One of the biggest challenges for materials manufacturers is the constant downward pressure on prices. Year after year, manufacturers are pushed to produce materials that are as good as or better than the prior year, while reducing prices for end-consumers. To say this puts the industry in a difficult position is an understatement.
Optimization has increased and value-adds have pushed revenues up, but not consistently and not without sacrifices. Unfortunately, many materials manufacturers are still tied to the traditional way of thinking: competition is about price. In a global economy where emerging markets can do the same things as domestic plants for a lower cost, a strict price focus can't set you up for success.
As a manufacturer of rolled aluminum products, JW Aluminum decided to sit down with some of our internal supply chain staff, as well as some customers, to find out what their biggest supply chain issues are. During these talks, it became increasingly obvious that a few long-standing problems in the supply chain held the key to finding competitive advantages in a global marketplace. Moreover, it became increasingly obvious that a smart supply chain could make many of these problems disappear.
With increasing ability to collect real-time data, the supply chain for materials manufacturers is ripe for a Big Data revolution. When we asked company executives what was the last real supply chain innovation they remembered in their career, most couldn't think of anything more than digital spreadsheets and online catalogs. The idea that materials are largely commoditized has halted innovation and left the industry far behind consumer companies. While data-driven infrastructure has helped other sectors surge ahead, manufacturers are only now beginning to unlock some of this competitive potential.
These five major issues should be familiar to anyone who works with or manages a large manufacturing supply chain:
- Lead times
- Customer intimacy
- Communication and response times
- Competing software standards.
You don't have to look further than the retail industry for an example. Improvements in the field have pushed forecasting into something that was used primarily to manage the supply chain into a process that generates top-line growth. Retailers have started digging deep into their data to find opportunities for optimizing existing revenue streams, and identifying new products and services to create new ones.
The manufacturing industry, however, has been slow to adopt the technologies that have catapulted the retail industry into the 21st century. Often times, this can be as simple as improving communication channels between ourselves and our customers. A more intelligent communications process can do a lot to address some of the common concerns that interviewees addressed. It can shorten lead times by ensuring that orders, and changes to those orders, are processed and responded to in a timely manner. It can build customer intimacy, which in turn can help link up your customers’ forecasting tools with yours and allow you to better anticipate demand and market change.
Forecasting deserves a special mention as well. As the ability to gather more information from every step in the manufacturing process increases, our ability to build forecast models has also increased. So why is it that only the largest companies are taking advantage of this unprecedented ability to prognosticate the needs of our markets? For a long time, it was cost—building reliable and accurate models took a lot of expensive processing power and know-how. That answer—one we heard often from our interviewees—seemed to indicate that many supply chain professionals in the manufacturing space weren’t up to date on innovations like on-demand cloud computing services, which dramatically reduce up-front costs for advanced forecasting, and ready-built modeling platforms that eliminate at least some of the need to hire expensive consultants and engineers.
Of course, communications and forecasting can only be built out to their full potential, which is where the issue of competing software standards raises its head. Between out-of-the-box platforms and custom solutions, there are hundreds of tools managing supply chains at every level. Many of them can’t talk to each other at all. Some can, but only with expensive custom-built software. This lack of automatic communication can hamstring every other information technology initiative in a company, and needs to be addressed both on an individual company level and on an industry level. The company that can standardize informational inputs and outputs across its entire supply chain will reap a strong advantage over companies that rely on a hodge-podge system between customers and departments.
Technology has already proven its ability to disrupt seemingly safe industries. And it will do the same to the manufacturing companies that don’t embrace the future. And while it’s safe to say that demand for lower prices will never entirely stop being a factor, it's also just as likely that the leading materials manufacturers of tomorrow will get there by focusing on creating a solutions-oriented business model. Companies that can't shake off the traditional commodities mindset and embrace the extra value they can offer to customers will find themselves falling behind.
Nicole Snyder is the brand and marketing manager for JW Aluminum, a supplier of rolled aluminum products based near Charleston, S.C. Previously working in the B2C space, Snyder is now focused on working with the JW Aluminum team to find ways to improve and innovate in the manufacturing industry.