Finding out what your customers need and then giving it to them is as fundamental as apple pie. But it doesn't always come easily to manufacturers. From the early years of the industrial revolution, manufacturers have concentrated on doing what they do best -- making stuff. Others -- retailers and other channel partners -- traditionally deal with the customers' ever-changing hearts.
Today, engaging with buyers of the components you make as well as the end user of the ultimate product is a critical survival skill for all progressive manufacturers. It's one that manufacturers would do well to perfect in 2005.
"Every company in every industry has to be more responsive to customer needs," says John Moore, vice president, ARC Advisory Group (Dedham, MA). Manufacturers are now experiencing the pitfalls associated with decades of dealing with customers at arm's length, Moore adds.
Want proof? Just consider the imbalance between production and demand. Nearly every manufacturing sector has excess capacity. "Equipment utilization in the chemical industry is 75%. The automotive industry can produce 20 million more cars worldwide than can be consumed today," says Moore.
This situation at least marks an improvement over the not-so-distant days when finished product sat unused on warehouse shelves. High-tech manufacturers will not soon forget the excess inventory they were saddled with during the crushing economic downturn of 2001. This was a direct result of relying on distributors' over-optimistic forecasts as opposed to hearing directly from customers.
Another troubling development: As customers, businesses are getting just as pushy as consumers. To the age-old customer mantra of more, better, faster, add cheaper and unique. It is no longer enough to offer a customer a pre-set menu of products and features. Increasingly, business customers are demanding customized goods supported by services.
If you automatically assume the answer is customer relationship management (CRM) and see dollar signs swimming before your eyes when you hear about the need to engage with customers, take heed. Becoming customer-centric isn't just about software. It is about starting a conversation with your customers to get a window on their world.
Customization is one way to hedge against relentless price pressures while satisfying customers at the same time. "Pricing transparency pervades everything. The price games you used to play are becoming ... irrelevant," says Moore. "You've got to have another play. Loyalty doesn't exist much anymore." Customization can help provide a unique experience that will keep customers coming back.
The rub, of course, is that you have to provide an ever-expanding universe of choice to your customer but, at the same time, meet their exacting demands. "The challenge is to respond to a high volume of unique requests with the same speed and efficiency they have for standard product orders," says David Vredenburgh, CEO and president of RuleStream Corp. (Wakefield, MA), a vendor of engineer-to-order software products.
Thanks to their higher margins, custom products keep many small to mid-size manufacturers in business, he adds. Many companies pre-engineer as many potential custom products as possible to hedge against the possibility of getting flooded with custom orders. "They say, 'If we had to create all those engineering drawings from scratch, we would have to add three weeks to every order. That wouldn't be acceptable,'" says Vredenburgh.
But pre-engineering has many pitfalls. Mistakes can get designed into products over and over again. And the pre-engineered drawings are static. To change a supplier could mean going in and changing each drawing by hand.
RuleStream's design automation application lets manufacturers quickly generate quotes and drawings for engineer-to-order products. The customer enters business rules relating to raw materials and suppliers and can then generate engineering drawings for a product it had never previously envisioned. "You can create all the new drawings in less time than it takes to copy the old ones," says Vredenburgh.
Such responsiveness to their individual needs delights customers, helping manufacturers win projects. "You can go back to the customer and say, 'I don't need 30 days to get you a quote. If you place your order, we will be cutting metal within 48 hours,'" says Vredenburgh. The value proposition can be potent.
The Babcock & Wilcox Co. (Barberton, OH), a provider of power generation equipment and services, implemented RuleStream to automate boiler combustion system design in 2002. Now, it has just begun to automate the quoting and design of wet scrubber towers, enormous and complex pieces of machinery that remove sulfur dioxide from the gas that emanates from a combustion process. Used by utilities to help comply with federal and state environmental regulations, these hulking towers are so large they cannot be shipped; they must be assembled on site, and every component of the scrubber is customized. As the wet scrubber ranges in price from several million to tens of millions of dollars, it is understandable that the sales cycle is lengthy.
Kip Alexander, manager of engineering systems for B&W, hopes that RuleStream will help it shave time off the multi-month quoting process. "We're hoping to take several weeks out of the process. That will allow us to spend a lot more time with our supply chain [partners] to come up with better ways of doing things," says Alexander. "We have the potential to give our customers a better price, and we hope to help our own bottom line, too."
