New manufacturing technologies and best practices have reached critical mass and are converging globally. To satisfy customers, manufacturers will require a fundamental shift in executive mind-sets and organisational cultures. To create extraordinary value for customers, manufacturers must eliminate traditional boundaries between customers and integrate more closely with them.
Leading manufacturers anticipate change and possess the flexibility to quickly adjust their strategies. As they expand into new markets and confront new competitors, the leaders recognise that they must be able to react to changes in a highly uncertain environment. Even more so, top performers are proactively changing the rules of competition to their advantage, and to their rivals disadvantage. New wealth from manufacturing is being created more by adaptability, value-added services and speed of execution than by sheer quantity of capital or technology.
This new state of manufacturing means that incumbency does not guarantee long-term success. Fierce global competition and increasing demand for customised products and services, coupled with shortened product life cycles in most manufacturing industries, suggest that many of today’s leaders will not necessarily be tomorrow’s. Unless the leaders can reinvent themselves to seize opportunities and keep pace with rapid change, they risk falling behind. They cannot afford to focus on merely outperforming rivals. To win in the era of the virtual customer, executives must continuously refocus their strategies toward customers and prepare their enterprise to respond quickly to change.
Traditional recipes for success are not adequate to compete in the new millennium. How are market leaders – those commanding the largest share of their target markets – meeting the challenges of the 21st century? The 1998 Vision in Manufacturing study shows that top executives are shifting their focus from cost to growth. Market leaders are making more than just ad hoc, incremental improvements. For most leaders, reengineering has peaked. Leaders are now racing to build flexibility and rapid-response capabilities into their organisations. They are redesigning their business processes, realigning their organisations and leveraging technology to develop innovative, integrated solutions. Top performers are changing corporate cultures that impede fast response and harnessing their knowledge assets to do it.
Leading manufacturers view globalisation as a strategic imperative for growth.
The question challenging manufacturing is not, “do I go global?” but “which markets should I enter, how should I enter them and what capabilities ensure success?” Even companies that merely want to defend their home turf must be as alert to international competition as any global company.
The study reveals that early entry into emerging markets is preferable to a “wait and see” approach. Market leaders are not hesitating to expand their global reach, particularly in emerging markets. China is the destination of choice, with nearly half of the market leaders targeting the world’s fastest growing consumer market, one that is expected surpass the US by 2015.
The study shows that global sales and distribution capabilities, while important, are not sufficient for sustained competitive advantage in the 21st century. Not surprisingly, market leaders have stronger global capabilities across the board. They are moving beyond merely selling and marketing their products around the world to creating global networks of research, manufacturing and distribution. Leaders are putting their “stake in the ground” in target markets by strengthening their manufacturing and assembly operations abroad and integrating foreign nationals into management.
Prowess in science and engineering no longer guarantee new product success, however. Manufacturers recognise that they must offer products and services that provide solutions for their customers. Market leaders will go beyond developing new products for their target markets; they will aggressively work toward creating niche opportunities and value-added services. To combat ever-shrinking product life cycles, many companies are trying to “pull” ideas from their customers rather than merely “push” products into the market.
To meet the varied and complex demands of customers worldwide, leading manufacturers are reinventing their new product development (NPD) strategies to utilise new technologies and increase co-ordination between R&D, manufacturing and marketing. Market leaders are going beyond employing traditional practices, such as computer aided design/manufacturing (CAD/CAM), to activities that leverage the entire enterprise.
While manufacturers outside North America will aggressively reengineer their NPD processes in the next three years, North American manufacturers will emphasise information systems and electronic links to enhance co-ordination and speed the development process. Information technology is a key enabler to breaking down the functional “silos” within organisations and for integrating customer perceived value into products.
Differentiation in the era of the virtual customer will require superior marketing and customer service. Most manufacturers do not yet possess these capabilities. The study reveals that most continue to focus on product quality and neglect integrating manufacturing with marketing and sales. While manufacturers say they recognise the importance of superior service, they have not kept pace with rising customer expectations and tight delivery deadlines dictated by complex manufacturing systems. Manufacturers that placed a high priority on incorporating value-added services into their product portfolios in the 1993 Vision in Manufacturing study are currently performing better in these areas.
Keeping the customer happy
Gaining customer loyalty is as important as “getting the order.” Although market leaders have the advantage of greater brand awareness, established customer relationships and broad product lines, they suffer from weakness in superior market and customer research. In fact, not even one quarter of all manufacturers currently have world-class capabilities in this area.
This strategic weakness may act as a hurdle for manufacturers as they attempt to identify customer needs and penetrate new markets around the globe.
To create a customer-centric organisation, process reengineering is on top of the agenda for many manufacturers, but not for market leaders or manufacturers in North America. Instead, they are leveraging information technologies, such as data warehousing, customer integrated data and electronic commerce, to improve marketing, sales and service. They are using these tools to capture and integrate critical customer information across functions and geographies. This enables market leaders to cross-sell and up-sell products more effectively, to cultivate closer customer relationships and, ultimately, to “lock in” customers. Market leaders are creating repositories of purchase information in data warehouses that will significantly increase their ability to meet customer requirements anywhere and at any time.
