March 2009

When good customers go bad:

Lessons learned, thoughts for survival

By Thomas Schwieters

The economic downturn has directly affected most of us.

Some sectors are taking extremely hard hits while others still do quite well. The one hard truth is regardless of your industry or geography this has affected every business, big and small, and the game will be forever changed.

Lending institutions are tightening up, retailers are suffering and cutting orders, hiring managers are lucky if they are only facing a hiring freeze and not struggling with layoffs.

More and more of us industry professionals have done a role reversal during the past decade. Many of us are now part of the service economy. We might work for a systems integrator, OEM, large engineering firm, or even be an independent contractor. 

How we handle these tough times will decide our future survival. Our clients are hurting, once rock solid and reliable, we are now seeing fractures and fear. Projects are seeing delays, capacity is declining, and the hurdle rates on capital expenditures' ROI are going up.

Fortune 500 companies who used to always pay their bills on time are dragging their feet and jeopardizing the very suppliers on which they now depend. These organizations trimmed their engineering staffs and contracted back the talent as needed, sometimes project by project and other times with engineering service agreements.

It is not just the economy that causes these otherwise respectable companies to become poor clients; there are other factors as well. The famous ERP/Accounting software upgrade: They say efficiency, and you hear months of aging invoices while they make the painfully slow conversion.

Staffing cuts have left many of the remaining project engineers overwhelmed and ill equipped to handle the workload. The lack of client project management is alarming; we respond by increasing our project management, but in the end, the client has to remain engaged. 

Many times the original engineering and purchasing staff are no longer involved, and a facility is trying to understand the specification of what they purchased. It is problematic, to say the least, when you, the 'integrator/seller,' have far more knowledge about the project and process than the client does. Sorting out the deliverables and understanding the specifications are crucial to the success of any project.

Some simple steps can save a lot of heartburn and just might end up saving your company from being the next statistic of a sour economy.

  • Insist on a clear and detailed scope of work. Spell out the deliverables in the contract in crystal clarity so even a non-technical person can understand them.
  • Make sure finance charges and late fees are in every contract. Many large companies do not allow them as a matter of course; the reality is these charges are of no consequence if invoices are paid on time. If a client will not allow finance charges for past due invoices, then this is a clear indication of past problems with timely payment or worse, an indication of clear intentions to slow pay.
  • Include clear and simple procedures for change orders, and establish ahead of time a rates and services agreement.
  • Stick to the terms, no excuse, no exception. You can choose to be generous and process $0 charge change orders, however, process all deviations from scope as a change-order. This may add some back office work, but in the end, there is a clear roadmap of how you got to where you are, and you will have the paper trail that will save both yourself and your client from disagreements at the end of the project.
  • Clearly identify any intellectual property. Who owns the design and rights to the work? Will you provide a single solution that the client can replicate at will? Is the compensation fair for all?

These simple steps are not a definitive list. They are hard-learned lessons.

ABOUT THE AUTHOR

Thomas Schwieters (tschwieters@acss-inc.com) writes questions for ISA's Certified Automation Professional (CAP) exam and is a contributor to the ISA/Automation Federation/DOL (U.S. Department of Labor) Advanced Automation Competency Model Development. He is president of Automation and Control System Solutions, Inc., an independent systems integrator with a market focus in the Food & Beverage, Biotech, and Pharmaceutical industries.