RSM405 Eunseo Kim Student Number 1003016924 Sofame Technologies Inc.: Sparking Growth in a Mature Manufacturing Company Founded in 1984 by mechanical engineers, Sofame Technologies recover waste heat from industrial gases. New President, CEO John Gocek, is now preparing Sofame’s new business strategy by examining issues in three criteria: sales, finance, and operations. As Sofame’s technology has potential to increase the efficiency of boilers from 60~90%, target for Sofame products are industrial customers in North America using central heating systems looking to make substantial savings on utility bills. Increased environmental awareness from all stakeholders, rising and more volatile energy prices affecting operating costs for facilities, stricter environmental regulations affecting large emitters of greenhouse gases are the three main reasons why Sofame’s potential market is vast, estimated to be at least $2 billion. However, Sofame’s first challenge is these B2B customers being reluctant to pay $500,000 to $1.5 million. Sofame representatives are the ones contacting the local plant managers. If the managers express interest, proposal is drafted up by chain of command, but this process is rather costly and long; taking 6-24 months for each sales cycle. In fact, custom engineered Sofame sale requires twice the effort for potentially three times earnings; a big challenge. Sofame’s effort in managing representatives is as following: two regional sales directors (eastern and western) employed to train rep’s sales engineers responsible for promoting and selling products to local markets, territory manufacturers’ representatives attending trade shows and presentations to stay informed, representatives identify customer needs and develop customized technical solution. Sofame’s benefits presented are the following: increased efficiency of boilers from 60-99%, increased savings on utility bills given rising and volatile energy prices, and increased satisfaction environmentally aware stakeholders. Proposed products are Percomax light-weight water heater, Percotherm heat-recovery condensing boiler, Hybrid Percotherm heater and recovery combo, and etc. The closing stage of the proposals is Sofame’s main challenges. Over 80% of proposals do not result in an order and customers pay only 10% upon installation of project, which is too low regarding there are already too few closing deals. To deliver the products, complex manufacturing starts as soon as order is signed, and manufacturing/ shipping are customized to order. However, potential revenue is lost when customers are told to manage their own in-house construction. After the delivering stage, Sofame offers a service contract for an annual inspection of machines, but it is known to require very little maintenance and last long for about 24 years. Over 300 customer satisfactions are reported including three high-profile installations in Montreal’s Trudeau International Airport (overall energy consumption reduced by 55% or 1.4 million cubic meters of natural gas, carbon dioxide reduction of 2,659 tons), Xstrata Mines in New Brunswick (floatation process energy costs cut by 16%, annual saving of $850,000), LNG terminal at Montoire de Bretagne on the Brittany Coast in France (annual saving of $15 million CAD in gas costs). In the finance area, aggressive booking and revenue were targeted for 2009-2013. In 2008, altered standard terms of payment increased request at time of order from 10% to 30%, also requiring 20% upon approval of drawing, 40% before shipment, 10% after start-up of system. Therefore, Sofame Finance was created as independent project financing for clients. Financial challenge is to build sales beyond $4 million CAD to achieve cash flow break-even. On the operations side, Sofame has more customizable and complex products in the market however, lesser wellknown. Critical challenge was that Gocek was unaware of some indirect competitors could also achieve 99% heat recovery rate and offered lower costs and a shorter payback period, more easily installed, more widely available, and better known to end-users and engineering community. Gocek went ahead to shorten manufacturing cycle from 12 weeks to 3 weeks with plant restructuring and made efforts to identify and motivate representatives with highest quality/quantity of potentially beneficial relationships in markets and sectors where Sofame’s technology could be deployed (challenge). Some recommendations for Sofame to solve its current challenges are: identify key CEO contacts directly to get top-level sponsorship to secure and reduce proposal rejection, follow up only on promising leads, keep up the creation of Sofame Finance, although Sofame is the last to get paid but it will increase the close ratio with whole package, build standards in the process of customization, build a large committed network of representatives across geographic regions, and implement the “turn-key” business model, where manufacturers also install the machines at customers’ sites to increase revenues.
