Manufacture or service?

by Michael Alex | January 7th, 2013 | No Comments »

The common trend we hear from news about the Australian economy is that our local manufacturing sectors are under attack from inferior quality cheap imports and that our ability to compete in export markets is held to ransom by our high exchange rate. This may be the sign of the times and way of the future, but it is definitely not the doomsday scenario some commentators are predicting.

Many of my client projects involving local manufacturers have begun with this theme. They complain of a decrease in performance, explained by a loss of competitiveness and market share due to increased competition on the back of an uneven playing field. These companies have traditionally had long standing customer relationships that have delivered them significant revenue and profit streams. Today they are sinking under the weight of added complexity and increased competition which they have failed to predict or adapt to. Markets and customers have evolved, fragmented and changed, and many manufacturers have not understood or accepted how these changes can be turned into opportunities.

By harnessing the business strategy process, understanding their current and future competitive realities, segmenting their business and identifying their competitive positioning based on products, markets, customers and competitors, the true realities and opportunities become quite clearer. The competitive environment has evolved from few large customers, markets and segments with similar needs, to many smaller sub segments with more customers with differing needs. These smaller segments now require different things – traditional and/or new product offerings with contrasting levels of price, quality, value added features and service levels. New channels and competitive models are also a feature within these market realities in today’s economy.

One element remains consistent with many of these manufacturers. They previously supplied these customers, and for one reason or another the manufacturers have failed to continue to cultivate these customer relationships to understand the changes in needs and wants. They have stayed the course, operating in the past, and have become uncompetitive because what they make and offer today is not of value anymore – the market has evolved.

Evidence shows that when companies segment their business, engage their markets, and understand where their competitive advantage lies or should lie, these companies can once again enjoy success and growth. They begin to understand that one of their main competitive advantages lies within their relationships with their customers and markets – or customer base.

The one who holds the customer relationship ultimately holds the competitive advantage. Allowing this relationship to diminish or disappear by not listening to your customers will open the door to your competition – and your advantage is lost.

With this philosophy, and with a longer-term view and related business strategy, they can manoeuvre their capabilities and competitive model to supply via manufacture and/or source depending on the needs and wants of their customers and markets.

Segment profitability and attractiveness differs, but the most important objective is for you to maintain the choice and make the decisions on which products to make, and which customers and markets you supply and retain – as opposed to letting your competitors dictate.

Therefore, irrespective of whether you have a manufacturing capability or not, winning business strategy is all about delivering what the market wants. This evolution may require new capabilities and skills, something that makes a lot of companies uncomfortable, but the reality is that if you lose sight of the ball, the game is lost.


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