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Are 21st-century supply chains worth as much to manufacturers as the capital they invest in them?
Here are a few indicators of supply chain spending may require significant retooling very soon:
1. Optimization efforts that show no skepticism over current operations
Real improvement starts by identifying a problem and working from there. Yet more often than not, manufacturers scrutinize partners, employees, and contracted help while turning a blind eye to their internal processes.
Results from a recent supply chain survey conducted by Grant Thorton LLC on behalf of the National Association of Manufacturers proved this. Nearly 80 percent of manufacturers reported primarily targeting direct spend to improve their supply chain operations as opposed to indirect spend. Wasteful operations and rework are undoubtedly worth addressing, as these indirect expenses correlate with direct ones. How can a business expect to reduce, say, materials costs without first understanding exactly the base amount of materials it needs?
But there’s something far more disconcerting about the stark difference between attention paid to direct versus indirect spend lurking here. Are these manufacturers essentially ignoring faults in their internal processes because they lack the resources to properly vet them and fix them intelligently? Why assume such unpreparedness? Because the same Grant Thorton/NAM survey revealed only 10% of manufacturers even have a definitive strategy for optimizing supply chain performance.
Lean operations require investment in continuous improvement strategies. Companies must examine whether their direct-spend improvement mindset reflects a true dedication to excellence or an avoidance of a larger issue of documentation and analysis.
2. No goals (or negotiating) at the negotiation table
Manufacturers walk a narrow line when meeting with supply vendors over contract renewals or modifications, or when they enter new supplier partnerships entirely. Strategies around procurement pricing must be tight and calculated. One PricewaterhouseCoopers study estimated sourcing costs for manufacturers at between 50 to 80 percent of total cost.
Yet this hard-line approach obscures the benefits of a goal-oriented negotiation, one that recognizes the importance of whatever it is the vendor hopes to achieve through the partnership. This builds a solid foundation for rewarding a supplier relationship that can return far more than pricing discounts ever could.
Before hashing out procurement with a new or legacy supplier, manufacturers should take a second look at the goals they hope to achieve through this partnership and prioritize them so they know which goals they can and cannot budge on. To be valuable, however, these objectives must not be general. Leaders would be wise to speak with materials handlers and operators to learn exactly what their operations require from the supplier. Extra materials processing before delivery, for example, could save workers on the shop floor who would otherwise do it a lot of time in production.
3. Zero investment into eco-centric transparency
Customers of manufactured goods are hungry to know more about where supplies came from, whether they comply with health and safety standards, and what their residual effect on the environment is and will be. Manufacturers that do not implement new supply chain strategies around this new consumer demand will wish they had in the years to come.
Consider the recent alliance between Google and the Healthy Buildings Network, as well as the Portico platform these two businesses created together. Portico is a nascent repository of disclosure information people can access to learn about building materials manufacturers, their products and, among other things, the green certifications those products do or don’t hold. Should this database catch fire as architects and contractors demand more environmentally sustainable goods for their clients, this change could have a disruptive, revolutionary effect on producers of cement, glass, insulation, etc.
Whether or not a business operates in the building material industry is beside the point. By investing in supply chain visibility with an eye toward environmental friendliness, manufacturers in any sector can create a value proposition for customers that far too many competitors have yet to act upon.
For more information on how to curb exorbitant indirect spend management costs throughout your entire business, check out this blog post on the subject. You can also speak with a USC Consulting Group representative today to learn about how to achieve operational excellence anywhere in your company.
Shelter is a basic human necessity, but in many parts of the world so is high-speed internet. Building materials manufacturers, as fundamental as their industry is to civilization, must open themselves up to adaptation in the face of global innovation. Cement, steel, glass, wood – these and other ubiquitous resources all have roles to play in the 21st century, so long as they carry the torch of technological process like other private sector manufacturers do. So what’s preventing some businesses in building materials from embracing innovation?
1. Too scared to invest
As the saying goes, “Once bitten, twice shy.”
As authors Robert Bono and Stephen Pillsbury chronicle in a PricewaterhouseCoopers industrial manufacturing report, many companies still remember the losses they sustained from the drive to invest in new technology in the early-to-mid 2000s that ended abruptly with the economic collapse in 2008 – at least, the companies that survived do.
When innovation was at its peak then, investors paid top dollar. When the market crashed, their worthwhile ventures became financial burdens they suddenly couldn’t justify, let alone liquidate at sticker price. Since then, many of these same businesses, ironically enough, have converted to models of risk management at all costs which stifle productivity. According to the U.S. Bureau of Labor Statistics, productivity change in the wake of the 2008 economic collapse is less than half what it was between 2000 and 2007, the worst it’s been since the late 80s.
