There is a lot that companies claim and advertise on their market share in a given segment which makes it looks like they are running a healthy business. Many companies have systematically built up market share at a healthy pace, and are profitable. However, there are some companies that have built up market share at a cost. This cost is from buying companies to bulk up, to gain critical mass which in turn reduces fixed costs, reduces unit cost through shared parts usage or R&D, or cost savings due to supply chain optimization and logistics. Is there anything wrong with this approach? Not always, but the market is littered with carcasses of many failed strategies. One such strategy was employed at Johnson Controls Inc (JCI), the world’s number one for automotive seating. JCI acquired companies at a torrid pace, spending more than $1 billion since 2011. Yet, the scale has not made the business richer. Besides macro economic issues in Europe, troubles integrating acquired companies have not allowed JCI to achieve cost savings from this dominant position. JCI’s operating margins have shrunk to 3.8% from 4.4%, while its competitors are enjoying double-digit ops margins. So having a market dominant position and global scale alone do not define market success.
Let’s see where companies like JCI can look to attain margin improvement. These companies in the industrial sector are typically global with broad global supply chain and multiple manufacturing sites dealing with a myriad of customers. In case of JCI, they operate 53 manufacturing sites in China alone, the fastest growing automotive sector for JCI. So it is easy to look at the supply chain for a quick answer. The business needs and benefits of supply chain quality management (SCQM) are multi-folded, so let’s dig a bit deeper into these areas:
Cost – Cost control is paramount no matter what sector you are in. Recall what Edward Deming states in his quality paradigm which is the classic 1-10-100 rule. It states the sooner you find an issue in the value chain, the lower the cost to fix and remediate. The cost includes resources, time and materials on the tangible side, and brand, reputation and equity on the intangible side. We all know what it costs when a product is recalled (fixing, replacement, legal, brand rehabilitation etc.). Efficiency gains also play downstream into other products that are across the entire product portfolio. Cost directly affects margins which ultimately provides better shareholder value.
Quality – Quality is an important aspect whether you are B2B or B2C. The typical 4P’s of marketing starts with the product, and without a high quality product, the other P’s have crimped value. Managing a supplier issue in a timely and efficient manner ensures that you put quality parts and material into the final product. Managing supplier CAPAs or SCARs in real-time provides that unmatched advantage to any manufacturer.
Reliability and Consistency – Since there are so many stakeholders in a typical value chain, often with the manufacturing, packaging and distribution done by various sub-contractors, it is essential to manage reliable and consistent delivery to the marketplace no matter where this marketplace is in the world. For example, look at McDonalds – you can expect consistency throughout the world. Another example is FedEx – you can expect the same reliability in every country they serve. Managing suppliers to the same standards and processes ensures brand value characteristics.
Risk & Brand Protection – Brand is an asset which can easily make or break a company. Just look at what the multiple product recalls cost Toyota in terms of brand valuation, and subsequent loss of market share. Brand and image rehabilitation costs a company time and resources during which time a competitor can swoop in to gain and retain market share. No matter how a quality related safety or reliability issue happened, your company is responsible for any malaise caused by your suppliers. Risk to your products, your customers and your brand are not something you can take lightly. Risks are not purely short-term, and the costs associated with lawsuits, injury and loss of life, can even lead to executive criminal negligence.
Optimization and Collaboration – Since multi-national companies typically utilize global suppliers of specialty, differentiating or commodity parts and materials, it is a good business practice to identify critical suppliers and optimize the supply chain to reduce unnecessary redundancy and to foster collaborative relationships as an ongoing activity. How can this be accomplished? By virtue of breaking down the proverbial four-walls around the company and making strategic suppliers become business partners. This strategy forms an integrated, collaborative cross-functional team from the early stages of product development to delivery. Differentiation and strategic partnerships create compelling products that help companies bring products to market early, gain the first mover advantage and keep competitors at bay. This methodology is used heavily in high-value or durable product markets like aerospace and defense, automotive and even consumer electronics.
Supply chain quality and visibility – Supplier quality visibility and standardization of quality processes across the entire supply chain are critical in a manufacturing environment. Access to real time metrics dashboards will lead to enterprise wide supply chain quality visibility for purchasing as well as supplier development for the newly acquired or vertically integrated seating divisions. While this provides consistent quality across the entire product portfolio, it also allows a company to optimize the supply chain for current and future portfolio management.
Some of the companies who had clear market share leadership and product prowess could not maintain their market position or sustain profitable businesses. History shows several high profile companies secede their position or went out of business completely. These include Motorola, Xerox, Kodak, BlackBerry (RIM), Dell, Sun Microsystems, Sony, and Toys ‘R’ Us, to name a few. Follow the leaders like Apple, Amazon, and IBM in defining successful supply chain management strategies to adapt and sustain a successful business.
Therefore, standardize all internal manufacturing and quality control processes centered around a single system. With the current manufacturing landscape susceptible to compromised or adulterated materials in the supply chain, the right quality processes need to be established to reduce risk and secure brand reputation. Supply Chain Quality Management needs to be built into a company’s business strategy, with clear supplier objectives, deliverables and repercussions for materials. Creating this quality environment raises the likelihood of a company turning out high quality products and in return, raises margins and market share.
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