There is no question that consumer demand is now driving the consumer goods and retail industries. But how does it impact industrial manufacturing? To get some Expert Insight on this topic, Supply Chain Nation spoke with Simon Ellis, practice director, supply chain strategies, for IDC Manufacturing Insights. Here is a summary of his comments.
SCN: IDC has posited that computing has now risen to a “third platform” encompassing mobility, cloud, big data/analytics and social business. How does this impact industrial manufacturers?
Ellis: I think it impacts all manufacturers. Certainly it is obvious where it impacts consumer-oriented companies, but even for industrial manufacturers we’re starting to see them think a little differently about their business. Some of our research over the past couple of years suggests that manufacturers who make heavy equipment are starting to think more about services than just assets. Just as Amazon, for example, sells the Kindle reader, but then makes most of their money selling eBooks, perhaps industrial manufacturers will start to think of their products as platforms for selling services.
I had a conversation a couple of years ago with a heavy equipment manufacturer who made the observation to me—which I thought was a fascinating insight—that we don’t sell machinery, we sell machinery time. So when we sell a combine harvester to a farmer, yes we are selling them an asset, but we are really selling them the combine capability and capacity.
I think that the role of the consumer is changing. While the direct-to-consumer initiatives on the consumer goods side are a bit more mature, we are starting to also see initiatives on the industrial manufacturing side. For example, in the automotive industry in Europe we are seeing a couple of automotive companies almost eliminating the dealer network. And while I think the dealer network has value, the automotive companies are starting to sell cars directly over the internet.
Thus, I think this third platform, whether it is mobility, cloud, data analytics or social business, is equally transformative for the industrial folks as well because at the end of the day, automotive manufacturers have to understand the needs of their consumers; industrial manufacturers have to understand the motivations of their customers; and high tech is becoming as much about fashion as it is about technology—we see devices sold through e-tailers that historically were OEM’d through B2B such as hard drives sold in pink cases or purple cases. So there is a consumerization of the fashion elements of these things, as well. This third platform is not as intuitively obvious for industrial manufacturers, but I think what time will tell us is that it was just as impactful.
SCN: Everything you hear today is about how consumer demand is dramatically changing the retail and consumer goods marketplace. Does this also impact industrial manufacturing? If so, how?
Ellis: I think it does. I just published the 2014 supply chain predictions, and I have been talking about this kind of demand and supply dynamic for a couple of years now. The dynamic is between extended supply networks, complexity and long lead times on the supply side, and faster, more volatile and more unpredictable changes on the demand side. With the more informed consumer, they are just less likely to be locked into a brand than they used to be.
Twenty years ago you were brand loyal, whether it was to a car or a can of soup or a bottle of shampoo, because the input to you was more limited. You found something you liked and you stuck with it because there was no reason not to. Fast forward 20 years and now there is so much information available and so many opinions available that people are more likely to try new things. People have so much more information about choices and so they make more choices.
Brand loyalty is not as strong as it used to be, although there are exceptions to that, and I think demand volatility and forecast error are far higher than ever simply because the consumer has more choices and they are more informed about their choices. I think that applies to people who are buying a car, or who are buying technology, whether that’s an iPhone or a computer or a TV, they are just more informed.
It is fascinating to me that just in the last five years there was a new television manufacturer, Visio, that I think is now selling more TVs than anybody else. That would have been impossible 20 years ago. Now with all the information that is available to people and the recognition that there is only a handful of companies that make the basic TV anyhow, which are then rebranded, why not buy the cheaper one. It is transforming industry after industry. And even though industrial manufacturers might have been a little more insulated from this in the past, I don’t think it is going to be true in the future.
SCN: Thank you, Simon, for those insights. In our next post, launching March 11, Mr. Ellis will suggest what industrial manufacturers should do to leverage the third platform and consumer demand, as well as discuss some other market forces impacting manufacturing over the next 24 months.