According to a recent McKinsey Report, service inputs (everything from logistics to advertising) make up an increasing amount of manufacturing activity. In 2012, they determined that in the United States, every dollar of manufacturing output requires 20 cents of services. Today, this is closer to 25 cents on average, and in some manufacturing industries, more than half of all employees work in service roles, such as R&D engineers and office-support staff.
So why do manufacturers and manufacturing organizations continue to focus on the production side of the business?
Anyone who knows manufacturing understands the complex operations, supply chain and cost implications of “leaning” or streamlining your production. Identifying where to outsource. Knowing what to keep in-house. How to keep the cost per part down. It’s crystal clear. But when it comes to the “service” side of the business, everything falls into a big bucket of “sunk costs”. The “cost of doing business” so it’s been coined.
Manufacturing, to effectively compete and grow in today’s economy, needs to examine the service side of their business – from a cost perspective, from a differentiation perspective, and from a revenue perspective. The way to win in our competitive environment isn’t simply through product innovations. The new job of manufacturing is embracing the service aspect of the business.
But why should we care about that? Organizations don’t buy our people, they buy our products, right?
That’s not exactly true. The service part of your business (i.e. people and processes) touch your customers and prospects every day, from sales, marketing, and customer service, to tech support, billing, R&D and logistics. None of these areas are the “meat and potatoes” products you sell, but they are integral to what it means to do business with you – and that can either be good or bad.
The service side of your business isn’t simply administrative paper-pushing. “Service” can be a big differentiator, even in manufacturing. And if you haven’t examined and modernized the service side of your business in many years, you are weakening your ability to compete in today’s market on a variety of fronts:
1) Recruitment – How can you effectively recruit and retain top talent, when your organization is working with outdated systems and processes? If you’re still using 20-year old custom software platforms to run your business, it shows that “we do it the way we’ve always done it” and aren’t open to change. If you’re seeking new talent to help grow your business and innovate, this lack of forward-progress sends the message that you are stuck in the stone age and there’s not much of a future in sight.
2) Culture – Do you have people in your organization that hold certain processes, systems, and information hostage? Many companies that haven’t advanced the service side of their business are tied to individuals who are “the only ones that know how to use this system” or “have tribal knowledge” which they hold under lock and key. Because the service side of the company has not lived through continual change and advancement, these folks build their value by holding tightly to aspects of the business that secure their role, but hold back or even stunt growth.
3) Profitability – Are your service side operations complex, slow, and highly manual? Does it take a dozen people to create a report or process an order? If you’re not leveraging software and systems to simplify these operations, as your company grows, so will your overhead. The ability to do more with less, and allowing people to expand their skill sets not only reduces expenses but helps you function more efficiently. Using new technology can also provide insights on sales opportunities and cost reduction areas never before seen.
4) Customer Engagement – Is it hard to do business with you? Does a customer have to call and talk with 4 or 5 people before an issue is resolved? Or always have to send an email when they need a copy of an invoice? Customer engagement is about the customer. Using platforms and tools can make their experience working with you simpler and easier, in addition to helping them reduce their own cost of doing business. Modernizing your operations provides more information transparency to your customer, and the opportunity to create new service avenues, such as virtual customer service and auto-reordering of wear parts, to name a few.
5) Brand – You might have the “best quality” products on the market, but if your service operations are outdated, it reflects on your organization as a whole. Are you still sending invoices by fax? What message does that send to a purchasing agent? If you can’t do business communications and engagements through modern means, there will be little confidence that your products will be any less outdated, both in design and production processes, limiting long-term growth and brand perception in the marketplace.
6) Competitive Advantage – Since many mid-market manufacturers don’t spend much time on the service side of the business, this can be a huge competitive advantage to those that do. Are you in a highly-competitive market but struggle to differentiate your product? Then differentiate through service. Use the service side to give customers and prospects insights about where their order is in production, instead of the industry standard “2-4 week delivery” line. Integrate with their purchasing systems to free up administrative time on your end and theirs. These types of differentiators are also typically difficult and time consuming for your competition to replicate.
Manufacturing is not about simply making widgets – manufacturing is a business. Every aspect of your business needs to advance and grow as markets change, customers change, and competitors change. Focusing only on production leaves out half of your operation to stagnate and drag the rest down with it.
About the Author:
Andrea’s 19-year, field-tested background provides unique, applicable approaches to creating leaner, more effective, technology-driven, industrial organizations. A 4-time ADDY® award-winner, she began her career at a tech start-up and led the strategic marketing efforts at two global industrial manufacturers.
In addition to writing, consulting and coaching, Andrea speaks to leaders and industry organizations around the world on how to craft an effective customer-facing operational strategies to discover new sources of revenues and savings. Connect with Andrea to access information on her book, workshops, keynote speeches, training or consulting. More information is also available on www.pragmadik.com and www.nodisruptions.com.
Pick up a copy of her new book, “No Disruptions: The New Future for Mid-Market Manufacturing”, available on Amazon.com in Paperback or Kindle.
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