Can-do Attitude
Besides customizing products for demanding customers, progressive manufacturers are increasingly reengineering processes around customer demand. Take, for example, Rexam PLC (London). The world's largest maker of aluminum cans, $5 billion Rexam is in a commodity business for sure. But rather than get beaten up on price everyday , the U.S.-based can division of the consumer packaging maker (Rexam Beverage Can Americas, Chicago) recently went a different route. By intertwining its own business processes and systems with its customers', it has made itself a vital -- and non-expendable -- part of their supply chains. And Rexam Americas did this without implementing a single license of CRM software.
A heavy user of software from SAP America (Walldorf, Germany), Rexam Americas was in the midst of a major internal e-business initiative in 2001 when CIO Paul Martin realized that his customers could benefit from the effort just as much as Rexam. Unlike many other manufacturing sectors, the consumer packaging industry still operated to a great degree using manual business processes. No industry-wide portals had appeared on the scene during the boom times. Customers largely faxed or e-mailed their orders.
To get the most benefit from e-enabling its order entry and order management processes, Rexam Americas needed to persuade its customers to change the way they interacted with it. By integrating customers' systems with its own manufacturing systems and sharing the associated cost savings and productivity gains, Martin believed, Rexam could begin to insulate itself from customer defection.
"We have good competitors out there. Our competitors can make the same product we can, maybe at a lower cost. We wanted to provide value-added services to our customers such that the switching cost of changing suppliers would be too great," says Martin. Martin embarked on a year-long road show, meeting with customers and demonstrating the project's value proposition. He offered three different options for connecting electronically with Rexam: ERP-to-ERP connectivity; electronic data interchange (EDI); or a portal based on SAP's NetWeaver Enterprise portal.
Martin found that most top customers (companies with revenues in excess of $10 billion) were reluctant to do the integration necessary for the ERP-to-ERP connection. EDI was not a popular choice either, as companies viewed it as too expensive or a throwback to older collaboration technology. The majority of customers opted to interact with Rexam via the portal where they can not only place and track orders but also update forecasts and take care of accounting settlements, among other things.
But rather than just generating a generic site, Martin elected to deploy customized portals that reflected each customer's unique business processes. "We were able to personalize it for each location. We made it very easy to use by creating defaults that took into account the way that customer does things," says Martin.
For example, the portal reflects the standard number of cans per palette used by each customer, as well as its typical schedules and delivery windows. "All they have to do is complete the P.O. number and select the label they want to go on the can," says Martin. Rexam provided each user three hours of orientation -- a Web browser was the only infrastructure the customer had to provide.
By becoming closer to its customers, Rexam Americas has reduced its average order handling time by at least 75% (in some cases, much more than that). At the end of 2003, nearly 99.7% of accounts were current. And customers have embraced the system, ordering 19.5 billion cans (out of a total 23 billion made) via the Rexam portals. Martin got the ultimate compliment recently: Rexam CEO Stefan Angwald reported that at a meeting with suppliers, Coca-Cola pointed to Rexam as an example of a supplier that has added value to its business thanks to the portal. Not surprisingly, Martin was tapped shortly thereafter to take the effort global. He was named CIO of parent company Rexam LLC and is now expanding the program to the company's other businesses and operations.
Reach Through the Supply Chain
Pella Corp. (Pella, IA) is among a growing group of manufacturers that has begun to engage with the ultimate end users of its product. The company has long sold its windows and doors through retailers such as Lowe's and Home Depot. But it recently implemented the Oracle Configurator in conjunction with the Oracle Bill of Materials system from Oracle Corp. (Redwood Shores, CA). Now consumers, builders and architects can log on to a Web site and configure their own custom products. Their requirements flow directly into Pella's manufacturing system, and the custom products are produced in about five to seven days.
"It's about providing the customer more choices," says Manish Modi, senior director of manufacturing for Oracle. Anything you can do to meet customers' needs -- for speed, customized features, price -- will inherently bring you closer to them.
As an old-line manufacturer -- its roots extend back to 1899 -- Rexam has heeded the call to engage the market. "We have definitely gotten closer to our customers. We understand their operations," says Martin. As the man who will extend the effort out to Rexam's global operations, starting with its plastic bottle business, Martin faces a new challenge: talking to his customers' customers, the Wal-Marts and Tescos of the world. "We have a chance to add value to them, too," he says.