Manufacturing’s new imperative: Three strategies to boost top-line growth

Albert Kent, John Ranke, Amandeep Dehal, Michael Kinder
July 14, 2016

Executive summary

In one way or another, operations executives are under pressure these days to make more significant contributions to their company’s growth. The days when an operation team’s primary responsibility was to run a cost-efficient plant — either through lean Six Sigma within the four walls of the plant or through the careful selection of low-cost plant locations — are coming to an end. Cost and the other usual plant metrics — quality, service, inventory, and safety — are still critical, but to a certain extent, these responsibilities have become table stakes. In addition to ensuring that these needs are met, senior operations executives must increasingly find new approaches and designs that will bolster the top and bottom lines.

Although there are many areas that operations teams can explore for improving performance, several merit special attention. Broadly, they fall into the categories of rethinking the manufacturing footprint, implementing new enabling technology, and configuring the supply chain in a tax-aware way.

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New demands on operations

The bar is being raised again for operations executives. Having overseen the globalization of the supply chain, the push toward plant safety, and transformations rooted in lean processes, these executives are now having to make an even more direct contribution to their companies’ top and bottom lines.

This is no easy task. A lot of the measures needed to make a contribution at this new level are outside the executives’ direct control. If operations executives are to increase their contributions, they will have to develop new skills and raise their profiles within their organizations. There are three areas in particular where executives should be aware of changes and, in many cases, develop expertise that they can incorporate into their operational strategy: tightening up lead times in geographies where faster delivery can lead to increased market share; introducing time- and cost-saving technologies; and looking for strategies that could lower the company’s tax burden.

In this report we discuss these three value creation options, and show how operations executives can get started.

Additional resource

Research from PwC’s Performance Measurement Group (PMG) finds that operating more distribution points closer to the customer is a characteristic of leading companies. PMG data shows that Best-in-Class Supply Chain Companies (BICC):

  • Have 20 percent higher profitability than bottom-tier supply chain companies
  • Have a strong focus on ensuring that their supply chains are driving forward revenue growth; their sales growth outpaces bottom-tier supply chain companies by almost 50 percent
  • Have almost two times as many distribution centers as bottom-tier supply chain companies, indicating that increasing the distribution network in a strategically managed fashion can result in greater operating efficiency

Conclusion

The new "ask" for operations leaders — after a few decades in which they have focused on the cost, process efficiency, and safety of their plants — is to find additional ways to help their companies increase their revenues and grow profitably. They have a few tools to help them do this. One is to reconfigure their manufacturing operation in a way that adds some important attribute — often speed or flexibility — to their company’s product or service portfolio. This is the asset-right option. The second tool is to use sensor, monitoring, and cloud technologies to create a step change in productivity. This is related to the efficiency pushes of the past, the difference being that the risk and reward — at least for the moment — are higher. And the third tool is to apply a layer of tax awareness to plant investment decisions. In some cases, the tax filter can highlight geographic options that are so clearly superior that the benefit becomes a dividend that can be reinvested in the business.

There’s nothing trivial about figuring out how and when to make these changes, which all require discussion with other departments and with experts outside operations. But it’s worth spending the time to think through the different possibilities. The returns from making the right decisions, and from the right investments, can be huge. Only operations executives who understand the market, technology, and taxes will reap the benefits.

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Al Kent

Principal, USA

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