Roughly a decade ago, Pella Corp. (Pella, IA), a privately held maker of windows and doors, had fallen into the trap of assuming its customers would buy whatever it made. "We got caught up in our brand, got caught up in the belief that our windows would sell themselves," says Rick Hassman, director of Oracle applications for Pella, which posts annual sales of $1.1 billion, according to market researcher Hoover's. With sales then on the decline, company management soon put a stop to that line of thinking, launching an aggressive initiative of continuous improvement that continues today.
The goal: Give customers more options in price, color, and size and let their desires dictate the manufacturing process. Toward that end, Pella installed a wide range of Oracle Corp. enterprise software applications (including order process management, customer relationship management, and an online product configurator) aimed at transforming the way Pella interacted with customers.
Today, Pella no longer makes product to hold in inventory, instead building everything to customers' specifications. "We have no finished goods stock. We build everything to order," Hassman says.
But that doesn't mean the process can slow down. Once an order comes in, the Oracle-based advanced planning and scheduling application determines which of Pella's 12 U.S.-based facilities should manufacture the item for maximum efficiency. That helps hold down costs and speeds product into the waiting hands of customers ranging from Lowe's home improvement centers to the 80 mostly independently owned Pella Windows stores across the United States.
Pella's journey from product-centricity to customer-centricity typifies what all product manufacturers must go through sooner or later, experts say. "Lots of manufacturers used to believe if they had a better design they would beat their competition. Over the last few years, manufacturers have begun to realize that product advantage is very difficult to sustain," says Jim Shepherd, senior vice president at AMR Research (Boston).
Whether or not you want to admit it, it's all too easy for your competitors to improve upon your most innovative designs, to match your quality, and to beat your price. What can't be duplicated nearly so easily is the unique relationship you have with your customers. "The real value is the customer relationship. As long as you sustain that, you'll succeed," Shepherd says.
Easier said than done. With price pressures being what they are, woe to any manufacturer that would dare ignore cost. But keep going down the commodity path and there's no telling where it will end. A much better option is to make yourself indispensable to your customers so they come to depend on you for service, for innovation, for the special way you -- and only you -- fulfill their needs. In order to do that, experts say, it's critical to make yourself easier to do business with, understand who your best customers are, and cater most to them.
Focus on Their Supply Chains
Increasingly, endearing yourself to customers means becoming an asset to their supply chains. "You have to actively work with them to see how to help them improve their supply chain," Shepherd says. That means understanding what each customer values most. For one customer, price may be paramount. For another, lightning-fast shipping. For yet another, it's being present in all the geographies in which the company operates so the customer doesn't have to have multiple suppliers for different regions.
Most companies are trying to reduce the number of suppliers they work with -- the trick is to avoid being the one they decide to replace. That assumes, however, that the customer is worth keeping.
Manufacturers shouldn't just strive to provide the best customer service to each and every customer. They should strive to provide the best customer service to their best, most profitable customers. But most do not have any idea which customers are the most valuable.
"Manufacturers tend to think there is no such thing as a bad customer. But not all customers are equal. You might be better off with fewer customers but more of the right customers," Shepherd says. One customer mastery best practice is to analyze data to figure out the cost to serve each customer. "Most manufacturers can't even figure out the margins on a product, much less the margins on a product for a particular customer. It is still fairly rare for manufacturers to have the kind of business intelligence you need to do this analysis," Shepherd says.
Toward Customer Intelligence
Much of the raw data needed to become customer-centric originates on the production floor, experts say.
"I need to know which specific customer order is being worked on at what time. I need to know whether I will miss the order or not," says Sudipta Bhattacharya, vice president of manufacturing applications for SAP Labs LLC (Dallas, TX), a unit of SAP Americas Inc. But being an "adaptive manufacturer," in SAP's parlance, goes beyond the four walls of the organization and also requires the ability to tap into supplier data. "Do I have suppliers that will ship the raw material on time or not? Are my suppliers' suppliers able to meet this special order?" Bhattacharya says.
One critical link in the chain needed to generate and act on that kind of information is integration between ERP and manufacturing execution systems (MES). "It's the last mile of data integration," Bhattacharya says. SAP acquired Lighthammer Inc. last June in an attempt to beef up its ERP-to-MES integration capabilities. "We can connect MES and shop floor data in an average of four to six weeks. This delivers actionable intelligence from the ERP system to the shop floor supervisors so they can manage exceptions" -- like a rush order from a high-priority customer. Management by exception is a key element of customer mastery.
Besides keeping your best customers happy, becoming customer-centric also presents opportunities for increasing revenues. Some manufacturers, for example, are allowing customers that might not otherwise merit red-carpet attention to upgrade their treatment -- for a price. Chip maker Silterra Malaysia Sdn. Bhd. (Kulim, Malaysia), for example, offers a Web portal called MyFab.com that runs on Oracle technology. On the portal, Silterra customers can make changes to the production schedule of their orders, subject to a price increase.
Silterra customers also can see work-in-progress information pertaining to their orders and determine whether it is worthwhile to pay for priority treatment, according to Bob Reary, director of supply chain product strategy for Oracle (Redwood Shores, CA). Providing more options for your customers -- with the different price considerations spelled out -- is another way to better serve their needs.
And that breeds loyalty. "Loyalty is always driven by the service levels you can provide to your customer," Bhattacharya says. Just be sure the metrics attached to those service levels are important to your customers, not just to you.