June 13, 2019
by Carter Lloyds, Chief Marketing Officer, QAD
In 1964, the average tenure of companies on the S&P 500 was 33 years. That average dropped to 24 years in 2016 and is expected to shrink to just 12 years by 2027. This means that 500 of the largest U.S. based companies can expect to only be listed on the S&P 500 for 12 years before they fall off the list. What’s even more concerning is that almost half of all S&P 500 companies will either fail or be replaced over the next eight years. To survive and even thrive, companies will need to embrace the digital transformation happening today and focus on the changes of tomorrow.
Manufacturers can miss opportunities to adapt due to their lack of speed in responding to disruptive forces, underinvesting in new growth areas or applying existing business models to new markets. Furthermore, industry leaders tend to carry a higher degree of confidence in their ability to adapt or believe that their current business model is enough to sustain growth. This can lead to underestimating disruptive trends or missing opportunities to respond. Unfortunately, your customer will not give you any forewarning. When they want change, they will want it now.
Manufacturers’ business strategies and production tactics are being affected by “business disruptors,” including changes in the business environment and in the ways products are made. In working with our customers, we have identified three critical disruptors: Anything as a Service, Make to Order at Scale, and Digital Transformation.
Anything as a Service (XaaS) is a business model where companies provide outcomes rather than products, shifting what customers seek and ultimately buy. An example of this is the popularity of subscription-based services like Spotify and Netflix. Why pay to own music or movies when you can pay to simply listen or watch what you like most? The very same approach is happening in B2B environments.
Make to Order at Scale is an emerging customer requirement where end users expect personalized products and services to meet their unique needs and requirements. An example of this is the high level of personalization that is part of the car buying process for the Mini Cooper. This isn’t just part of the consumer experience either, it’s now being pushed up the supply chain.
Digital Transformation is happening globally. Manufacturers must acquire and utilize enterprise-wide and value chain data to measure and optimize company processes to deliver peak performance in a rapidly changing business environment. An example of this is the growing interest from consumers in food traceability, tracking food recalls as well as production from field to fork. With emerging technologies like machine learning and data lakes, traceability is peaking interests across all industries.
Digital Transformation can act as a Trojan Horse, helping to enable new business models such as XaaS and Make to Order at Scale. It is a critical foundation layer for successfully competing in a changing and uncertain market.
Changes in the business ecosystem, like those above, can happen seemingly overnight. It’s all about how manufacturers are able to prepare themselves for future change. It is important to formulate disruption strategies for both the short and long term.
Below are a few tips to help guide you on the path to improved longevity.
1. Adopt a Digital Strategy
Digital transformation has been a strong focus over the years, especially in the last decade, but the speed in which manufacturers will need to adapt their business models and strategic approach will only increase. Changing technologies and changing customer behaviors, for example, will play a pivotal role in determining company tenures. Companies will struggle to compete, and those without the right approach in place will struggle the most.
So, how can manufacturers build their strategies and plan for change when it’s becoming increasingly difficult to anticipate and predict what will come down the road?
2. Optimize Business Processes with an Effective ERP
When it comes to the key elements of successful supply chain management and production execution, a rapid, agile and effective enterprise resource planning (ERP) solution can greatly improve your outcomes. Though all too often, ERP projects become about the software and not about why you need it or what you need it to do. Even with the understanding that a continuous improvement approach is needed to optimize processes—aligning people, process and underlying technology—traditional ERP solutions can be difficult to modify or adapt.
Applications built on certain platforms can be created quickly and eliminate the need to create costly and complex customizations that make it difficult to make changes in the future. Long-term rigidity in a system can make it even more difficult to ensure that future enhancements and upgrades don’t complicate existing processes or impair longevity.
3. Continuously Improve as a Manufacturer
When you ask, “Will my company exist in eight years?” it’s worth doing a lot of digging. Don’t just look at what your competitors are doing, research trends too. And if you find yourself in search of an ERP, first ask yourself—why?
Choosing an ERP solution based solely on the individual goals and KPI metrics of key stakeholders today can result in a suboptimal solution in the years to come. Recognize the pace of change and the need for business systems to rapidly respond. A continuous improvement approach starts with people and processes; the technology is there to support your efforts. Disruption in manufacturing will remain, and even accelerate for the foreseeable future, so why not do all you can to ensure your company not only survives but thrives into the future. Adaptability is the new competitive advantage.
About the Author
Carter Lloyds is responsible for the alignment of customer needs, offerings, engagement, and messaging. His goal is to bring the voice of the customer into everything.