The manufacturing arena has never been more competitive. When it comes to technology, there are few manufacturers, suppliers, and distributors who aren’t at risk of being gobbled up by competitors. But investments in digital are not at the heart of why the manufacturing industry is perennially in defense mode. The forces at work that have shaken manufacturers to their core will not be solved by the latest software, but by taking a much deeper offensive position that’s at the root of turning businesses around today.
The threats to manufacturing include: The Technology.
The technology threat is all-encompassing. Led by Amazon, manufacturers are scrambling to put technology in place that will allow them to operate efficiently while meeting rising customer expectations. Amazon has set new standards in seamless purchasing and data extraction and, as if that wasn’t enough, 3D printing, robotics and additive manufacturing are keeping manufacturers on their toes. Many manufacturers are asking themselves how they can stay competitive on the technology forefront without either Amazon’s gargantuan resources or the nimbleness of startups. The Customer Experience.
The customer threat includes all those areas of friction around acquiring new and retaining existing customers. It can be a marketing threat, where manufacturers don’t take the effort to differentiate themselves, reach new audiences, or keep customers. It can also be a diversification threat, where manufacturers don’t anticipate changes in the market with new product offerings. Or, it can be a user experience threat, how in the age of supply chain RFID technology, comprehensive procurement software and seamless customer support, manufacturers can’t continue to meet customer expectations. Culture is the Answer.
In Good to Great, Jim Collin observes that “great” companies “confront the brutal reality” of their markets and situations. Management at these companies gather the facts, understand trends and are decisive about doing something. They aren’t afraid to test new approaches in the face of changing market conditions and will risk failure rather than suffer mediocrity or death by inaction.
In manufacturing, the culture threat is very real and at the heart of what’s eating manufacturers. The average employee entered the manufacturing industry when Amazon was still a small online bookstore. Meanwhile, millennials are slower to enter and less likely to stay in manufacturing precisely because the culture doesn’t reflect their digital sensibilities. Other misconceptions are hard at work too; for example, that investments in digital are synonymous with downsizing and job loss rather than the bigger truths of gained efficiencies and job security.
Finally, at the top, there is a tradition of the internal culture that resists change and focuses on maintaining the status quo. In this culture, the company is focused on short-term results even as their long-term growth is threatened. Compare that to Amazon, who had the wisdom first and the wherewithal second to focus on long-term growth at the expense of short-term profits, a framework that allows them to disrupt entire industries: think Amazon Fresh and Whole Foods, Amazon Wardrobe, private-label retail, Echo Look and, now, Amazon Business.
Manufacturers, of course, know they’re not exempt. Amazon Business is already a mainstay with 500 million-plus SKUs. Still, many manufacturers are ignoring the threat. At the risk of sacrificing long-term growth for short-term profits, many distributors have partnered up with Amazon, giving Amazon access to endless data on supply chains and product sales while adopting procurement processes that are fast becoming the new industry standard. What will those distributors do if Amazon decides to manufacture and sell their goods themselves?Digital Transformation.
There’s a name for the type of culture that manufacturers, distributors and retailers must put in place to combat the mistakes of the past and mitigate the threat of the future: digital transformation. Digital transformation is an actualization of the concept that Jim Collins put forth in Good to Great and steers manufacturers towards setting up the culture that will enable the technology and customer experience that they need to succeed.
It may not seem that culture is at the heart of what needs to change in manufacturing, but culture is the foundation of change and at once the most responsive and transformative of the threats. At Kloeckner, we committed ourselves to developing a culture that looked toward the future and embraced innovation This has led to the introduction of a number of innovation-driven programs with the ultimate goal of differentiating Kloeckner, including Part Manager and Kloeckner Direct. These investments have also attracted the talent we need to cement our momentum.
Both Part Manager and Kloeckner Direct are platforms that allow our customers to do business more efficiently. They introduce trackability and transparency while reducing manual upload and errors, giving our customers all of the benefits of ordering online like order integration and order history. Our customers used to spend half of the day taking orders – now they can automate the ordering of hundreds of parts and their specifications. And, the digital investment hasn’t reduced our workforce. In fact, it has freed up our team to spend more time on our customers, not less, cementing the relational component that’s long been a foundation of manufacturing.
Like Amazon, manufacturers need to take a long view on competition and profit by committing themselves to developing a culture that seeks out innovation and anticipates and undercuts threats. With a culture steered towards digital transformation and brand differentiation, manufacturers can focus on implementing technology and improving the customer experience. The result? Those manufacturers and distributors will be here to stay.
Bart Clifford is the COO for Kloeckner Metals Corporation, Roswell, Ga., one of the largest service center companies in North America. He here he has been employed for 17 years.