Wariness about supply chain volatility and focus on growth opportunities should be on every manufacturer's mind, says Ronald Teijken, industry marketing manager at Sterling Commerce.
2010 was a busy year and while many of us hoped Christmas would bring some rest, it was one of the busiest periods for a long time here at Sterling Commerce. Having said that, it’s always important to step back and reflect both on the year just passed and the year that just began, so I have put together some of my thoughts on important issues for manufacturers in 2011.
First of all, there is an urgent need for manufacturers to reconnect with growth.
A 16 year Purchasing Manager Index (PMI™) high in the UK, a 10 year high in France and a three month high in Germany at the end of 2010 indicate that manufacturers operating in core markets are continuing to focus on growth – growth with existing customers; growth in new markets; and growth via acquisition. At the same time, their focus on operational excellence and cost containment has never been more relentless.
The potential for sales into emerging markets is huge and has been where some manufacturers have seen a lot of their growth. Just look at this British clock maker as an example. According to the BBC, “the recession forced the company to look at new markets and it now sees 90% of its business in new clocks coming from outside the UK, pushing profits up by 30% in the past three years”.
However, we do need to bear in mind that not all manufacturers are well-positioned from a commercial standpoint to take advantage of these opportunities. While this clock maker is a lovely UK example, a major subset of this issue for many manufacturers is that the products and services that will succeed in these emerging markets may differ substantially from those in the developed world due to huge differences in GDP/capita, infrastructure, etc.
On top of this, product and service complexity has increased exponentially, making it more difficult to deliver a consistent and profitable customer experience. Add to this the mixed incentives available to channel partners for them to push the manufacturer’s own products over those of its competitors and you have an environment ripe and ready for innovation to take advantage of growth opportunities. For certain sectors, aftermarket services and service parts are also highly profitable, but not fully addressed. In a volatile market like that of 2011, squeezing more service and service parts revenue from existing customers is important.
Secondly, supply chain volatility and risk have become systemic.
Since 9/11, supply chains have been subject to many new forms of risk and since the recession truly kicked in, in 2008, there have been further substantial financial risks in the supply chain. The just-in-time, demand-driven strategies frequently touted are inadequate to cope, much less thrive, in this kind of environment.
In addition to these external sources of volatility that are beyond the direct control of the manufacturer, there is a lot of internally-induced volatility as companies adjust their strategies and operating models in an effort to optimise results. A number of examples include:
· Manufacturers must support increasingly diverse supply chain needs of specific market segments or even individual customers.
· Companies are constantly adjusting their supply networks globally (offshore, near shore, on shore, bring back in house) to optimise costs, lead times, quality and return on assets.
There is an accelerated focus on supply chain compliance and sustainability.
Environmental and sustainable factors of the supply chain will become more influential factors in the decision making process this year – particularly with the CRC now in force for companies in the UK, as well as other mandates such as WEEE and 10+2. Concern for better green credentials will accelerate the move from local optimisation to the necessity for global, system-wide optimisation in a quest for greater precision, reliability and sustainability.
It will be interesting to see how 2011 pans out not just for manufacturers, but for the economy as a whole. However, one thing is for sure: companies that are willing and ready to approach their supply chain with a dedicated view of customer service, while keeping a close eye on new opportunities to grow, are likely to be the ones that will benefit most from 2011.