Manufacturing businesses that aim for aggressive organic growth should include these four elements.
A recent KPMG survey of over 350 leaders of global manufacturing organizations divulged a strong commitment to aggressive growth in the next two years. CEOs report that most of that targeted growth will be through organic activities, not acquisition. They intend to enter new markets, both geographic and adjacent, with new products. Investment in R&D will rise significantly to implement the commitment to new products.
So what does all of that mean to you, the leader of a manufacturer that is not one of those 350?
Probably not a lot you didn’t already know. But just in case, …
If you’ve been relaxing in your niche market, your products and services are easy prey. You may have hoped to retire before the party ends, but that’s now unlikely. If, however, you’ve been effectively improving service levels and adding ever-increasing value to your customers, you are positioned to stand and fight. Customer relationships are critical to fighting off predators. Visit, listen, learn, and together develop new solutions. And then extend those solutions to your own adjacent markets.
New Product Success
Goodyear, once considered an old stodgy bureaucratic company, has implemented lean product development throughout its global operations. The company reduced lead time by more than half and increased their success rate in introducing new profitable products to near perfection.
Yes, new product development can and should have standard work and defined processes. While engineers may fight efforts to streamline the NPD process, no manufacturer can allow such an important driver of success to ramble along at its own time and direction with crap-shoot results. Check out Norbert Majerus’ Lean Driven Innovation to learn the Goodyear story. You may not be Goodyear, but it’s time to become as good as they are at what you do.
Be sure to include the entire process of identifying market potential at the beginning of the design process. Hearsay and assumptions can derail the profitability of even the most brilliant design. Take your engineers to mingle with end-users of your product to witness how it is actually used. You’ll learn a lot that will save you time, money and valuable intellect. And increase profitability.
If you still receive EDI orders and manually enter them into an MRP/ERP system, which then processes everything at night, it may be time to “get your things in order,” as the doctors say. A ridiculous number of manufacturers invest in the wrong technologies to support business processes that are shaky at best. “Feed the machine” transactions cost more than they could ever be worth and usurp valuable resources that should be put to more productive use.
Bar codes, ERP, Workflow software, RFID, automation and robots all can have great value, if and only if they are applied strategically and selected well. Spending on poorly understood technology to address even more poorly understood challenges, all on the advice of a commission-based salesman, can put a good company in critical condition.
Technology has to be a strategic asset, not just “an easy way out.” There’s nothing easy about it. A swing and miss here can cost a fortune you don’t have, but failing to walk to the plate can do the same thing. Identify unbiased external resources to challenge your thinking. What is obvious may not be true. Technology investments must be interwoven with the prioritized business strategy and must be implemented and understood by internal resources. If you can’t leverage the technology to ensure profitable growth, it’s probably a mistake.
While these global companies, and others, can “buy business” by undercutting your prices, it’s unlikely they will take that route. And it’s equally unlikely you will retain your customers by cutting your prices. Unless you are in a commodity market, and few truly are, price is way down the list on the buying decision. The purchasing agent may tell you to lower the price, but walk the floor to see how your products are used. Listen to others in customer organizations.
Effectiveness, reliable delivery, responsiveness, innovative solutions to ongoing problems—these are all more important than price. Don’t allow yourself to be treated like a commodity, unless you are one. In that case, develop new products and markets and get out of your current business as quickly as you can. The current focus on aggressive growth by the big guys is not your biggest threat.
Beyond The Next Two Years
The survey questions were asked in a way that ensured near-term responses. The reality is that long term business focus can shift. So if these global manufacturers intend to aggressively support organic growth within the next two years, what does that mean to you beyond that time period?
Retrenchment is a rare philosophy among global organizations, but does happen if mistakes have been made. None of us, including the CEOs that responded to the survey, knows what the future holds. But we can be sure that competition will only become more intense, we will need to become faster and better at anticipating and meeting customer needs and wants, and we must make money while doing so.
So for most of us, beyond the next two years looks a lot like the next two years, which in many cases looks a lot like the last two years. It’s not enough to improve. We have to improve faster and in more relevant ways that the other guys.
But then that’s what makes manufacturing so much fun!
As published by IndustryWeek