Johannesburg, 15 May 2018
What keeps customers of manufacturing happy? Visibility and time, says Lance Zikalala, Managing Director at nCoded Solutions:
"Your customer at any point in time wants the ability to have visibility of what is in your value chain, in order for them to react according to what your value chain looks like. If I can see that you are late, but I can see well in advance, I am able to react accordingly, because now I can see you are two weeks late and can plan around that. But if I don't know and you keep coming with excuses, the danger is not that I'll take the order away. I'm upset, but if I take it away I will wait even longer. But you won't get another order."
This has emboldened the practice of strategic customer collaboration. It has been a tectonic shift in how manufacturers manage their downstream and upstream relationships. Even though a level of customer collaboration has existed in some manufacturing practices, this deeper implementation of the concept is proving revolutionary, yet tough to implement. This is in part because of how manufacturing used to deal with customer relationships: by creating a buffer.
No more stockpiles
Scheduling has been a challenge for manufacturing since its start. But in the past, manufacturers pulled a trick from up their sleeves. They would stockpile items in warehouses and move those as and when demand came in.
This strategy had a second purpose: to plaster over inefficiencies in the supply chain. For example, the wrong raw material might cause a problem in the production process. While the consequences of this mistake are being dealt with, the stockpile in the warehouses act as a buffer, keeping any ripple effect away from customers. Doing so is important, because manufacturing is often looked to for more efficiencies, not rising costs.
But the stockpiling strategy doesn't force the manufacturer to address supply chain issues. Nor does it aid with helping to refine and automate processes. Stockpiling is a practice from days when the focus was placed on the manufacturing and not the broader supply chain. Today this is no longer the case:
"In the eighties, all you needed to concentrate on was to make sure you had good standard operating procedures. Now, because your supplier is supplying you with the material or whatever component you need, you have to ensure they are up to standard, because whatever you buy affects this product. That's the evolution in the market."
The new competition
Even auditing for ISO standards expect this level of diligence. Stockpiling in warehouses is also a cost to company and attracts taxes: it's an area crying out for efficiencies.
The practice of strategic customer collaboration gained serious momentum around 2008, when the global financial environment forced changes on to value chains. According to the Grocery Manufacturers' Association 2010 report Emerging from the Storm, manufacturers that could implement new systems effectively reduced stock holding by 8%, yet increased sales by 5%.
Adopting strategic collaboration also creates new competitive gains. The truth today is that manufacturing processes aren't all that different between competitors. For an edge, they need that flexibility around price and visibility to keep the customer informed:
"All manufacturers are providing the same solution. What is important is being able to say: 'I give it to you at a cheaper price and sooner'. But I must reduce the cost of my supply chain and manufacturing quicker than my competition. I have to look at my efficiencies. If I keep too much stock, I'm unable to compete on price. My competitor can go into a price war with me, because they can provide it cheaper than I can."
Yet establishing such an environment has not been easy. Of the companies surveyed for the GMA report, only 20% saw serious gains from their customer collaboration efforts. But on average they had 11% more sales than other collaboration efforts and even more so over non-collaborating competitors. So it's worth exploring.
Collaboration isn't easy. It needs the benefit of advanced planning solutions (APS) and a firm understanding about what the collaboration can yield. Sometimes this means having common performance goals. To really collaborate with manufacturing customers, there needs to be more than just visibility. But it does start with that first step: know what is happening and make processes agile. A manufacturer that is able to inform its customers helps their own plans and gains their confidence. The next step is a common understanding and then truly strategic collaboration.
Share