Why Manufacturing Industries Face Special Challenges in Services Performance

10 Strategies to leapfrog over your competition SSON has been tracking the manufacturing industry’s evolution in terms of the most effective service delivery strategies, and has identified core drivers that are propelling leading companies to the front of their respective peer groups. These drivers include shifting from Shared Services to Global Business Services; collaborating more closely with stakeholders; prioritizing customer service; and leveraging the best value from a plant-based workforce. These themes, and others, will be covered at Shared Services & Process Improvement for Manufacturing (details here), which takes place January 22-23 in Nashville, TN. Today, manufacturing stands on the threshold of a new era, one that combines pressure to innovate with access to global resources, for those brave enough to grasp the opportunity. With advanced economies’ trade deficits in labor-intensive goods approaching $350 billion [Source: McKinsey Global Institute1] manufacturing companies around the world are being challenged to scrutinize every aspect of their business. The more forward-looking among them have already realized that to compete successfully they need to reconsider how they run these businesses, from the inside out. Deloitte research has identified that large manufacturing firms are slipping down the ranking tables at an increasing pace. The firm’s "topple rate" metric tracks this metric, which is seen as a proxy for the ability to sustain competitive advantage. It’s a number companies should be keeping their eyes on: The rapid globalization of the industry means emerging market opportunities and low cost of labor locations are making it harder for large multinationals to maintain their position of strength. A key differentiator is human capital. The World Economic Forum2 estimates a skills gap that is already impacting 10 million jobs in manufacturing. "In the race to future prosperity, nothing will matter more than talent" says the report. Despite high unemployment rates, this talent shortage remains. The industry is also battling the disruptive force of digital technology, which is transforming manufacturing across the world by offering advanced technology that models or simulates techniques for design or testing. This, in turn, means that research is being decoupled from engineering, engineering from manufacturing. The lack of a need for co-location opens the door to a lot of opportunity. It also opens the door to new entrants, by removing the "scale" that was previously necessary. The erosion of offshore labor arbitrage has emerged as a significant factor for the front-end as well as support services. It means that companies are having to look elsewhere to drive their competitive advantage; that "elsewhere", more often than not, means a service delivery strategy that leverages shared services. The benefits beyond cost are driven by the kind of qualitative and quantitative data analytics that today help companies outperform their competitors. Agility, risk management, and developing new capabilities are becoming key enablers of the kind of new age manufacturing organization that can succeed under these conditions. Much of the same thinking is influencing the delivery of business services, with a number of leading manufacturers already having chosen shared services as a solution to improve the efficiency of their business services. Any such change initiative requires getting people to buy into the program, however. In an industry as entrenched as manufacturing, resistance to change is a significant force. And yet, all around us we see examples of brick and mortar factories reinventing how they do business and embracing shared services as a smarter solution. [eventpdf] Here are 10 strategies that manufacturing companies should be considering to leverage best practices through shared services: 1. Look beyond labor arbitrage Just as the manufacturing process itself has already started to make smarter, automation enabled decisions with regards to the global talent pool, so too should shared services be evaluating how best to supply a multinational organization with the business support services it needs. Today, given wage escalations in emerging economies as well as the enormous availability of skilled labor in home markets, the decision is no longer about the cheapest source of labor. It is about leveraging a more knowledgeable employee to provide a service that delivers tangible value to the business units. 2. Borrow robots from the factory floor The service industry is only beginning to understand and realize the opportunities robotic automation offers for service processing. While the front-end of the business has for decades been replacing human engineers with 24/7 robots, this same strategy is now driving increased efficiencies across any number of given support processes – finance, human resources, procurement, etc. BPO firms are partnering with many of the emerging robotic solution providers to enhance their offerings. And while this may impact labor cost, the real value comes from improved speed, quality, auditability and data analytics derived from automated processes. 