Five ways to compete globally without focusing on price

Build your supply chain and your relationship with customers.


The one constant for materials manufacturers since the formalization of the industry has been a constant downward pressure on prices. Every year, in every material, manufacturers and plant operators are expected to produce a product that's as good or better than the year before, while reducing end-user prices. Some years, this is obviously impossible; we are, after all, subject to the whims of the broader commodities market.

For the last several decades, the industry has responded with a fairly predictable mix of value-added material complexity and reduced internal costs through increased efficiency and optimization. For the former, manufacturers have taken on R&D costs to create patented and unique formulations, and buzzword-laden sales brochures to try to find product differentiation in a crowded marketplace. While this has resulted in some great new materials, it also presents a large upfront investment with little guarantee that the final product will boost cost significantly. The latter approach, efficiency and optimization, has largely been driven by a combination of plant equipment maintenance and innovation and a reliance on management to consistently improve systems and processes. Whether through optimization philosophies or more basic cost-cutting measures, plants have seen fat trimmed and performance streamlined over the last few decades.

Ultimately, both of these approaches have had mixed results. Optimization has increased, and value-adds have pushed revenues up, but not consistently and not without sacrifices. More importantly, both approaches are tied inexorably to an old way of thinking: competition is about price and nothing else. In an age of globalism where emerging markets can do the same things as your stateside plants for a fraction of the cost, it's an outdated philosophy that is simply not sustainable.

The solution, then, is to move away from final price as the source of differentiation. As radical as it might sound, manufacturers need to stop treating materials like commodities, and to start treating products like solutions. The difference? By focusing your supply chain into a solution provider, you differentiate your company from the competition. You begin to understand where your customers' pain points are, and addressing them. You stop competing on price, and begin competing on all of the ways that you can make life easier for the people and companies buying your products. That kind of value-add is invaluable to moving the top and bottom lines, and builds a true competitive edge.

In sitting down and talking with supply chain and plant managers, it became obvious that addressing a small handful of long-standing problems in the manufacturing supply chain holds the key to maintaining competitiveness in a global materials manufacturing sector. The five major problems identified in this research should be familiar to anyone who has to manage, or work with, a large manufacturing supply chain:

  • Lead times
  • Forecasting
  • Customer Intimacy
  • Communication and response times
  • Competing software standards

It's only in recent years that companies in intermediate steps in the supply chain—the manufacturers and processors—have embraced the idea that there's more to selling materials than low pricing. When asked what the last major innovation in materials sales and production was, many of the company executives we spoke to couldn't remember anything more recent than the advent of digital spreadsheets or online catalogs. The idea of commoditization has largely frozen progress in the industry, leaving it far behind direct to consumer products.

Take forecasting, for example. In retail, forecasting has been shifted from primarily managing supply chains to generating top line growth by identifying new products and services that will produce new revenue. Instead of focusing purely on optimizing existing revenue streams, top retailers are digging deeper into the data to find money in places it hasn't been found before. Unlike retail, the manufacturing sector has been reticent to fully embrace the technologies that have catapulted agile retailers to the top. We've found ourselves trapped in a price war that no one can win. Looking back to retail, we can see models of where we are and where we need to go. Consider two department stores that sell identical or nearly identical products. These days, it's pretty rare to see an all out price war break out.

Instead, those department stores offer additional services to entice loyal customers. Sometimes it's as simple as a favorable return policy, other times it's comprehensive customer loyalty and reward programs. Either way, the retailers win when they can downplay price and still lure customers in. Across price categories, the winning players are the ones that can transform the shopping experience into a solution to problems their customers may not have even realized they had.

Technology, and the on-demand mindset it produces, has already shown itself capable of disrupting seemingly safe industries. It will do the same to materials manufacturing companies that don't fully embrace the future. While it's a safe bet that demand for lower prices will never stop being a factor, it's just as safe a bet that the leading materials manufacturers of the future will get to be leaders by embracing a solutions-oriented business model.

Companies that can't shake off the traditional commodities mindset and embrace the extra value they can offer to customers, will increasingly be marginalized and see shrinking demand and shrinking profits. Now, more than ever, the old maxim holds true: if you're not evolving, you're falling behind.

Nicole Snyder is the brand and marketing manager for JW Aluminum, a U.S.-based supplier of rolled aluminum products.

No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
Safer human-robot collaboration; 2017 Maintenance Survey; Digital Training; Converting your lighting system
IIoT grows up; Six ways to lower IIoT costs; Six mobile safety strategies; 2017 Salary Survey
2016 Top Plant; 2016 Best Practices on manufacturing progress, efficiency, safety
Mobility as the means to offshore innovation; Preventing another Deepwater Horizon; ROVs as subsea robots; SCADA and the radio spectrum
Future of oil and gas projects; Reservoir models; The importance of SCADA to oil and gas
Big Data and bigger solutions; Tablet technologies; SCADA developments
Automation modernization; Predictive analytics enable open connectivity; System integration success; Automation turns home brewer into brew house
Commissioning electrical systems; Designing emergency and standby generator systems; Paralleling switchgear generator systems
Natural gas for tomorrow's fleets; Colleges and universities moving to CHP; Power and steam and frozen foods

Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Motion control advances and solutions can help with machine control, automated control on assembly lines, integration of robotics and automation, and machine safety.
Compressed air plays a vital role in most manufacturing plants, and availability of compressed air is crucial to a wide variety of operations.
Maintenance Manager; California Oils Corp.
Associate, Electrical Engineering; Wood Harbinger
Control Systems Engineer; Robert Bosch Corp.
click me