how manufacturing leaders succeed

How Leaders Succeed in an Era of Volatility

What are manufacturing leaders doing to outpace the recovery? A survey find key differences in how they approach talent, location and capital investment.

In recent years, frustrated manufacturing executives may have felt like they were running furiously just to keep pace. They could hardly be blamed, what with manufacturing’s traditional focus on cost efficiency and quality relegated to mere table stakes in a capricious economy.

After a half-decade of running on the treadmill, manufacturers are once again positioning themselves to achieve growth. An Accenture survey found that 89% of 81 senior manufacturing executives at U.S.-based companies with global operations are expecting growth. In fact, about four in 10 companies surveyed already have successfully restored either their production or profitability levels beyond pre-recession levels of 2007.

See Also: Lean Manufacturing Leadership Best Practices

Yet our analysis found there is a group of companies that have performed even better in the last few years: those that already have surpassed both their 2007 production and profitability performance levels. We refer to these companies—which constitute about 33% of those surveyed—as our "recovery leaders."

Our recovery leaders have seen their revenue recover much more quickly from the recession than other manufacturers: They were more likely than the balance of the group to say their revenue had grown by at least 6% since June 2009, and were less likely to anticipate little (less than 2%) or no growth in the future.

Why were recovery leaders better able to rebound from the recession? When comparing leaders with the rest of the sample, we found intriguing differences in how the groups approached their talent, location and capital investment.

Manufacturing Locations

All of our respondents reported a large amount of churn in their manufacturing locations. Overall, 65% reported having relocated some manufacturing locations in the past 24 months, while 62% opened new facilities in different locations. Forty-three percent of all respondents said they are considering further relocations in the next two years. What separated leaders from the rest was the rationale for their location changes, which in turn influenced their approaches to site selection.

When they relocated, leaders and non-leaders alike were motivated by the reduction of operating costs (100% versus 87%).

In opening new operations, leaders reported doing so not so much to reduce costs (47% to 61%), but to take advantage of unique skills in the new location (42% versus 10%). Non-leaders were more likely to say they opened a new facility to increase customer responsiveness (21% versus 39%).

Talent

Leaders had a better handle on their talent base than other companies. By having the right amount of resources and the right skills already in place when the recession hit, the cultural challenges that companies face internally during downturns and the subsequent recovery were less severe than those experienced by non-leaders. The survey results suggest that this capability allowed leaders to remain focused on driving success, even amid a chaotic external environment.

Leaders were less likely than non-leaders to cite the reduction of labor costs as having been a top manufacturing initiative during the recession (37% versus 59%); were far less likely to say they reduced their manufacturing workforce (59% versus 85%); and were less likely to have eliminated all temporary or full-time contractors (12% versus 46%).

Recovery leaders also were better at attracting and retaining the right skills. They were less likely to report a large skills gap in key areas, including management (7% versus 26%), operations (15% versus 22%), engineering (18% versus 26%) and IT (18% versus 26%).

Capital Investment

Time and time again, we at Accenture have witnessed the importance of investment during downturns in order to create a "leapfrog" effect when recovery happens. Our research confirmed this sentiment. Leaders were less likely to have deferred their capital investments (22% versus 41%) during the downturn. They were much less likely to have reduced manufacturing capacity (33% versus 78%); in fact, leaders were far more likely to have increased it (40.7% versus 3.8%).

Our research also demonstrated separation between leaders and non-leaders in terms of how they would seek to improve their companies in the future. Nowhere was this clearer than the degree of importance leaders intend to place on their operating models. Leaders were more likely to say that improving their business model is a very significant priority over the next two years (52% versus 37%). Leaders also indicated that their operating-model initiatives in the next 12 months are more likely to be both plant-centric and network-centric (61% versus 46%).

Put simply: In an era of persistent volatility, the recovery leaders rose to the challenges. They focused on their business and investment objectives, made wise decisions in their physical networks and better maintained the appropriate resource/talent mix in their enterprises. As a result, today they find themselves aligned with a new business environment in a way that is allowing them to sprint more confidently into the future.

Mark Pearson is the managing director of the Operations consulting group at Accenture, a global consulting, technology services and outsourcing company.

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