5 IT Tools To Combat Thin Margins and Fierce Competition

Metal manufacturers must meet the profitability challenge head-on

February 24, 2017
By: Mark Humphlett

Software gives manufacturers the decision-making and quoting insights they need to achieve their profit goals for 2017 and beyond.

Companies in the metal manufacturing industry face high volatility, fierce competition, and painfully thin margins.

As economic recovery ignites interest in growth, metal manufacturers are turning to new revenue streams, products, and services to take advantage of modern technologies. They should also take a new look at profit margins and move away from yesterday’s volume pricing model to today’s focus on make-to-order (MTO) and engineer-to-order (ETO) and customer centricity.

Software helps the growth-inspired manufacturer make strides in this area. Tools help hone pricing, build relationships with customers, and manage aftermarket service.

For many manufacturers, razor-thin margins are becoming a fact of life, a result of fierce competition, drops in demand, volatile pricing, and product commoditization. With so many factors contributing to poor margins, it may seem fruitless to battle the inevitable. With the use of modern technology, though, manufacturers can take a new look at margins; break free of stagnation; and build a more profitable, growth-driven enterprise.

KPMG said in its “2016 Global Manufacturing Outlook,” that manufacturers are “highly focused on achieving new growth. And many expect to be aggressive in their search for new opportunities. Yet with limited baseline growth expected in most markets, manufacturers will need to either invest into new technologies in order to ‘grow the pie’ or resort to a brutal competitive fight to steal market share away from rivals. The only certainty is that there will be winners and losers.”

How Did We Get Here?

Mass production and economies of scale have been the key route to higher margins since the inception of the assembly line. Lean manufacturing also brought concepts for streamlining productivity and cutting waste.

When the Great Recession hit in 2009, all of those sound tactics fell to the wayside. Moving into survival mode, metal shops took on any customer, bid low on contracts, and did whatever was necessary to keep a customer’s business. Those accounts often crossed into zero-margin territory.

Changes in Demand

It’s a new world, defined by digitalization and mass customization. Boomers are retiring. Millennials, who value personalized products and access over ownership, are taking command, and manufacturing is once again in the political spotlight.

These changes should trigger manufacturers to take a fresh look at basic concepts for expanding margins and boosting profitability, using a modern filter. With today’s demand for low-volume production, contracting shops can’t rely singly on per-unit cost to generate healthy margins and revenue growth.

Change With the Times

Following the devastating recession of 2009 and sluggish recovery period, shops are eager for growth. They are willing to make considerable changes to their core products and business models to pursue growth, reports the KPMG “2016 Global Manufacturing Outlook.

According to the KPMG survey:

  • More than 80 per cent of all manufacturers said they expect to change the range of products and services they offer over the next two years.
  • Ninety-two per cent said they expect to enter new geographic markets to drive growth.
  • Eighty per cent of respondents also said they would enter into new sectors to achieve growth.

Changing to a customer-centric model is one of the ways a manufacturer can overcome commoditization. Providing a distinct customer experience can be a valuable differentiator, one that is impossible for low-cost suppliers to replicate. Anytime manufacturers can move the focus from price alone, their margins can increase.

Most would agree loyal customers will be willing to absorb modest cost increases to continue the valued relationship. Customer-centricity can take many shapes and forms, from collaboration on MTO projects to online portals, and aftermarket service.

Five IT Tools to Make It Happen

1. Performance Analytics. Increasing margins starts with the use of advanced analytics so you can fully understand your current margins and can monitor improvement as you enact change. Analytics will also help determine which current accounts are not profitable.

2. Dashboards. Role-based dashboards and use of key performance indicators (KPIs) in business intelligence tools can help personnel delve into the issues that have an impact on margins, such as waste of resources. Margin-sucking errors, waste, and missed opportunities can be systematically identified and addressed.

3. Customer Relationship Management (CRM). CRM software is critical for manufacturers that want to expand service offerings and build relationships. Modern CRM systems, integrated with the enterprise option, help track engagement with the customer, identify buying trends, and project needs. The level of intimacy allows manufacturers to have meaningful dialogue and make recommendations that are insightful and of value.

4. Configuration and Quoting. Inaccurate quoting based on guesses has a disastrous impact on margins. MTO and ETO orders particularly create challenges. Software can manage configurations and estimate resources and labour to speed quoting plus improve accuracy of bids.

5. Collaboration. Metal manufacturing shops have long collaborated with customers on MTO and ETO projects. But the days of back-and-forth phone calls and long e-mail threads have given way to the need for integrated business social tools that manage the conversation, track decisions, and provide relevant context.

Manufacturers are ready for aggressive growth initiatives and tactics to increase margins. Relying on the old assembly line mentality is no longer appropriate. Volume and repetition are being replaced by product customization and customer-centricity.

The new normal demands new tools so manufacturers can hone their pricing and boost margins. Software gives manufacturers the decision-making and quoting insights they need to achieve their profit goals for 2017 and beyond.

Mark Humphlett is senior director of industry & solution strategy for Infor, 800-260-2640, www.infor.com.

Mark Humphlett

Senior Director of Industry & Solution Strategy