3. Make agility a priority The vagaries of consumer demand are quickly felt on the sales side of the business. To survive today, companies need to develop the agility that enables them to ramp up or down, or shift focus as needed. If the supportive infrastructure and business processes remain rigid, however, this limits the business’ ability to react. Modern shared services are leveraging technology for enhanced flexibility, too, so that they are able to cope with fluctuating workloads – even doubling of processing volume – without having to add FTEs. Invoicing is a great example where existing solutions can support this kind of flexibility. 4. Take decisions on the basis of improved data analysis Again, we can borrow from the front end of the business. The enormous efforts spent tracking consumer demand along with purchasing habits, can and should be reflected internally. Data hidden within your customer and supply chains can be accessed for business intelligence. Organizations that know how to leverage this intelligence can better track changes in consumer demand, identify new opportunities, and get to market faster than their competition. Access to real-time information allows you to make adjustments when necessary, while improved transparency across your supply chain can identify weaknesses and opportunities. 5. Think prescriptive There is a mass of data within the systems that enables the kind of reporting that increasingly projects forward instead of backward. This ability to offer predictive and prescriptive analytics will make shared services a highly valued business partner. Combined with the Big Data analytic capability that we are starting to see evolve inhouse, this information helps steer a business through choppy markets, as well as target the more profitable products and consumer segments. 6. Hire the best If you’re building cars, you need the best product designers and sales people. If you’re building machines, you need top engineers. If you’re building microchips, you need the cleverest brains in the market. And if you’re building washing machines… you see where we’re going. So why would you not prioritize the quality of your HR, finance, procurement, and IT leadership? To drive excellence externally, your business needs to be driven by excellence internally. Take a look at the end-to-end higher-to-retire lifecycle and see where the gaps are that lead to attrition and prevent staff from reaching their full potential. There is no better resource than your staff. Create a structure for them to flourish and feel safe in pushing the envelope. 7.Start with low hanging fruit If it’s difficult to get management’s attention and enthusiasm for investing in a broad reaching shared services organization, start small. Identify a few processes that could lead as a pilot to demonstrate quick returns. Once you have the results, and an increased fan base within the business units, you can build a business case for a more comprehensive shared services strategy. 8. Outsourcing is not just for micro-chips It’s not just for manufacturing microchips – outsourcing is a popular solution for finance and accounting & HR processes as well. A number of BPO providers have built up considerable expertise within certain industries. This "verticalization" has created significant advantages for business customers. Beyond transactional proficiency, many BPOs now offer the added value of understanding the industry and its regulations extremely well. This means that a BPO may become your secret weapon in driving greater value as well as efficiency. 9. Build a better culture One of the core drivers of transformation as well as improved service is "culture." While difficult to summarize in a paragraph, culture is heavily dependent on leadership and extends to the way business is done. This includes being open to suggestions, allowing mistakes to happen in the name of progress or innovation, keeping an open door and looking outside your organization (and industry) for ideas. Culture is no more about quarterly staff picnics than it is about posters with smiling faces professing the "customer is king". Culture is the stuff that surrounds you and your team. Done right it is extremely powerful and will keep your attrition rate low and your performance rate high. 10. If at first you run into roadblocks … regroup and try again Change requires courage, and many a shared services implementation has found itself derailed by political infighting, business units’ unwillingness to cede control, and lack of global ownership. Benchmark against peers, invest time in networking at events, ask people for tips on how to get ahead … The shared services model has proven itself time and again. So don’t give up. Interested in finding out more about how to drive Shared Services and Process Improvement for Manufacturing? Attend our event January 22-23 in Nashville, TN. Register today – download the brochure here to get more details. Notes: 1. McKinsey Global Institute; Manufacturing the Future: The Next Era Of Global Growth And Innovation [November 2012] 2. In collaboration with Deloitte Touche Tohmatsu Ltd: The Future of Manufacturing: Opportunities to Drive Economic Growth, 2012

Why Manufacturing Industries Face Special Challenges in Services Performance

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