Manufacturers are feeling the pressure that comes with competing on a global platform, and in recent years, that pressure has intensified as customer demands increase and supply chains expand.
The reality is that the existing process and supply chains are simply not built to compete in this environment. Manufacturers need change to achieve shorter fulfillment times at every stage, from sourcing raw material to fabrication to assembly to final production to distribution to final customer.
To build a model suited for competing today and into the future, manufacturers must focus on time, cost, quality, and service across the end-to-end value chain. They should address the manufacturing footprint to compete on time, develop differentiated offerings across modular product platforms, improve material flow and inventory accuracy, and return to continuous improvement.
Rethinking The Manufacturing Footprint (Competing On Time)
Low, decentralized inventory forces longer lead times to order fulfillment. In fact, offshoring can extend lead times from 30 days to more than 180 days. And as that timeframe expands, so do opportunities for supply chain disruptions.
To answer the demand for quick delivery, manufacturers need to re-evaluate their footprint to regain competitiveness and quality.
In many cases, the answer involves bringing operations back to the U.S., although this effort is complicated by the fact that manufacturing talent is not as readily available nor as desirable to the American worker as it once was. And as the “graying workforce” heads for retirement, maintaining a skilled, sustainable labor pool is one of the most significant challenges of the young century.
Even so, manufacturers need to maintain competitive advantage. In some cases it’s a matter of relocating operations or opening new facilities to gain access to talent. Some manufacturers are borrowing from the classic playbook and revisiting the approach of moving to new, often rural labor markets. Careful consideration is required as “available” labor can be quickly consumed if other manufacturing is also attracted to the same labor markets.
Rationalizing Portfolios: Right Customer, Right Offering, Right Platforms
In order to adapt to a market that often rewards high-maintenance customers, companies need to be more attuned to servicing the right customer with the right product at the right price with the right value-added support.
There are four steps that will help manufacturers reduce complexity and operate on a healthy margin:
1. Rationalize SKUs
One of the most difficult tasks for large manufacturers (especially those with a successful product history) is determining which SKUs stay in the portfolio and which should be retired. Manufacturers should strive to develop a methodology, cadence and discipline for a cross-functional review of volume, revenue and profit to better manage these decisions.
2. Develop “cost to serve” models
Once the portfolio is evaluated, companies must take a hard look at the profit model and the customers themselves: Who is hurting the cycle and the bottom line? By working with both customers and internal stakeholders, manufacturers can assess the complete impact of the need to launch, transition and retire SKUs throughout promotion, distribution and shelving cycles.
3. Segment customer service
When customers make enough noise, they often move to the front of the line. In the end, customer priorities are being managed from all corners of the organization, creating an almost impossible schedule for the supply chain. Tracking policy exceptions to lead-time, order minimum and other customer cost factors will provide better visibility to customer profitability.
4. Rationalize customers and product platforms
With a better understanding of which customers and products are a good fit for value creation, companies can reduce the number of suppliers and better manage the supply base for material flow and on-time delivery. In addition, putting focus on leveraging product platforms will further reduce supply chain complexity, inventory and risk to delivery. Based on the segmented service needs, which customers get a higher level of service, and which are passed on to wholesalers and distributors?
Improving Material Flow And Inventory Accuracy
Companies often find they have either too little of a specific material, or — just as troublesome — too much. Indeed, overstocking material results in cluttered space, disorganized storage and a higher risk of damaging product as workers sort through to find certain items. Overstocking also leads to difficult decisions about capacity at distribution centers.
Reducing inventory and shortening lead times enables companies to vastly simplify operations. Manufacturers must look across the value chain to better assess material flow and inventory levels. Supplier Capability Assessments are being redefined to include viability, “ability to respond” and other parameters that represent changes in market demands.
Returning To Continuous Improvement (CI)
When consumer spending and overall orders decreased following the 2008 downturn, all manufacturers began rationalizing and consolidating capacity. Many that turned to offshoring also cut continuous improvement/OpEx programs and “tool disciplines” (like Lean Six Sigma) — which are designed to minimize the complexity in the very processes that were being extended. Supply chains, inventory on hand, fabrication, assembly and key parts manufacturing were all stretched beyond capacity, with no sound strategy to guide them.
Those that revisit CI programs focused on reducing supply chain complexity (lead-time variability) will find major efficiencies. Every aspect of the supply chain and material flow process, including sourcing raw materials, facility location and inventory management will play into a manufacturer’s ability to stabilize and grow in this environment.
Manufacturers will always be called upon to adapt to new customer realities and widely varying market demand. A complete understanding of the manufacturing footprint means assessing CI programs, revisiting value chain assumptions and eliminating sources of “complexity.” With a detailed picture in hand and learning from the pendulum swing of 2008, companies can ensure their path to growth is constructed on a strong foundation.
About the Author: Dennis McRae, vice president of operations at Hitachi Consulting, has more than 20 years of consulting experience managing and leading complex, results-based implementations in an array of sectors including aerospace, discrete manufacturing, telecom, consumer Products, food and beverage, chemicals and pharmaceuticals.