Cost reduction is not the only pressure being placed squarely on manufacturers’ shoulders today. Order lead times are equally under attack and becoming more critical to competitive differentiation. For this reason, manufacturers must re-evaluate their strategies, processes and supporting IT solutions to compete more effectively and become more responsive to their customers.
That’s the news from Jane Biddle, vice president of manufacturing research for Boston-based Aberdeen Group, Inc., and The Mid-Size Manufacturer Order-to-Delivery Benchmark Report, a research study performed earlier this year across a number of manufacturing sectors, including automotive, high-tech, industrial equipment and consumer products.
Clearly, mid-size manufacturers—defined for the purposes of the report as manufacturing enterprises with revenues less than $1 billion—face many challenges today. “Most are in the middle of a tug of war,” says Biddle, “with suppliers on one side and customers on the other. Customers are asking for shorter lead times and often next-day delivery. Many expect price concessions and reductions and tailored products on very little notice. On the demand side, the farther away products are being sourced, the longer that they’ll take to arrive and the more unexpected costs can mount up, from local transportation costs to service and import fees.
“The manufacturer has to deal with all this while still making a profit,” she continues. “So, he’s looking for ways to drive costs out of everything from manufacturing to the supply chain, and through the order-to-delivery process, to improve productivity across the board.”
Change is . . . Hard.
According to the Aberdeen report, 62 percent of the manufacturers who participated in the benchmarking study are wary about the cost to change. While there are costs associated with changing, “the cost not to change may be much higher to the business,” Biddle cautions.
“This list may actually be causing some companies not to make changes, but these reasons are not compelling enough to hold better companies back,” Biddle relates.
“If you take a look at the delivery process,” she says, “it couldn’t be any simpler. First, a customer order is taken, generally with a delivery date, because you want to commit to the customer, but that means you have to know what is going on in manufacturing so that you can actually be sure that the order can be shipped on time. If the product is not in stock, the order goes to manufacturing for production, and at that point, can trigger requirements directly back to the supplier for parts or packaging materials. After production, the order is sent to the warehouse for finishing services, packaging or light assembly, or is simply placed together with other shipments and delivered. Transportation of the order will most likely be on a truck or a vessel, but of course, it is an assumption that the transportation provider actually knows the shipment is coming. And finally, the order is received by the customer, maybe in two days, maybe in two weeks, or maybe in two months, depending upon how tightly linked these processes are.”
As simple as the process sounds, some companies, those deemed best in class by the Aberdeen study, have found ways to improve upon it. “The order-to-delivery process for best-in-class companies is integrated from the time the order is taken until the time it is shipped,” Biddle describes. “These companies stay focused on the customer. In fact, many leaders have reorganized their organizations into customer-focused teams to see the order all the way through the process.”
What’s Your Manufacturing Strategy?
“The manufacturing strategy plays a major role in this overall process,” Biddle relates. “Take rate-based, or made-to-stock manufacturing. Schedules to build to forecast are fine, as long as the forecast is fine. Then there’s made-to-order, which means that manufacturing doesn’t start until the order comes in, which may be o.k. if the production cycle is short.”
According to the benchmark report, best-in-class manufacturers are bringing products to a semi-finished state and then doing final processing or assembly when the customer order arrives. Some 62 percent of the laggards meanwhile still build to stock. “These companies have a tendency to build up too much unneeded inventory, which is expensive, and then when there is an urgent order, they often find it difficult to fit in to an already over-burdened manufacturing schedule,” Biddle notes. “The problem with not being assemble-to-order today is that it can place a company at an immediate disadvantage as soon as its competitors break through this barrier.”
Manufacturers can keep the order to delivery process from being a number of serialized hand-offs by integrating key functions and systems. “We asked the survey respondents what their integration priorities were, and first on the list for all companies were order management and customer service,” Biddle says. “These departments need individual visibility and information so that they can actually make informed decisions when they have the customer on the phone. Second, they are looking to integrate manufacturing, and third, purchasing and supplier management.”
Being Best-in-Class
What does it take to be a best-in-class manufacturer when it comes to the order-to-delivery process? “From an organizational perspective, the best in class have reorganized into customer-focused teams that actually take responsibility for an order from the beginning to the end, while the laggards are still organized into departments,” Biddle says. “In terms of knowledge, laggards have access to information in their departments, but not much else, versus the best in class, who have visibility across the entire order-to-delivery process.
“The best in class are automated and integrated and they are using real-time performance monitoring to track orders and to set triggers if something unexpected happens. This is versus the laggards who are confined to after-the-fact reporting.”
If your company is among the laggards, Biddle says, “The first step is really to get your manufacturing house in order. If you’re not doing assemble-to-order today you might want to consider an assemble-to-order strategy at least for some of your product. Second, find the big three to integrate. What do I mean by this? Rather than attempt to catapult the entire order-to-delivery process, start by integrating order management with manufacturing and either warehousing or purchasing. Organize for success. Traditional departmental structures actually get in the way of successful order-to-delivery processes, so consider forming customer-focused teams.”
As with any changes in process, be certain that your company, and its employees, will be able to execute. If new processes require substantial discipline, and your employees have never had to be disciplined, process changes should be carefully evaluated before implementation.
