Manufacturing and operations can unlock significant latent value by developing the capabilities that support a company’s strategic value proposition. Winning companies already are starting to tap into that value.
Internal and External Connections
To rebuild their supply chain capabilities, manufacturers may need to renew their connections with other functions. The pressure for complexity affects all of them. Eliminating internal barriers can give executives an integrated, end-to-end view of operations that better aligns supply chain activities with strategic goals.
The experience of a brewing company that needed to improve innovation shows how a supply chain organization can drive value when manufacturing integrates more closely with the rest of the enterprise. For years, the company’s research and development team had worked in isolation, cooking up new flavors in isolation from the brewing operation. When the researchers thought they had a winning recipe, they would “toss it over the wall” to the brewers.
Not enough of these new formulations translated into commercially successful products. But when the company put brewers and researchers together on cross-functional teams, their combined expertise produced more successful new products.
Manufacturers also must forge stronger links with the wholesalers and retailers that carry their products. Historically, mistrust and conflicting priorities have prevented them from working closely together to improve the end-to-end profitability of the entire product cycle, from factory to store shelf.
Retailers have been reluctant to share sales data that could help manufacturers tailor products and delivery schedules to customer demand. Manufacturers, meanwhile, have tried to maximize their profitability through extended production runs of a single product. This approach conflicts with retailers’ preference for deliveries of mixed pallets with multiple SKUs.
More effective collaboration would benefit both parties. As better partners, they can develop a more complete understanding of total costs and total profits across their combined operations. Access to point-of-sale data would enable manufacturers to help retailers expand their profits. Knowing which products are selling well and which aren’t would allow manufacturers to give retailers more of what customers want in a timely manner.
This more integrated approach will require operational changes, such as more-frequent deliveries, that may raise a manufacturer’s costs. But as the overall financial picture becomes clearer to both parties, they can agree on ways to share the benefits and costs of improving the system.
Time to Get Going
Manufacturing and operations can unlock significant latent value by developing the capabilities that support a company’s strategic value proposition. Winning companies already are starting to tap into that value.
If you’re a manufacturing executive, you need to start thinking strategically now. It’s time to shift your focus from bringing costs down to driving growth up. All your innovative efforts should be focused on building the capabilities you need, aligned with your company’s strategic value proposition.
Some capabilities will be competitive necessities that keep you in the game. Some will be differentiated, distinctive capabilities that give you the right to win against competitors. Which is which? That depends on your own mix of products, markets and competitors. In other words, the time has come to be more conscious about the value that manufacturing provides.
