As consumer demand for products diversifies and new technology is used in production, the manufacturing and service sectors are becoming increasingly linked.
According to a McKinsey report, every dollar of manufacturing output in the United States requires 19 cents of services. Manufacturers are using more services in production, and are likewise being called upon to provide more services to accompany their products. This can include things like product training, installation, repair, warranty servicing, and more.
With supply chains becoming more sophisticated, new agile competition springing up, and consumers having access to an unprecedented amount of information, it is essential that manufacturers play a larger role in the customer experience.
From prototyping to after-sales support, manufacturing is shifting to a more customer-centric model. In order to remain competitive, manufacturers will need to work more closely with raw material vendors, retail partners, and consumers.
To help manufacturers close existing gaps between themselves and consumers, this article will discuss:
The new consumer who has the income, knowledge, and product options to be supremely selective in their consumption. This drives a need for manufacturers to further specialize products and craft an enhanced customer experience.
The changing manufacturing environment that has seen a wave of new agile competition, more sophisticated supply lines, and increased compliance demands.
Technology enabled change, which will see manufacturers leverage digital solutions and data to produce niche products, streamline production processes, and engage more with customers.
The new consumer
In advanced economies, consumers are demanding greater variation in products and more after-purchase support services. At the same time, a growing middle class in developing countries is creating new mass demand for value-added products. Most importantly, consumers everywhere are connected and have instant access to unlimited information.
According to Forbes, 45% of people read online reviews before buying a product, and 82% of smartphone users consult their device immediately before making an in-store purchase.
Consumers are now likely to know when and where their products were produced, which materials were used in their production, and increasingly, they are demanding to know where production materials were sourced from.
Many consumers now consciously buy environmentally sustainable products and abandon brands that do not meet a certain green standard. What’s more, consumer demand trends are changing faster than ever, requiring manufacturers to compress innovation cycles and deliver products to market faster.
Perhaps most importantly, selling a good product is no longer enough. Customers want an experience with the products they consume.
With consumers now dictating the terms of the brand-customer relationship, manufacturers must respond by policing their suppliers for safe and human practices, creating specialized products for niche demands, and give priority to the customer experience throughout the buyer journey.
One company that has successfully adapted to this new consumer is Everlane clothing. Under an initiative they call radical transparency, they share almost every aspect of their production processes with customers. By sharing the true cost of production, the origin of materials, and details about partner factories, they offer not only a stellar product but a compelling story consumers can be part of.
This is the type of product experience many consumers are seeking today.
A changing manufacturing environment
Consumers aren’t the only force driving change the manufacturing world. Other challenges include new competition, supply chain changes, and tightening accountability and compliance expectations.
A new generation of lean, tech-savvy manufacturers are now challenging industry leaders for control over key market segments.
Start-up style manufacturers are able to break into markets with niche products catering to specific consumer interests overlooked by their bulkier competitors. They use data to develop an acute understanding of their customers, leverage technology for rapid prototyping, and lean operations to get their products to market first.
By the time large manufacturers push product designs through corporate bureaucracy, source supplies, and retool for production, the consumer need has already been met and there is a new trend to respond to.
In the food industry, for example, there are a number of new products that have been able to ride consumer trends to supermarket shelves and challenge industry leaders. As reported by the New York Times, major food brands have lost market share in 42 out of 54 food categories. Zevia, for instance, a manufacturer of naturally sweetened sodas, is giving Coca-cola and Pepsi a run for their money. Founded only in 2007, in the sugar-free category Zevia is now the number three brand in terms of dollar growth within grocery stores, and has ranked above Pepsi in online sales.
In an effort to adapt to pressure from consumers and competition, supply chains are becoming more dynamic and sophisticated. Yesterday’s sales can no longer be used to predict tomorrow’s consumer behavior, and as a result, stockpiling materials for production is an outdated practice.
Instead, manufacturers must condense supply lines and pull materials into production in accordance with consumer demand. In addition to forming more dynamic relationships with raw material suppliers upstream, manufacturers must collaborate more closely with retailers downstream to obtain consumer insights to inform product innovation.
Compliance and accountability
More sophisticated supply chains mean a higher level of upstream accountability. With the prevalence of counterfeit goods, a heightened awareness of safe working conditions, and growing concern for environmental sustainability, manufacturers in all industries are under increased scrutiny from government bodies like the Food and Drug Administration, the Environmental Protection Agency, and not least of all, consumers.
In order to retain their good image and stay on the right side of the law, downstream retailers are requesting greater brand protection services from their manufacturing partners. This means manufacturers must be able to swiftly execute recalls and trace product inputs to a specific point in the supply chain while minimizing financial loss.
Going back to the food industry, after bacteria was found in one package of Kraft chicken strips, Kraft Foods was ultimately forced to recall 2.8 million pounds of chicken products resulting in massive financial losses and damage to their brand image.
To better prepare for such incidents, companies should design recall procedures with these questions in mind:
- Which type of crises could occur during production, and how likely are they to happen?
- What type of damage could be caused by such a crisis?
- Are there vulnerabilities in receiving and shipping areas where products could become compromised?
