Manufacturing leaders have a lot on their minds. While margin opportunity is abundant, critical macro- and micro-threats are everywhere. Zilliant and its partners are committed to helping commercial teams navigate confusing times and come out on the other side with a strong outlook. Here is a snapshot of manufacturing best practices shared recently on the B2B Reimagined podcast. Subscribe to the show here.
Manufacturing Best Practices: Sound Bites from the B2B Reimagined Podcast
We’ll start out with a pair of insights from Salesforce Vice President, Industry Sales for Manufacturing, Auto and Energy on episode #69, Addressing Margin Erosion and More Manufacturing Trends.
On the importance of pricing resiliency:
“In the coming six months to a year, we're going to really have a bifurcation of the haves and the have-nots. And the haves are the folks that are going to continue to have an order backlog.
They're sitting on a lot of cash. They're potentially benefiting from the Inflation Reduction Act. These folks are going to be opportunistic - they're going to be looking to pick up market share, buy companies, invest, and grow. Those folks are actually in the catbird seat right now, and especially if they have a backlog of orders here, then their ability to use pricing to increase their margins during this period is incredible.
Now, separate that with the have-nots, and that's not meant as a derogatory, it's just that they're in a situation that they're going to need to hunker down in a downturn. And what they're going to be looking for are productivity plays, doing more with fewer people. And if you're going to make changes in the market, then you don't want to be trying to make that all occur on a bunch of spreadsheets. You need the right tools to make sure that your folks are productive and you're making the right decisions out there. So I think this is a tremendous opportunity to be re-looking at your customers, looking at your cost, and looking at your pricing strategies overall and being more, I'm going to use the word resilient, than perhaps folks have been willing to be in the past.”
Why you must analyze your customer base:
“I have seen a number of folks who felt that in today's environment, it was sufficient to be looking at pricing maybe on a quarterly basis. My argument would be to go back to the look at your customers first. If you are in that situation where you do have constrained supply, then you ought to be trying to optimize your customer base and your margins at the same time. The object should be to sell your widgets to the best customers first before anyone else, and then optimize the margin that you can get from those customers.
And again, if you're not doing that today, particularly in inflationary times, you're not really doing your shareholders justice. Look at the holistic customer base and look at them differently and treat them differently in your pricing scenarios. I think there's been no better time to do that and establish a base. and then wherever the economy takes us, it'll always be something that you can rely on. And the earlier you do it, the better off. I know that some companies are looking to do that, but have not yet made the move. And I would urge them now to do that because if they're not, they're leaving money on the table.”
Jumping over now to our most recent episode, Manufacturers Must Get Nimbler – But How?, featuring Matt Baker and Calvin Chow from Slalom.
On systems-driven flexibility:
“All you’ve got to do is turn the news on, read a blog, to see we’re staring at some tough economic headwinds. Manufacturers really need to focus on being nimble, responsive to the changing realities that are out there. How do I work more efficiently? How do I drive return? How do I drive margin? This is really going to force the manufacturers to look at how to function in an environment where costs are constantly in flux. Customer expectations are changing. Is inflation going up? Is it going down? Is it going sideways? Where's supply chain at? We don't have enough of this piece. Oh no, we've got too much of this - now we have inventory. It's all going to require manufacturers to really have that pricing flexibility. But more importantly, how do we easily tie that into all of our systems?
If you look at what most manufacturers are doing out there it's extremely complex pieces of equipment. You're not just building a single widget anymore. So to do that, I have to source parts from all over the world. If I'm sourcing a piece of it from the US, from China, from Mexico, what are the price differences? Freights, shipping, taxes on it. If I'm building up to a price-based formula, am I going to take a hit on supply chain-related costs because I have to transport it over an ocean? Can I make up that cost by raising the price on a cheaper, more readily available component? What's on back order or what do I already have allocated to other customers that I'm promising to deliver? Is that going to impact that ability to be able to deliver to my customers and the prices that I can then charge for that?”
Taking a “total solution” approach:
"More customers are really looking to bundle total solutions together. How do we take complex manufactured products and bundle that with field services for warranty? How do we bundle that with consulting services for how to use the product? How do we bundle associated software on top? And they're not going to want to have to dig through a 500 to 800 line-item bill of material to pick certain areas out but, I'm going to adjust this cost or that cost. It gives them a little bit more pricing flexibility to help drive overall margins by not just focusing on a particular line item, but the entire value they're providing from the solutions that they're offering.”
The state of manufacturing in 2023:
“Manufacturers are really trying to put the last three years behind us, look to the future. The world is still a little bit in flux. So I think the key thing is manufacturers are going to have to stay nimble, to quickly adjust how they go to market. We're going to continue to see manufacturers really lean into that digital transformation to enable this flexibility for them going forward.”
“You can continue to expect the focus on growing profit and I think there's still a lot of macroeconomic factors such as the war in Ukraine, the COVID in China. So there will be volatility that companies have to deal with and I think it's really important to invest in pricing. Keep in mind that a 1% increase in price gives you 8% in profit, so it's the most effective lever. And I just want everyone to keep in mind that pricing is a journey. It's not like just a one-time exercise. You really need continuous refining, adding additional data points, getting your data structure in place. And also setting your organization up to have a really holistic customer pricing strategy so you can actually execute and become a company that has pricing excellence.”