Crisis in Industrial Manufacturing Strategy - Seeing Through Customers Eyes

Ed Marsh | Dec 2, 2017

Manufacturing was never the problem...just a symptom!

Introduction to SignalsFromTheOP

Transcript follows

Hi, I'm Ed Marsh. Thanks for joining me for this episode of Signals From the OP, where I tackle strategic issues of importance to manufacturers worried about consistent, predictable, revenue growth.

Today, we're going to talk about an existential risk that's facing manufacturers. It's very similar to one that they faced a couple of decades ago, that I would contend most industrial manufacturing companies never actually overcame.

I was a young sales person in the early '90s. I had just gotten out of the army and I wanted to learn business, and I figured the best way to learn business was to sell. I happened to enter the industrial market the North East at around the time import competition really became a significant pressure. So, I had the opportunity to learn from veterans, or to hear from veterans that had been in markets for a long time, but also to hear from buyers who were suddenly delivering a very specific message about what their evolving expectations.

You know how the story goes. At that time, manufacturers were motoring along, very content, making some money, making products, growing gradually, and the world was pretty stable as far as they were concerned. Suddenly though, they were inundated with expectations and demands of low price, short lead time, higher quality, et cetera. And this was really kind of anathema to the way that many of them ran their businesses. As a result, many of them failed, some of them kind of limped along or were acquired, and a few thrived.

Those that thrived, were those that actually improved their manufacturing. They took a very rigorous, very cerebral approach to their operations. They broke things down step by step. They implemented LEAN, they got six sigma experts, they kaizaned everything and they know exactly what's happening in their manufacturing operations. That allowed them to reduce defects, improve quality, engineer quality in, produce in batches, and have consistent takt times, and all that kind of stuff that's part of the standard manufacturing lexicon that we have today.

As a result, they kind of revitalized American manufacturing. The folks that had particular expertise in this and lead this effort, the disciples of Deming if you will, are celebrated as American heroes, for having lead that revitalization of American manufacturing. It's been so successful in fact, that many companies, when they face any sort of a problem in their operation, they kind of naturally think, they default to their process, let's kaizan it, let's pull together a multidisciplinary team, let's understand where the waste is, let's eliminate the waste and then move it out, let's figure out how to make it more efficient, how to eliminate mistakes, et cetera.

It's become almost embedded in the American business psyche, that when you have a challenge, that's the way to approach it. The problem is, and where the risk lies, is that the manufacturing issues were actually I think a byproduct of the bigger issue, and the bigger issue hasn't been addressed. And so, that's why I say. LEAN is not the answer to the challenge that I think manufacturers are facing today. Manufacturing is not, and was not the problem. Listening to buyers is the issue.

Those veteran sales people that I worked with would pull me aside and say, "Don't worry about what that customer is telling you." They'd almost guffaw and scoff at it. They'd they say, "Well they can demand whatever they want, but the physical realities of the world is that you can't have all that. So, you get price, quality, and lead time, pick two and that's just the nature of the world."

Manufacturers didn't listen to buyers back then. Because what buyers were saying was, they could get this somewhere, they needed this. In order for them to do JIT manufacturing for their customers, they needed consistent quality, short lead times, just in time deliveries themselves, et cetera. And manufacturers just kind of laughed at it. They said, "That is not possible, you're dreaming, we can't do that for you." So, they went, and they found it somewhere they could. As American manufacturers adapted, they improved their manufacturing, so they could deliver on the expectations. But that fundamental challenge remains, they never really listened to what the buyer expectations were, and that's repeating itself today.

Here's what I mean. Today, buyers are talking about other kinds of expectations. They're talking about PAAS, product as a service, they're talking about data, they're talking about incorporating some of the buying processes and business models that they've come to appreciate in their lives as consumers, into their lives as business people. And this is accelerating as upcoming management represent the millennial generation. They have grown up and been more accustomed and comfortable with this sort of approach. Manufacturers are still not listening in my estimation, in many cases. Of course, there's exceptions, but in many cases they're not listening.

A great example is IOT, Internet of Things. When you talk to many manufacturers they put these sensor into their machines or their products, and they think that the focus is the technology of the sensor. And it completely overlooks that the ecosystem of the data is really where the opportunity is. It's an opportunity for the customers to extract more value from their business investments, but it's also an opportunity for the manufacturers to provide more value, even create new revenue streams, even create new products around the data, and around the combination of their products and data, and customer expectations.

That's the risk, buyers are being ignored again. Buyers are speaking, buyers are speaking explicitly by making requests to manufacturers, buyers are speaking implicitly by the kinds of things they're searching, the sorts of products that they're trying to buy, the experiences they have wearing their consumer hat, that they want to apply to their business environment, but manufacturer in many cases aren't listening. So, I think unfortunately, manufacturers face the same risk of a really existential crisis that shakes manufacturing to the core, in much the same way that it happened in the late '80s and early '90s.

Hopefully, I'm wrong, and each manufacturer has an opportunity. The board has an obligation to explicitly request of management that strategy be developed in forward looking kind of way, not a retrospective sort of way. And senior management has the opportunity and the obligation to lead that process. But not very company is going to, just like many companies scoffed at the expectation of buyers in the early '90s and gave them the, "Well, quality, price, lead time, pick two, and you're silly for asking otherwise," kind of an attitude. That's the opportunity. That's the risk.

If you enjoy this kind of contrarian look, or irreverent look at some of the big issues facing industrial manufacturers, I'd welcome you to join me for ongoing episodes of Signals From the OP. You can subscribe at Thanks very much, thanks for joining me, in Ed Marsh.

Want to take a dive into the strategic conversations manufacturers should be having today? This free quide outlines questions to guide board and senior management discussion.

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