- How do you track your products’ distribution?
- What do government reports reveal about risks in your industry, and how can you manage these risks?
Just as retailers may ask manufacturers to conduct mock recalls, manufacturers need to conduct partner audits with their upstream suppliers. This may be in the form of an up-to-date ingredients list of who makes what and where it comes from.
Achieving greater supply chain accountability will require more transparent communication and technology integration to facilitate collaboration.
Technology enabled change
In response to new challenges and changing market conditions, we are seeing the emergence of a new type of manufacturer. Using industry 4.0 technologies and new production models, the manufacturer of the future will:
- Collect data at every point throughout the supply chain
- Use consumer insights to inform product design
- Produce niche products in small batches
- Interact with both upstream and downstream suppliers through multiple digital platforms
- Increase the lifetime value of customers by offering a host of after-sales services
Often referred to as mass customization, this type of manufacturing will require companies to pursue high-value, low-output production, with personalized products for individual market segments.
From cars to sneakers, mass customization is occurring in almost every product category. An early example of successful mass customization comes from Invisalign. Using 3-D printing, Align Technology was able to produce teeth aligners to fit each individual patient’s dental needs. The company is credited with being behind the evolution of digital dentistry and has delivered an alternative to traditional orthodontics used by more than 6 million people.
Using web portals for design specifications and product add-ons, companies in every industry are using this same concept to offer unique products to their consumers.
Mass customization is the answer for manufacturers to provide the experience their customers are demanding, and remain competitive against their younger, more agile counterparts.
In order to make this shift to consumer-centric production in a cost-efficient manner, manufacturers will need to incorporate emerging digital technologies across their operations.
Big data and consumer insights
The future of business will be data-driven, and like other organizations, manufacturers must collect and use more data about their end-users and monitor the customer journey from start to finish.
As manufacturers engage more with both retail partners and end-users, they should be gathering data at each customer touch point. This includes data from social media platforms, sales, post-sales support, and consumer insights supplied by retail partners.
Artificial intelligence powered applications can analyze proprietary data and macroeconomic conditions to uncover unmet consumer demands, allowing manufacturers to fine-tune product offerings.
While data should drive decision making, don’t forget the importance of more personally consulting with your customers to create the products they want. This can be done in a variety of ways.
Dewalt, a leading power tools manufacturer, does this by engaging with a customer insights community composed of more than 10,000 end users, as well as an invention submission platform. Lego has an interactive online community in which users can submit their designs for new Lego sets. P&G actively seeks out innovation inspiration and partnerships through its Connect + Develop platform.
The ways to include your customers in value innovation are almost unlimited.
In order to respond quickly to market demands and reduce the cost of standing inventory, manufacturers are shifting from build-to-stock to build-to-order business models. In addition to cultivating closer relationships with partners up and down the supply chain, manufacturers need to optimize inventory management to make build-to-order models work.
With manufacturing enterprise software and IoT devices, team members can access real-time inventory levels across the organization from a central dashboard. To help manufacturers achieve mass customization, many inventory management solutions also have functionality for subassemblies management so that components for each product model can be easily tracked from one place.
Pull-based available-to-promise management tools are also helping manufacturers keep operations lean while achieving a high rate of order fulfillment.
These features ensure that managers make informed decisions regarding inventory planning and sales personnel are always armed with accurate information when they speak with customers.
Barcoding and traceability
Mobile barcoding is becoming an important tool in reducing order-to-delivery time and increasing supply line accountability.
With core business applications connected through enterprise software, orders can be assigned remotely, and then picked, packed, and shipped using mobile applications. If your enterprise solution is cloud-hosted, your inventory management application will be instantly updated each time an item is picked and scanned in the warehouse.
Barcoding also improves traceability and allows manufacturers to provide a superior brand protection service to retail partners. As items are scanned at each point along their journey to the retailers, your enterprise solution is updated with the location of shipments. Items in a batch can then be traced and isolated using lot number, serial number, or bin location. For industries with strict compliance regulations, traceability can be further refined to track by expiration date, source ingredients, and other specific criteria. This precise traceability will also be key in the case of a recall.
Thanks to the accuracy and precision it enables in product delivery, mobile barcoding is a vital tool for manufacturers who want to provide a higher value service to their retail partners and end users.
Manufacturing better service
Today’s manufacturing organizations have two customers to satisfy: retail and wholesale partners, and the consumers who use their products.
Thanks to evolving market conditions, the realities of the information age, and technological integration, manufacturers can no longer hide behind complex supply lines. To gain a competitive edge, they must offer a higher value service to retail partners and leverage technology to enhance the customer experience.
Taking these measures can help manufacturers secure their market position now and in the future:
- Collect and analyze customer data from multiple channels to inform product design, after-sales support, customer service, and more
- Cultivate closer collaboration with partners upstream and downstream of the supply chain to achieve better vendor relations and more agile processes
- Retool for mass customization to meet niche product demands
- Integrate digital and mobile technologies to boost efficiency and increase the value of service
Regardless of industry habits or preferences, the distance between manufacturers and their customers is closing. It’s up to organizational leaders and their teams to turn this into a competitive advantage.