By Jonathan Gross
A recipe for long-term customer relationships
By Jonathan Gross
Mar. 27, 2015 – Downward pressure on the loonie and steep drops in oil prices are creating export-friendly market conditions. Canadian manufacturers and exporters will undoubtedly look to convert these export opportunities into stable, recurring, long-term business.
However, higher costs associated with managing business partnerships are partially offsetting currency benefits. Historically, quality, price, lead time, and fill rate were the main ingredients to building sustainable customer relationships. Today, interaction has been added to the recipe.
Coping with relationship fulfillment
Better known as omni-channel, interaction requirements demand that manufacturers provide their customers with a seamless experience across multiple interaction channels. An example could be allowing a customer to partially build an order by telephone and seamlessly complete that same order on a web-based configurator. Another example could be a requirement to provide periodic electronic data interchange (EDI) status updates as an order progresses through the supply chain.
A key driver of omni-channel requirements is a desire to reduce frictions that impede the efficient flow of data and product between supply chain players. Consider, for example, the use of safety-stock to hedge against unreliable data and logistics. Better information and a more reliable supply chain can reduce hedging requirements. It stands to reason that better visibility into lead times can give companies an opportunity to reduce safety-stock levels and the cash that those stocks consume.
Some pundits are predicting that this omni-channel movement is merely the front end of a supply chain revolution that will ultimately see all players — from raw material process manufacturing to retailing — operate in an efficient network where a ripple at one end of a supply chain can be felt at the other.
Whether this vision ever materializes is up for debate and is beside the point. The more pressing issue relates to how manufacturers can respond to increasingly onerous customer demands. For many, the economics of employing full-time estimators, data-entry clerks, operational liaisons, and EDI technical experts no longer justify serving an existing customer segment.
The solution, though, is not to cull customers, particularly since this segment is quickly becoming the majority. Rather, the solution is to pause and evaluate whether the existing business model is optimally structured to respond to this paradigm shift.
As business leaders dig into their business structures, they will probably discover functional silos, informational silos, and disjoint processes that create costly inefficiencies. The companies that will be well-positioned for long-term success are those that can eliminate these types of friction.
More often than not, this involves transformative changes to organizational structures, roles and skills, business processes, and information technology. Changes might include a need to redraw reporting lines. People will inevitably have to work more collaboratively with those in other functional departments. Ownership of processes and data might have to change hands. And, almost certainly, new enterprise technologies — enterprise resource planning (ERP) system, quality management, transportation management, and business intelligence, for example — may have to be implemented.
An overview of integrated technologies
Generally speaking, ERP software is a foundational requirement for enterprise integration. This software acts as a central planning hub and integrated execution engine. From a planning perspective, companies rely on ERP to process forecasting, material requirements planning (MRP), master production scheduling (MPS), and capacity requirements planning (CRP) functions. From an operational perspective, ERP generally supports core functions, including: sales, order entry, inventory management, shop floor control, and purchasing. Finance functions are fully integrated, meaning that customer credit, accounts payable, accounts receivable, and general ledger functions automatically flow relative to associated operational transactions.
Once a company has integrated and automated key business functions with ERP, it can then turn its attention to the automation of peripheral functions. Common examples include quality management, warehouse management, transportation management, customer relationship management, and human resources.
From an execution perspective, business leaders should resist the urge to dive headfirst into an implementation project. Instead, they should take the time at the front end to properly scope and blueprint the requirements for organizational integration.
Ultimately, the business blueprints provide an analytical basis to plan projects, as well as schedules, budgets and scopes. As with any architectural project — whether buildings, municipal infrastructure, or organizational integration — a solid foundation is a prerequisite to a successful project. In the present context, the foundation includes ERP and associated core operational and planning processes.
A critical success factor in the design of a sustainable, long-term business structure is to create a model that 1) addresses current critical needs, and 2) has a scalable and flexible structure to respond to future needs, some of which might not yet be known.
The project planning foundation
The discovery and analysis process that yields a business blueprint is typically referred to as a business requirements assessment.
Under this process, a company evaluates its current business state against best-practice benchmarks that are defined relative to business goals and industry standards. Then, through business process mapping and other techniques, it designs a future state to meet defined targets. Finally, it plans various projects to incrementally close the gap between current performance and future targets.
Drafting a realistic, appropriate, and executable business plan requires certain skill sets. At a minimum, the person or team leading an assessment should possess the following:
• Knowledge of industry trends and best practices;
• Expertise in organizational design and change management;
• Expertise in cross-functional, integrated business processing;
• Expertise in modern integrated software systems and underlying technologies;
• An impeccable track record in the planning and execution of complex transformation projects; and
• An ability to lead high-performance, cross-functional teams.
Most companies do not readily have this expertise on staff, and many will look to outside consulting firms for assistance. The good news is that government and industry are teaming up to offer financial assistance that could partially offset consulting costs.
A range of funding opportunities
In November 2014, the Canadian Manufacturers & Exporters (CME) announced two non-refundable grant programs, collectively under the umbrella of the CME-SMART Program, designed to fund a portion of assessment and project implementation costs for Ontario-based manufacturers. Specifically, CME partnered with FedDev Ontario on a $20-million program to fund eligible southern Ontario manufacturers, while a parallel $2.4-million program between CME and FedNor funds eligible northern Ontario manufacturers.
Under the program, approved participants can retain a Qualified Service Provider to perform technology-related assessments. Business process improvement, ERP, MRP, quality management, shop floor control, and material handling are among the projects identified as potential candidates. Approved assessments are eligible for funding in an amount up to 50 per cent of costs to a maximum of $15,000. The program also provides project implementation funding in an amount up to 35 per cent of costs to a maximum of $100,000.
Other relevant programs include:
• New Brunswick’s Innov8 program that offers aerospace and defense, industrial fabrication, wood, food, and exporting manufacturers up to $25,000 per project to a maximum of $100,000 for the development of intellectual property, specialized software, hardware, or equipment, or to do research, development or prototyping;
• P.E.I.’s Information Technology Implementation Program designed to provide up to $40,000 of funding for export-oriented businesses; and
• P.E.I.’s Information Technology Planning program designed to fund consulting services in an amount up to 50 per cent of consulting costs to a maximum of $5,000.
The above list is not intended to be exhaustive. Additional details and funding programs can be found at the Government of Canada’s Canada Business Network website, www.canadabusiness.ca.
Instead of asking whether they can afford to undertake these types of projects, manufacturers should be asking whether they can afford not to. Business-to-business market dynamics are creating an increasingly hostile environment for companies with unintegrated systems and inefficient processes. The good news is that beneficial currency conditions and supportive funding programs present Canadian manufacturers with an excellent opportunity to leapfrog their competitors and become their customers’ trusted long-term business partners.
Jonathan Gross, LL.B., M.B.A. is vice-president at Pemeco Consulting, a firm that leads technology-related transformation projects for manufacturers and distributors, and a Qualified Service Provider for CME-SMART.
This article originally appeared in the March/April 2015 issue of Manufacturing AUTOMATION.