Improve your service levels now if you want to win.
Over the past few years, manufacturing companies and customers alike have gotten used to longer and longer lead times and frequently broken service promises. On average, the manufacturers we work with consistently meet about 80-85% of their commitments. And the lead time on those promises is typically double, triple, or even quadruple what it was pre-pandemic. Sales forces say they spend the majority of their day explaining to customers why they are not going to get what they want when they want it. Yet, most manufacturers have survived despite significant degradation in service levels. There’s been a widespread degree of resignation to the external factors pummeling supply chains and the lack of talent, which make it increasingly challenging to produce and ship goods in a reasonable amount of time.
In some ways, the industry has become complacent.
But as demand drops due to the high-inflation, high-cost environment, the time for excuses and grace periods is going to come to a (potentially screeching) halt. With less pressure on them, supply chains may begin correcting themselves, and manufactures will have to start competing on service again.
Some will win. Others will lose. There’s no time like right now to make sure you’re in the winning group.
Compel Your Customers to Choose You.
Customers have already begun to make choices between products. They’re eating in instead of going out. They’re buying the $2,000 refrigerator instead of the $4,000 model. It won’t be long before they start choosing between providers, too. And that means the onus is on you to earn their business.
Here are three steps than can help:
- Keep the promises you are making now. It wasn’t that long ago when 99% or better on time-delivery was the expectation in most industries. It’s time to get back to that mark because you can no longer afford to disappoint 10-15% or more of your customers on a daily basis.
Instead of focusing on external challenges, turn the lens inward and task teams across all departments to do better today than they did yesterday. For many manufacturers, we find there is a “factory within the factory” representing 25% more potential output. Unleashing it starts with diagnosing areas of hidden waste and quickly implementing action plans at the point of impact to close the gaps between the current state and world-class performance.
Improving asset utilization, OEE, and workforce productivity are great places to start as your costs are rising, too. Right now, you need to squeeze the greatest value from every existing resource as opposed to investing in new. Consultants can help with rapidly uncovering your weak spots and areas for the most significant gains as well as with organizing and focusing the team to capture those gains quickly.
- Make better promises. Once you improve your service delivery on your existing promises, it’s time to make the promises themselves better. We’ve talked to manufacturers with lead times that are 24, 36, or even longer out. The good news is, there is a lot of room for improvement and a great deal of opportunity for companies to distinguish themselves on service in this environment. If you can get to 12 weeks when you competitors are still at 24, it is not hard to guess who is going to get the order.
Once again, operational excellence provides the path forward here. When your team starts making gains and everyone is involved in the process, this empowers them to continue to win. People develop an appetite for continuous improvement, and it becomes part of the culture.
Supply chain strategy matters as well. The more control you have over your supply chain—by bringing it closer to home, vertically integrating where possible, or increasing your alternatives when it comes to both partners and materials—the better your lead times will get and the more consistently you can meet them. Being a better customer to your suppliers can also help you gain favor and thus count on more predictable service from the supply chain, which you can then turn into better promises and more service delivery wins for your customers.
- Stress test your organization. If the last several years have taught us anything, it’s that anything can happen next. Operational excellence positions manufacturers to consistently and sustainability win because the principles work in any economic circumstances. However, given the dramatic ups and downs in supply and demand we’ve been dealing with for so long, it is good practice to know in advance what you are going to do in a wide range of potential circumstances and scenarios that could play out in the longer term.
While operational diagnostics will point to ways to get better right now, stress testing will help you know which choices to make in future situations and to understand the outcomes of those choices before you execute them. This involves doing a lot of what-if modeling and planning. We recommend analyzing all areas of your operations under different levels of demand, across various lead times, and considering different cost structures as part of the equation. This exercise may sound like an arduous process, when actually it can be done rather quickly. We have conducted stress test for clients within anywhere between a week to 10 days.
This work can help you determine what good looks like and how to remain profitable if, for example, you need to go from eight weeks to four weeks to retain a key account. Or if your input costs increase by another 5% over the next few months. It allows you to work out on paper what reasonable and adequate responses to human capital, operations, asset utilization, and capital investment look like before you are actually in the midst of a new challenge.
If and when the circumstances you plan for materialize, you will be way ahead of your competitors. You can act immediately and operate in a dramatically more capable way that will continue compelling your customers to choose you. While it’s hard to imagine anybody anticipating the fallout from the pandemic, just think how things could have been different for your business if you had a response plan already in place before the disaster struck.
Be The Rising Star.
Times are changing and once again, service excellence is not going to be optional for manufacturing organizations that want to win. Since inflation means you can’t buy your way to better service with more equipment or more people, operational excellence and optimizing existing resources is the only clear path forward. When you approach this work with the objective of better service in any scenario, you can separate yourself from the pack and create a competitive advantage that will keep you out in front.
But you need to do it right now. Customers are already starting to make choices. Give them every reason to choose you.