Failure of manufacturing companies to meet global competitive pressures

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Failure of manufacturing companies to meet global competitive pressures

Increasing global market volatility is a top challenge for manufacturing companies in improving agility in addition to geographical considerations like geopolitical considerations. Entering emerging and target market regions and innovation and flexibility paradoxes are other difficulties faced by consumer manufacturing companies. Information describing these difficulties and examples are provided below.

Market Volatility

  • Managing market volatility is given to be a top challenge for manufacturing companies trying to improve agility. The economic uncertainty regarding Brexit-related issues such as rising input costs, confusion regarding tariffs, "unprecedented levels of stockpiling, drops in investment in talent and technology, and the global headwinds is driving market volatility in the UK.
  • The market volatility has caused insolvencies in the manufacturing sector to rise to unprecedented levels, and in 2019 insolvencies were the highest in five years after increasing 7% year-on-year. The global insolvency index was expected to reach 8% in 2019 and 2010.
  • Market volatility in the US marketing sector is being driven by "ongoing effects and uncertainty created by protectionist measures" and the trade war with China, and this is not predicted to improve due to the upcoming elections. The situation is described to be bleaker across the Eurozone, and Germany is expected to fall into recession during 2020. Emerging markets in the Middle East are predicted to experience growth as oil prices stabilize.
  • Industry Week gives an example of a global metals company that was able to manage a shortage of key materials while a competitor was forced to stop production. The company that was successful due to its "institutionalized collaboration between procurement and manufacturing", its fully comprehensive view and preemptive measures regarding volatility.

Geographical Aspects

  • Requirements such as tariffs, different regulatory requirements, geopolitical considerations, input costs, and local capabilities such as labor can pose a challenge to manufacturing companies' agility. Some manufacturing companies may locate production companies closer to target markets to ensure production capabilities accommodate regional complexities and provide agility to meet fast-changing customer demand.
  • A 2017 survey found that 43% of business leaders believe that regulation will be the biggest disruptors to businesses 25 years from now. Regulations like EU's GDPR expansion, state specific regulations, demand for supply chain transparency in a global market, and tariffs are disruptors that threaten manufacturers ability to improve time to market.
  • Disruptors like tariffs and regional regulations can wipe out suppliers for smaller or specialized manufacturers and impact the time to market for their products.
  • Polaris Industries' CEO Scott Wine of Polaris states that the China-tariffs and retaliatory tariffs in Europe would prove detrimental to the company. Wine reported moving $10 million of supply chain manufacturing out of China because of the tariff costs but the companies' reliance on highly technical suppliers in the country and getting other suppliers "up-to-speed" would take at least a year. This would drastically hurt the company's ability in bringing products to the market.

Emerging and Regional Markets

  • Manufacturing companies face challenges in agility if they are not able to locate production locations near emerging markets. Two-thirds of global manufacturing value comes from those that locate close to the markets to reduce transportation costs or more quickly produce specialized products for the region.
  • Consumption patterns in emerging markets are said to possibly be "volatile and fast-evolving" and can impact manufacturing companies' ability. Successful manufacturers will combine efficiencies of scale and standardization, flexibility, and insight to meet the customers needs timely.
  • Acquiring and retaining talented workers with the right technical skills is a challenge that threatens the agility of manufacturing companies around the globe.
  • Trade tensions are said to be "jolting emerging" markets
  • Knowledge of the emerging market can make or break a company's agility in bringing products to market successfully, and an example is given of a manufacturer of consumer products that was unsuccessful in its attempt to bring its products to an emerging market. After conducting research, however, the company learned that the consumers in that market were unique in only purchasing products that could be reused.

Innovation and Flexibility Paradoxes

  • Although manufacturing companies rank product innovation and time to market as top priorities at the enterprise level, it ranks as the least important in supply chain priorities. The Institute for Supply Management calls this an innovation paradox.
  • As manufacturing companies try to lower direct production costs, they are increasing outsourcing production, engineering, or logistics to third party companies, a process which can result in longer lead times and hinder their ability to quickly implement changes in supply chain operations when necessary. This is described as a flexibility paradox by the Institute for Supply Management.