Imagine what it must have been like
when someone threw the first pass in football. Before that
everyone played football the same way, grinding out yardage
through toughness and brute force on the ground. It was no
coincidence that teeth were probably a rarity among old time
football players. The skill and finesse required by the
forward pass changed the game forever. Those that tried to
play the new game with the old rules got hammered.
Industry Week/Manufacturing Performance Institute’s
2003 Census of Manufacturing contained some unsettling
statistics on American Manufacturers. It rated almost 1000
companies last year across all industries on a variety of
areas including growth, employment, IT spending, cost of goods
as a percentage of sales, and revenue per employee. Good
information to know as you try to answer the ongoing question,
“How am I doing?” Not so good, according to Patricia Panchak,
editor of Industry Week, who says indications are that senior
management is failing to lead.
Some areas the survey
covered provide more detail on this. The median return on
invested capital is 13%, the average inventory turns is 8, the
most popular manufacturing initiative is lean (35%) closely
followed by TQM (14%), Cost of Sales (COS) averages 70% of
revenue, and labor averages 20% of the median COS.
But,
let’s dig a little deeper. 71% of the companies said they had
a manufacturing initiative (there’s no clue what the other 29%
are doing) yet the average reduction in COS as a result of
their initiatives was less than 7%. While the survey doesn’t
indicate how long it took to achieve this reduction, the
average revenue gain for 2003 was zero, with nearly 14% of the
respondents seeing their revenue drop by 11% or more. If you
assume that revenue drops were caused by price reductions, in
a number of cases savings from COS reductions didn’t offset
price decreases.
Digging still deeper, the survey
reveals the top two concerns of manufacturers are 1) pricing
pressure from customers and 2) foreign competition. Yet 81%
had made either no or little progress in supplier integration
and over 80% were no further along integrating with their
customers. Instead, over 73% of the companies felt the
government was doing an “abysmal or poor” job protecting
American manufacturing interests.
Folks, the game has
changed. American manufacturers no longer enjoy a quality
advantage (remember when “Made in China” had the same ring as
“Made in Japan” did 30 years ago.) American manufacturers no
longer have a clear productivity advantage; management or
technical skills advantage; or cost advantage. It’s not the
government’s fault, it’s ours. Domestic manufacturers’ only
advantage is proximity to the largest market in the
world.
In a lot of cases outsourcing makes sense, both
financially and strategically, as long as it allows a company
to leverage core differentiators. However, it’s proving too
easy for management to move jobs overseas to save on labor.
Meanwhile inventory turns remain low and the COS improvements
are barely keeping up with price decreases demanded by
customers. In some cases, outsourcing may even dilute a
business’s ability to use speed-to-market and customer
responsiveness as differentiators. When that happens, it opens
the door for foreign competition to take even more market
share.
Increasing ROIC and sustaining those increases
over the long term are primary challenges of senior
management. It can be done if customers and suppliers are
integrated to form a synchronized, competitive supply chain
focused on supplying customers what they want, when they want
it. Increasing the speed of transactions and reducing the
amount of inventory can have a great impact on ROIC too. Using
a synchronized supply chain might mean being able to do it at
a price the customer is willing to pay and still make a
profit.
It’s a new game. Play with new rules: A fully
integrated supply chain with synchronized Lean processes.
You’ll be a winner.
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