NEWS of factory closures, loss of jobs, rationalisation and consolidation pepper the headlines and business periodicals with alarming regularity. Customer demands for higher quality, quicker delivery and lower prices are unrelenting, but no matter how ridiculous the demands become, there always seems to be someone willing to compete vigorously for the privilege of service.
And indications are that conditions will get tougher. A recent survey conducted by the Australian Industry Group, estimates that manufacturers lost an annual $560m in income as a result of increased Chinese competition in the domestic market. Around 28% of respondents indicated that they were competing against Chinese products that were priced below cost.
Faced with a small domestic market, relatively expensive labour force and large geographic distances to many major world markets – many Australian manufacturers may feel that the odds are stacked against them.
But Australia has a proud history of overcoming the odds – witness the disproportionate per-capita medal tally at the Athens Olympics as an example. So what lessons can be learned?
Our work with manufacturers globally and in Australia across a range of industries suggests five areas of focus: be clear on what game you are playing; don’t try to play every position; go for the gold medal; collaborate; and innovate.
WHAT GAME ARE YOU PLAYING? – manufacturing strategy must be set in the context of marketing strategy and corporate goals. Do customers want lowest cost? What attributes add value from a customer perspective? How stable are market segments and trends? Answers to these questions guide manufacturing scale, location and technological choices. For example, we recently completed a strategic review of a manufacturing network of a large Australian food company and concluded that manufacturing capability and capacity had become misaligned to marketing strategy for several commoditised product groups. Significant costs savings were identified from the resulting rationalisation.
DON’T TRY TO PLAY EVERY POSITION – Only make those parts of the overall product that you can do better than anyone else in your market (it helps if you think globally here – many of your competitors do!).
The trend towards outsourcing is well established. Many multi-national manufacturing giants such as Sony, Kraft Foods and Ford Motors have already outsourced operations to third parties, from procurement and manufacturing through to logistics.
Significant savings can be generated by adopting a global view of outsourcing opportunities and carefully evaluating opportunities in low cost countries. Our work in the area of low cost country sourcing (LCCS) suggests that savings of up to 35% can be achieved, provided that total acquisition cost management, tax management and operational co-ordination mechanisms are carefully designed.
GO FOR THE GOLD – the prize for second place is increasingly unattractive. To gain competitiveness, Australian manufacturers must look for excellence in every aspect of their manufacturing operations.
For those aspects manufactured in-house, quality should continually be improved through lean principles and disciplined programs such as Six Sigma. Where aspects of manufacturing are outsourced, organisations must strive for excellence in supplier relationship management.
COLLABORATE – it is simply not possible to win repeatedly on your own. Unfortunately, many Australian companies still struggle to achieve internal collaboration amongst finance, marketing, sales and operations stakeholders.
Our work with several manufacturers suggests that effective integrated business planning is a pre-requisite for manufacturing success. Australian manufacturers must go farther and integrate manufacturing operations as part of the extended supply chain to enable effective collaboration and exception management among suppliers, distributors and customers within their business network.
One of our large high-tech clients has internet-enabled connectivity with trading partners. Information such as customer orders, forecasts, shipment data and production requirements are available 24/7. They have significantly reduced manufacturing cycle time from design to finished product and achieved higher levels of customer service as a result.
INNOVATE! – whatever you are doing well today is not enough to guarantee your success tomorrow. Innovation should be factored into your manufacturing program at multiple levels. First, the manufacturing footprint needs to support and enable corporate and marketing innovation goals.
For many companies this means capacity appropriately allocated to support rapid trials, quicker launches and more tailored products. Sales and operations planning processes and software need to factor in new product development activity seamlessly and be extensible to cover the operations of collaborative manufacturing partners, joint venture partners and / or new acquisitions.
Second, manufacturers need to foster a culture of innovation and creativity within their staff. Our recent work with a large telecommunications supplier has shown that relatively simple change management techniques can translate into radical improvements in time to market.
Conditions may be tough, but those Australian manufacturers who are willing to think globally and transform their businesses based on the five principles above can be tougher!
*Justin Greig is director, supply chain management practice, Capgemini Australia.