2. Narrow vision moving forward
What can building materials manufacturers do with things like augmented reality and the Internet of Things? Their industries are far too old-school to truly benefit from these cutting-edge digital innovations, right?
Depends on who you ask. The plumbing sector, for instance, could see massive reductions in resourcing and operational costs, as well as enhanced quality, by prototyping fixtures and piping with 3-D printers. How else would one test a new low-flow shower head he or she hopes will earn a stamp of approval from the U.S. Green Building Council’s LEED program? For plumbing manufacturers and their distributors, both looking to sell entire plumbing systems rather than mere parts, AR could help them cost-effectively design custom specifications with their clientele and drive sales.
Plumbing aside, connected sensors and data management software serve all asset-intensive manufacturers by monitoring machine efficiency, forecasting failure and laying the groundwork for proactive and prescriptive scheduled maintenance programs that significantly increase equipment uptime. What manufacturer wouldn’t want that? A lack of imagination is no excuse.
Every manufacturing company deserves an operational boost from proactive maintenance technology.
3. Reluctance in the face of rapid progress
What prevents building materials manufacturers from adopting new technology may simply be a blindness to the risk of not innovating when others do. As the rate of innovation accelerates, the businesses that perform the best in the market will be the ones that choose the tech that helps their cause and onboard it cleanly only to replace with something better when it comes along. That said, it will always feel easier to maintain the status quo, even if “business as usual” will ultimately be your company’s downfall.
One caveat to that, however: No emerging technology, regardless of how hyped it may be, is a guarantee of success. So before throwing your whole company behind the latest, greatest solution, manufacturers should work with operational consultants to ensure they possess the efficiency to adopt, utilize, and adapt.
Who knew a little label could cause such a big commotion? Food and beverage labels in the U.S. will become battlegrounds over the next year as the industry reinvents itself in the wake of a new political regime and shifting consumer expectations. How might these changes impact how manufacturers operate?
Recent regulatory rules under the Trump administration
Perhaps the most seismic change of late regarding how all businesses in the U.S. will be regulated, President Trump recently signed an executive order requiring the removal of two federal regulations for every one instated. Should this one-in-two-out rule hold, food and beverage producers may find themselves altering not only how they label food but how they produce it.
A new president means a new approach to food and beverage regulations.
For example, last summer then-President Obama signed a bill mandating the use of labeling for genetically modified foods. However, the bill allowed food and beverage companies to use a QR code on their products instead of an outright designation identifying GMO products. Currently, neither side of the issue is wholly content with the final decision, so the matter will likely come up again for review or restructuring in the near future. But now under the Trump administration, further discussion may have to include a selection of regulations for the proverbial chopping block.
Although Trump’s regulation-loosening executive order may make things easier for affected businesses and their abilities to produce cost-effectively, there’s no arguing these companies will already require lean, streamlined operations capable of flexibility to benefit from changes as they come while still upholding safety and quality standards. And with consumers more focused than ever on what they eat and how it’s processed, labeling could be at the heart of this volatile transition period.
New labels provoke conversations regarding sweeteners
In mid-2016, the FDA updated the ubiquitous nutritional label to both emphasize things consumers should be aware of and include data that had been left off in the past.
According to the FDA website, two changes in particular could greatly affect producers of sugary foods and beverages. First, labels must now include a “declaration of grams and a percent daily value (%DV) for ‘added sugars.'” Second, products containing between one to two servings per package must drop down to one and adjust data accordingly, since many people consume these goods in one sitting.
Most manufacturers will have until mid-2018 to comply. Others that make less than $10 million in annual food sales have until mid-2019. Presumably, many in both camps will spend time this year planning how best to reduce added sugar levels or what alternative sweeteners they could feasibly substitute without altering taste dramatically. Either way, these food and beverage producers will need to rethink raw materials sourcing and chart out new partnerships with suppliers.
This could prove difficult for popular sugar alternatives such as stevia. In early June 2016, U.S. Customs and Border Protection seized shipments of stevia from China because of a ban on imports produced through forced labor, according to Fortune. In giving up straight sugar, F&B manufacturers may be forced to seek out a more transparent means of managing its supply chain and a long supplier vetting process. These could prove excellent opportunities to simplify these processes as best as possible for all raw materials involved in production.