Industrial companies faced new kinds of challenges when the outsourcing boom started in the 1990s. Supply chains and manufacturing capability were no longer in your own hands; they had moved to the supplier network. You had to be able to negotiate good commercial terms with subcontractors and enhance logistics as much as possible in the whole supply chain. Companies that were successful in the beginning of the 21st century adopted LEAN approaches in their assembly and logistics at an early stage. Formerly, competitive advantage was gained through agile logistics flows fast. This is not the case anymore.
Since it is difficult to gain significant superiority by accelerating the flow of goods and developing internal processes, other capabilities will determine success in the future. The focus will be on the white-collars in industrial companies. The number of white-collar i.e. knowledge workers has multiplied in industrial companies in the past 20 years. What do these people do at work? Can their creative thinking be used to produce more value for customers, or do they spend their day in manual and administrative tasks.
The critical information that is needed to manufacture a product in an industrial company is no longer found solely inside the company. Information has shifted to the hands of the subcontractors who participate in the manufacturing process. Because of scattered information, a big part of white-collar working time is spent on gathering, searching and asking for information. Transaction costs – or in other words fumble costs – are incurred. Transaction costs have an impact on workers’ productivity as well as business efficiency, which usually has a negative effect on the last line in the profit and loss account.
In the future, the success of industrial companies is determined by the speed of information flows in the supplier network.
The ability to respond to customer demand will play a crucial role if a company wants to prosper. If you are not able to act fast, somebody else is sure to be there and make the deal. When information moves quickly between customers and suppliers, it is possible to react fast as well. But in order to do so, customers and subcontractors must share information transparently.
The companies that are now investing in operating methods and tools which enable fast access and visibility to information in a transparent manner will succeed in the future. It is not enough that information is shared only inside companies, it also has to be shared with the supplier network. Communication with the suppliers should be symmetric and real-time.
Operating methods will inevitably change; we must stop storing information and start sharing it in a controlled manner. Are your collars in such a position that you are ready to change and be a part of the success story?
Jarl Matti Anttila
CMO & Co-founder
The original blog post is published in Subcontractor 2017 Column