New! S&OP Self-Audit Workbook and Words from Wallace: Competing Against Offshore Manufacturers, Part 2

WORDS FROM WALLACE

Competing Against Offshore Manufacturers, Part 2

Last month, we talked about competing and winning against offshore manufacturers through superior customer service:

shorter lead times
fewer backorders
greater product variety and
rapid response to shifts in demand.

In some industries, this kind of superior customer service can be a competitive advantage over those trying to compete from half a world away. One that, thanks to geography, they cannot match.

The North American market is the richest in the world, and we have a major advantage because we produce within that market. Most would agree that we’d have a tough time competing on customer service against the Chinese - within China. Then doesn’t it also follow that the Chinese would have problems competing against us – on customer service here – in North America? I think so.

Okay, so how does a company do it? How do you ship quick, complete, and on time all the time? How do you ship a wide range of products and, at the same time, be very responsive to demand shifts? And, oh by the way, how do you do this with little or no finished goods inventory?

The answer is: Postponement. It’s Postponement that enables companies to provide all of the good things we just saw: superb customer service, wide variety, high flexibility, with virtually no finished inventory. Companies all over this country and elsewhere are competing and winning utilizing Postponement; household names include Dell Computer, Dow Chemical, Hewlett-Packard, Procter & Gamble and, in Europe, BMW in automobiles. (For more on Postponement, click here to see an excerpt from our book, Building to Customer Demand.)

For some companies, Postponement may enable you to produce everything you need locally and be very competitive. However, in some cases, that’s not enough; the cost disadvantages are often too much to overcome. Okay, so how about this: outsource the more costly components of the product to Asia or wherever, but finish the product locally, close to the customer.

Let’s say a given product line has 50 different finished products, but only three core components, which amount for 80% of the product cost. Rather than outsourcing all 50 finished products, it’s far better to outsource the core components (thus getting most of cost savings) but finish the product locally. Add the options to the product only after the customer order is received, do that very quickly, and then ship – right away.

It comes down to this: would you rather have to deal with 50 items coming from half a world away – with their attendant long lead times, transportation uncertainties, and variability of demand – or to deal with only three items (whose demand would probably be more stable).

Let’s not get overwhelmed by our relative cost disadvantage; it’s only one part of the equation. Rather, let’s exploit the advantages geography gives us; let’s compete and win on customer service – using the power of Postponement.

Thanks for listening,

Tom

Tip from Tom: Product families for S&OP should be based on how the products are viewed by Sales & Marketing. They are the ones who have to forecast future demand. Let's make itas easy as possible for them to do that difficult job. (For more on this, click here to see the list of S&OP principles contained in our new book: Sales & Operations Planning: the Self-Audit Workbook, due out this month.)