Q: What’s on the horizon for the E&M sector?
KD: Engineering & Manufacturing (E&M) companies will expand their business models along the value chain, focusing more on capabilities than capacity management. It’s the obvious response to customer demands for greater value, core markets saturation, and pressure on product margins. To get closer to customers and better meet their needs, business models are also slowly shifting from B2B to B2B2C (business-to-business-to-consumer).
Another clear trend is towards service-oriented business models, with more and more E&M companies offering after-market services and complete solutions closely coupled to their products. A good example is the increase in ‘pay-per-use’ offerings for aircraft engines. Also, using new data and new technologies, these companies are now moving their business models from ‘to-stock’ to ‘to-order’.
Q: What things are driving these changes?
KD: A big driver is changing customer demand. Do you realize that between 1997 and 2012, the average product lifecycle in the automotive, chemical, engineering, and pharmaceutical industries declined by about a quarter, while the number of product variations increased by 220%? There are no more static portfolios. Today it’s all about customization and personalization, and E&M companies will see a lot more diversification in future.
Another key driver is increasing volatility and exogenous threats. How can you make good business decisions with high uncertainty and low predictability? Volatility, political instability, protectionism, armed conflict, and natural disasters are compounded by unpredictable supply and extreme price fluctuations for key resources such as oil and iron ore.
Q: What are the implications for the supply chain?
KD: The E&M supply chain will be changed by more complex customer demands. I’ll stick my neck out and say consumers, not producers and innovators, will increasingly influence the supply chain. So in future, supply chains must be designed for agility, speed, and efficiency. Manufacturers should apply anticipatory models which enable profitable manufacture of smaller batches of customized products. They also help to deal with unpredictable variations in demand and to respond more quickly to customer orders.
Another change for the E&M supply chain will be increasing complexity. There will be more parts and more suppliers to deliver broader, individualized product portfolios, and more pressure on the supply chain to cope with increasing volatility and threats. More than ever before, it makes sense to consider using a lead logistics service provider to orchestrate the supply chain.
For more information, download the recently published DHL Engineering & Manufacturing white paper here.