Like other sectors within supply management, manufacturing is transforming. Faced with new technologies and changing business models and processes, manufacturers must react more quickly to the changing marketplace and adjust their manufacturing base to support new products and categories, two Alvarez & Marsal managing directors say.
Developing Insights into Customers
Customers are a key driver as manufacturers strive for continued growth and look to improve future performance, says Tim Keneally, a managing director in the company’s Private Equity Services operations group in Chicago, and Geoff Pollak, a managing director with the firm’s Performance Improvement group in Atlanta and a leader in its global supply chain practice.
Integrating customers’ needs can provide “significant improvement opportunities” that allow manufacturers to better manage their working capital as well as operating expenses, says Pollak: “Having a robust process that gets you to challenge your sales forecast and what you’re building relative to customers — as well as your integration of customers and suppliers — is critical to being successful.”
Time is a crunch factor, Pollak says: “The time manufacturers have to react to their customer needs as well as changing business imperatives is becoming less and less.”
Certain factors are facilitating the ability to respond quickly. One is manufacturing flexibility — moving production to another location to be closer to a customer or customizing product. Other factors include technology, including artificial intelligence, as well as equipment and machinery.
“Given the uptick in manufacturing in the U.S. and Mexico, and more insourcing of products,” Keneally says, “we’re seeing a lot more capital investment, which drives flexibility and being able to deal with the complexity of customer demands in a shorter time frame.” He notes that manufacturers must ensure their machinery, equipment and technology — and the people who use them — are mature and capable of handling the flexible environment as related to customer demands.
Flexibility Versus Complexity
In addition to manufacturing flexibility, complexity reduction is another trend that manufacturers are using to balance their needs and those of customers. “Certain things add complexity, which adds lead time, which adds manufacturing costs, which adds supply chain costs,” Keneally says.
One factor is customization. Changing where customization is done in the manufacturing process can reduce complexity, he says. Rethinking customization choices is another. He cites an e-commerce example, where customers can customize product colors: If there is no difference to the consumer between light blue shade 25 and 27, why offer that option? “It’s complexity reduction — but it’s also training the customers as to what the options are,” Keneally says.
Another consideration is what customers are willing to pay for. “Take the example of a shirt. Whether you use light blue 25 or 27 to put a monogram symbol on the shirt, the shirt is still the same shirt,” Keneally says. “What this comes back to is ensuring that last stage customization takes place as close to the final customer as possible.”
Today’s manufacturers also are looking at increasing efficiency, notes Keneally. “Through capital equipment and expansions, companies become more efficient, and through efficiency comes consolidation on the manufacturing side,” he says. Within the U.S., more consolidations — combining plants or moving production from one facility to another — are taking place, he says.
Another trend, in the U.S. in particular, is to move to lower-cost manufacturing and better utilization of assets, he adds. However, an issue can be whether the receiving site has the ability to satisfy the customer at the resulting volumes, service levels and lead times.