Market leaders have already squeezed excess costs out of their supply chains by replacing legacy systems with enterprise-wide resource planning (ERP) systems. Growth-minded executives are now shifting their focus from cost cutting to tightening the links with suppliers and customers.
They are partnering with their customers early in the product development process to ensure that product and service requirements are met. The leaders are also leveraging Internet technologies and adding functionality to ERP applications to capture and integrate key customer information into strategic planning. Internet-based technologies are providing a multitude of new, lower cost options for integrating with supply chain partners. These options range from loosely linked virtual networks to tightly coupled, highly interdependent channels.
Forging alliances with domestic and overseas partners, as well as outsourcing, are also strategies to improve supply chain integration. More and more, manufacturers are outsourcing logistics and support services, such as information services management and software development, in order to focus on their core competencies. Even manufacturers in Europe, which have traditionally been reluctant to outsource, are increasing their activities in these areas. Market leaders are focusing on core strengths and arming themselves with the tools that facilitate a seamless flow of information throughout the extended enterprise.
The 1998 study confirms that significant competitive advantage can be gained by investing in people. It provides strong evidence that investment in knowledge assets underlies the superior performance of the market leaders.
Market leaders have reengineered their human resource functions and are now investing in workforce management programs that promote high-performance work teams, improve cross-functional training and facilitate worker empowerment – ultimately creating a culture that thrives on learning and change.
In conclusion, market leaders are seeking competitive advantage on multiple levels. They are establishing early mover advantage and putting their stake in the ground in target markets around the world. They are shoring up their arsenal of capabilities and investing in technology, best practices and people. The leaders are recasting their enterprises to improve new product development, create a customer-centric orientation, tighten global supply chain links and harness the knowledge assets of their organisations.
A new agenda for product innovation
New product development is a primary engine of growth for executives participating in the 1998 Vision in Manufacturing study. They intend to introduce new products in existing markets – a strategy crucial to customer retention and market share expansion – and leverage product innovation in new markets. Although innovation is essential for 21st century manufacturers, its characteristics differ by industry, region and across the supply chain.
In the high-tech industry, shorter product life cycles are rendering products obsolete almost overnight. As a result, high-tech manufacturers are flooding the marketplace with new products at an explosive pace.
In pharmaceuticals, product innovation is the way to recoup mounting investments in R&D and maintain shareholder value. Aerospace & defence executives, on the other hand, are focused on enhancements to existing platforms.
The pressure to innovate affects all levels of the supply chain. In the automotive and aerospace and defence industries, for example, original equipment manufacturers are demanding broadly integrated, comprehensive systems, not just components from their suppliers. To ensure superior quality and manufacturability, OEMs are even collaborating with their suppliers at the design and configuration stages, asking suppliers to share the risks of investment and product development and relying on them for product and process innovations. This trend requires suppliers of systems, parts and components to develop new product development capabilities and invest in R&D. One finding is clear for these two industries – a plethora of new competitive opportunities will be available in the 21st century for suppliers with superior NPD capabilities.
Creating value for the customer also requires manufacturers to be flexible to respond effectively in often unpredictable local markets. Local product adaptation is particularly important in industries such as consumer products and automotive, while high-tech and A&D industries are focusing more on developing global products.
For more information on the Deloitte study see www.us.deloitte.com/manufacturing.
Customer focus will deliver success in the ’90s
In 1993, manufacturing executives were asked to rank the critical success factors for winning in the ’90s. The answer: superior delivery capabilities.
Yet most manufacturers today clearly do not possess these capabilities.
The 1998 study reveals that manufacturers continue to focus on what they do best – emphasising product quality attributes. For most firms, on-time delivery remains an increasingly elusive goal. Few have been able to strengthen delivery capabilities which partially explains the customer paradox. But this is changing. The 1998 study finds that the global manufacturing industry is witnessing a shift in orientation. Market leaders and followers around the world are not only gearing up to meet higher customer expectations, they are strengthening their capabilities to rapidly adapt to market forces and better anticipate customer demands. To win orders in the 21st century, executives will focus on service related attributes, such as on-time delivery, customer perceived product quality, prompt handling of customer complaints, fast response deliveries and building superior customer relationships.
For customers, on-time delivery has never been more important. Their advanced production and control scheduling systems, lean manufacturing and inventory reduction practices make delivery reliability critical.
This, with the growing use of direct Internet sales, especially in high technology and consumer products industries, will only heighten the pressure for product availability on demand. Late deliveries can lead to temporary shut downs and losses in sales.
In the past, customer expectations have exceeded manufacturers’ ability to provide on-time delivery. Today, manufacturers around the world are emphasising remedial services, such as prompt handling of customer complaints.
In the chemical industry, for example, Monsanto’s chemical spin-off, Solutia, is transforming its nylon plant into a make-to-order business.
By integrating the plant’s information and processing systems, Solutia enables customers to place customised orders via the Internet 24 hours a day. The system reserves the requested nylon and electronically sends out the order and invoice simultaneously. By linking manufacturing with other business processes, Solutia can offer higher value-added customised products.
The proof is in the performance. Manufacturers that placed a high priority on incorporating value-added services into their product portfolios in 1993 are performing better in 1998. Getting closer to customers has an impact on the bottom line. Market followers hope to close the gaps in several key areas, including customer-perceived quality, on-time delivery and prompt handling of customer complaints.
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