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the analyst says North American Manufacturing in the 21st Century: You Know It Ain't Easy, You Know How Hard It Can Be
The global market facing many North American small and mid-sized manufacturers, especially those of mature products, is one of fierce price competition, difficulties in creating product differentiation, and loss of insight into market drivers due to the absence of direct interaction with customers. What will be the fate of small and mid-sized American manufacturers in the 21st century? These manufacturers, regardless of business model — engineer to order or manufacture to stock — or products — diesel engines or industrial fans, objects or materials — have the same overwhelming concern: cost control in the face of competition with low-wage countries. The temptation for North American companies is to abandon their strategic goals, like product excellence, in favor of tactical maneuvers such as manufacturing cost-cuts. However, these approaches will not win in the long run against global competition. All you end up with is a losing battle of costs, and the sacrifice of quality and innovation. What answer could one give to a manager in a small or mid-sized manufacturing company who has come to believe that superior product quality will not protect his company from fierce cost competition against cheap off-shore labor? Or to the frustrated product development engineer who complains that because of the need to cut costs his company has no staff or resources to devote to innovation? Quality Most manufacturers would proclaim product quality as extremely important to the company's success, and yet they also recognize the necessity of balancing quality and cost. At the same time, they feel deeply frustrated by any product deficiencies arising from the sacrifice of quality to cost. Loss of quality can mean loss of business, and companies that do a lot of repeat business with few customers risk losing their preferred vendor status. If a certain amount of degradation in quality due to cost control is unavoidable, the key question becomes: what is the customer's threshold of tolerance for product defects? Once you know that, you have two options: internal customer support or field service. Either way, customer satisfaction will be contingent upon an ongoing high level of confidence in the quick and complete correction of problems. Direct sales channels and internal customer support have always provided feedback to the manufacturer about customer demands and market drivers. However, companies that outsource their distribution and support lose this. A manufacturer without access to timely information about the product's performance has little to go on to assure or improve its quality and hence its competitiveness. Innovation What role does innovation play in the manufacturing of mature products with stable technology? You may think that innovation refers simply to product development, that if there is no requirement for novelty to sustain demand, innovation plays little if any role in staying competitive. However, the realm of innovation actually is much broader than this. Innovation can mean the invention of new products; the improvement of existing products in function, form, or substance; and new approaches in the manufacturing process itself. Even if there is little way to differentiate a mature product from that of the competition, innovative solutions to problems of efficiency or customer support will strengthen your competitive edge. Innovation comes from individuals, not armies of cheap labor. Cost Manufacturing costs are, of course, the bottom line — not the whole story, but the foundation for everything else a company can do to gain competitive advantage. Cutting costs by abandoning quality and innovation is suicidal for a company. The key to cost control without self-inflicted wounds is this: maximize efficiency and monitor quality in the manufacturing process. Manage that process in a way that integrates control of and feedback from all stages of that process. Sources of strength What can small and mid-sized North American manufacturing companies do to improve their prospects? If we accept the current mantra of abandoning all business activities that don't play to the core strength of the company, and the current tactic of sacrificing quality and innovation to control cost, many of them should close their doors and hand their business over to their Asia-Pacific competitors. Such abdication would ignore the real strength of small manufacturing businesses, which has always made them the seedbed of innovation and growth: their people. Manufacturing companies need to become places where employees can bring to bear their training, their experience, and their creativity. To succeed at this, companies must enable information sharing, collaboration, and knowledge management. Information sharing Information sharing will help companies tear down the walls that isolate functional silos such as product development, purchasing, manufacturing, and sales from one another, and open up product and operational information to a much wider group of people. This information must, however, be presented in the right form and at the right time, depending upon the needs of the user. For example, sales and marketing probably would never need complete 3D CAD files on a product, but could use lightweight geometry visuals as part of sales information and marketing messages. Sales would never need the entire Gantt chart for shop floor planning. Sufficient for the information they want to send their customers would be a simple report on when the product will be ready for shipment. Collaboration Team collaboration is another component of management strategy to empower employees for innovation. Collaboration can be important not only within the company, but also with external teams, such as suppliers and business partners. For example, sales, marketing, designers, and developers often need to collaborate on product specifications or during product launches. In the past, the many technical hurdles hindered most attempts at such collaboration: Incompatible file formats, file security and access control, etc. Now, however, cost-effective and easily managed systems for team collaboration are available even to the smaller enterprises. Knowledge management Collective knowledge is a company's third source of strength: its past technical and operational expertise, the training, experience, and creative capabilities of its employees. Traditionally, the locations of this wealth of knowledge made it impossible or at least difficult to leverage it into real benefits for the company. Stored in individual brains, notebooks, patent applications, procedural lore, and unconnected computer files, there was no way to access or disseminate this treasure of ideas. Now, however, systems are available for gathering, integrating, providing access to, and presenting all of this accumulated knowledge in ways to assist managing change, making decisions, and tracking costs and resources. Conclusion Manufacturers cannot survive in this business environment simply by trying to win the battle against cost. Although cost control is crucial, quality and innovation remain necessary to sustain a competitive edge. The strategy to achieve this rests upon doing what western manufacturers have always done better than cheap labor competition: innovation, invention, and creative solutions. These abilities emerge from the capabilities of individuals. The key to achieving these goals — cost-control, quality assurance, and enhanced innovation — is to provide the appropriate tools so that individuals can use their training and experience to ensure the success of their company.
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By Gisela Wilson, Director, Product Life-Cycle Management, IDC