Account Diversification a Must for Manufacturing Companies

While statistics nationwide show U.S. Manufacturing to be down, diversifying your client portfolio is a MUST.  Just like stock brokers diversify their portfolio over high risk, low risk, and a variety of stocks, it is equally important for manufacturers to establish themselves into various types of the market as well.  Having All of your Eggs in One Basket would be considered high risk, and potentially catastrophic if you are solely focused rather than having a scope on a broader spectrum for company revenue. 

Although a horizontal diversification strategy should be implemented first, with a relatively low amount of risk it will help penetrate into similar businesses that the manufacturer is already serving.  With this strategy it requires the creation of additional product/products that would likely serve the clients you already have captured.  While a horizontal diversification strategy is important, it should not be implemented alone, in order for the company to be fully sustainable if a particular industry calls for a decrease in manufacturing output. 

Along with the horizontal diversification strategy, it is suggested that a concentric diversification strategy is also in place.  Even though it is a basic principle which identifies the strategic advantage your manufacturing plant has over your competitor, managers often forget to monitor this on a regular basis.  Identifying what or where you have a strategic advantage manufacturing your current products over your competitors is something that should be monitored regularly and be tweaked when necessary.  Monitoring a concentric diversification strategy also helps identify inefficiencies and helps to ensure industry quality standards are being achieved.

Another diversification strategy which can be implemented, but should be monitored closely due to it volatility and riskiness is a lateral diversification strategy.  Because a lateral strategy calls for the creation of new product/products that are unrelated and completely different than currently produced, they hopefully will reach an all new client base.  Due to the high risk associated and significant investment which is required to develop and market a completely new product to a different client base, it must be monitored closely.  While leveraging a manufacturers other profits to establish a lateral diversification strategy, it can generate a great ROI, but must be monitored to ensure smooth operations.

Even though a Horizontal Diversification Strategy is most common with the least amount of risk, and has the best ratio of success, one cautions no matter what strategy your manufacturing plant is implementing that maintaining profitability throughout the transition is crucial.  Like a stock broker monitors stocks, manufacturers should monitor there diversification strategy to ensure a company is sustainable if an industry in which you serve is negatively affected and there production needs are reduced.  Diversifying your client portfolio is a must, but should be implemented with caution and a close eye.  Consulting with a team of experts is often a good idea, and should be instituted with due care.