business. Laws govern relationships with foreign countries, workers and unions. Intervention can take the form of additional regulations or targeted interventions, such as against doing business with a country in conflict with the United States. Restricted or blocked sales to a foreign entity could influence the success of a company, especially a company that is aerospace dependent. Our analysis of this environment, as it existed prior to the 11 September 2001 attacks, included the following.

The opportunities presented by our model were as follows.

The political environment was in favor of exploring foreign markets.

Regulations in the market had been stable over the past several years and appeared predictable.

Outsourcing of NDT and finishing services is more cost effective for aerospace primary contractors than performing work in house.

The threats indicated by the model are as follows.

Foreign trade could be affected by world conflict.

Primary contractors may pull work into their plants during lean times or due to union demands.

Negative perception by primary contractors derived from onsite quality surveys could influence business and approval status.

 

Human Resources
With the constant changes taking place in technology, the choice of personnel to lead a company must be considered. People may be unable to react properly to the changes encountered in today's competitive environment. They may simply not understand what the company expects from them or may lack the abilities, knowledge or experience to do what is expected. The question of personnel, then, becomes of vital importance.

The opportunities presented by our model are as follows.

The management of the company has a diverse background in quality, plating and testing. While there may be experts in one area, everyone has a basic understanding of all functional areas.

Most of the process areas have experienced personnel as lead personnel. Most have a basic understanding of quality procedures and the policies of the company.

The threats indicated by the model are as follows.

Many of the processing positions do not require highly skilled personnel. As a result, problems with training, specification changes, quality assurance program indoctrination, documentation and other areas may arise.

It is difficult to compete with the local aerospace primary contractors in retaining qualified personnel. Job shops typically do not have the same pay scale and benefits as these contractors.

 

Competition
The most obvious threat in the company's environment is the competition. The power of competitors determine the company's profit, market share and future growth. Some of the questions that should be considered for this element are:

how many businesses are in our market?

are all the businesses about the same size?

what do they do well that we don't?

what do we do well that they don't?

are the base prices for the various services about the same?

what are their expedite, holiday, overtime and weekend policies with regard to price?

how difficult is it to enter our market?

Obviously, developing a method for obtaining this information may take creative thinking. One way is to develop a few well defined questions to ask a sample of customers who are doing business with all the competitors. Our findings in regards to the model discussed above are revealing.

The opportunities presented by our model are as follows.

The company offers more aerospace finishing processes than any of the competitors.

The company offers more testing capability than the competition.

The company has a wide customer base both locally and across the country.

The company not only tests and finishes new parts but also performs inservice testing of aircraft, a service not offered by the competition.

The threats indicated by the model are as follows.

Several of the competitors have better processing turn times and higher quality ratings.

The competition has earned confidence with the primary contractors and therefore receives more direct work. Direct work results in a higher profit margin.

The competition has a better order tracking method and is able to provide more meaningful status reports to customers. Note that this element could also be evaluated under the technological element.

 

Suppliers
While this element should be considered in the analysis, it is not considered significant in the job shop or service provider market. Most of the supplies that are required are commercially available and are not design dependant. Because supplies such as couplant, penetrant, magnetic particles and paint are commercially available, the supplier base is large and offers the company several options. Long term agreements based on volume, price, delivery and other services such as product testing should be established to lessen the significance of this element. This area also presents certain opportunities and threats.

The opportunities presented by our model are as follows.

The company has a wide contact base with suppliers. Supplies primarily consist of consumables and are commercially available.

The company has negotiated long term contracts with suppliers of the large volume/high dollar materials.

The threats indicated by the model are as follows.

The supplier could go out of business and force the company to procure materials from a more expensive supplier.

Quality documentation requirements and shipment of outdated or obsolete materials could be a quality issue.

 

Customers
Not enough can be said about this element. Without fully understanding the needs and wants of the customer, the preceding analysis is meaningless. Often, it is impossible to make a differentiation between "want" and "need." Needs must be fulfilled to fully meet customer satisfaction. Fulfilling wants is a nice gesture if this can be done without disrupting the process flow. As with the analysis performed of competition, the best way to learn is to listen. Take time to interview a sample of your key customers and ask predefined questions about what they need to support shipping their product. Then find out how you can help. Interviewing a few customers who aren't key but who heavily utilize the competition should also be performed during this process. Find out how the competition is helping achieve the customer's goals. The analysis of the customers included the following.

The opportunities presented by our model are as follows.

The company has been in business for 50 years and is considered a stable source for aerospace testing and finishing operations.

The company offers turnkey, one stop processing services.

The threats indicated by the model are as follows.

The business is driven by turn time. When customer schedules are not met, the customer looks for suppliers who can meet their schedule requirements.

Inadequate customer feedback on quality issues and the lack of a central focal point for the customer to contact regarding order status could contribute to a poor perception of the company.

Negative customer (both primary and secondary) quality assurance audits can lead to reduction of work.

 

Analysis and Goal Setting
Upon completion of the preceding analysis, corporate goals and objectives should be established. The goals should be realistic, action oriented and have a defined timetable. The goals must be understood by all of the business's members. The business's success depends on the efforts of all employees to pull together toward the accomplishment of these goals. The goals established based on our analysis of the environment included the following.

Upgrade the quality program to ISO standards. Obtain third party accreditation to either ISO or AS standards. Develop a program to put emphasis on corrective action system to better track customer complaints and establish meaningful steps to prevent recurrence.

Provide training of personnel to new standards. Start with management personnel and flow down to all employees.

Further enhance field services to diversify from finishing operations. Obtain inservice approval from business jet manufacturers.

Obtain second major primary contractor approval to lessen dependence on current contractor's success. Diversify from domestic market.

Obtain national accreditation as a metal finisher and as an NDT business through NADCAP to increase primary contractor approval base.

Achieve 30% of local market share through meeting customer need dates. Obtain 60% of market share by a predetermined later date.

Be recognized in the community as a reputable employer and support community activities. Provide education and training to utilize local personnel in highly skilled positions.

Develop a clear understanding of the needs of the customer and establish a method to meet those needs. This will be conducted by holding meetings with the customers and in house to establish customer contacts.

In all of the above, it is essential to establish a timeline and to stick to it as much as possible.

 

Summary
The knowledge obtained from the preceding analysis may be used to understand present market readiness and to provide a road map of the actions that should be taken to survive in today's competitive environment. With objective research and proper management attention to the environment, the NDT business can evolve with the environment and continue to be an effective business.

 

References
Montanari, John R., Cyril P. Morgan and Jeffery S. Bracker, Strategic Management: A Choice Approach, Chicago, Dryden Press, 1990.

Potter, Robert J. and Michael D. Breuner, "The Restructuring of Ramada Inn," research report, 1998.

 

 

 * Metal Finishing Company, 1329 S. McLean Blvd., Wichita, KS 67213; (316) 267-7289; fax (316) 267-1861; e-mail <bobp@metalfinishingco.com>.

 

Copyright © 2003 by the American Society for Nondestructive Testing, Inc. All rights reserved.

 

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