Manufacturers and distributors across the country, and around the world, increasingly find themselves at a crossroads. One path is littered by the reality of evolving economics while the other reveals a growth opportunity available to “pre-Internet” companies by harnessing modern technologies.
For decades, the business model in the Rust Belt economy was fairly straightforward: produce and distribute more widgets to a growing customer base, domestically and internationally. With times changing, for many of these that growth model slowed, or worse, plateaued. Some came to find that growth opportunities were finite, as the customer base became finite. In other words, once you’ve built the customer base that needs your widgets, your growth is either fueled by, or limited by, the extent to which that customer base needs more widgets.
That was then. Now, the picture is far different, and it has some traditional manufacturers veritably bullish about what lies ahead for the manufacturing sector.
Manufacturing: The New Service Sector?
It will take a mental shift for some, and for most a strategic shift. But, many manufacturers have already discovered that it needn’t take a seismic shift.
The trend is clear: If manufacturers and distributors want to thrive in the modern service-sector economy, they must become active participants in the service-sector economy. This means more than manufacturing and distributing proverbial widgets, however complex that component, system or technology may be. It means reorganizing strategies, systems, technology and teams around what makes service as a business model so profitable and limitless.
According to a recent study conducted and published by Deloitte, “The Service Revolution in Global Manufacturing Industries,” the shift is already on, and just beginning to take form. The pioneers are reaping the benefits already, while those looking to join the herd need to quickly embrace the paradigm shift and make the necessary adaptations to keep in line with competitors.
Among the findings in the report is this data point: “The average profitability of the service businesses benchmarked is more than 75% higher than overall business unit profitability, and accounts for an estimated 46% of total profits generated today.”
As Hamlet might say, “The service play is the thing!”
The Amazon of the Rust Belt?
One reseller for manufacturers that serves as a proof of concept, but is certainly not alone, is Cleveland-based Bearing Distributors Inc. Established in 1935, BDI has grown from a small domestic distributor of bearings to become a global supplier of industrial goods, services and solutions. According to the company’s website, “This growth has occurred through acquisitions and organic growth, but most importantly through customer service excellence, technical expertise and manufacturer support.”
In 2007, BDI discovered the opportunity before it as a service-oriented business and began to examine how technology could help improve manage their vendor inventory and fulfill orders. What started as a project to infuse efficiency would ultimately become a platform that positions the company in the manufacturing sector the way many of us think of Amazon.com.
By 2007, BDI had partnered with Detroit-based GRID, a progressive solutions provider and technology consultant, to design, develop and deploy “SmartSUPPLY,” the company’s proprietary vendor-managed inventory system, known in the technology space as a “VMI.”
The VMI system was implemented to streamline and inject more intelligence and efficiency into BDI’s traditional processes for tracking and managing inventory at BDI’s suppliers. Whereas traditional systems and methodologies can be cumbersome, difficult to manage, potentially fraught with human error, and simply lacking in the ability to report actionable business intelligence, this new system would rely on automated technology, scan-able codes, cloud technologies and business intelligence software to drive greater performance throughout the supply chain.
Naturally, vendors embraced the platform. It translated to immediate, tangible cost savings, resulted in visibly and significantly reduced errors and inefficiencies, and opened their own eyes to the possibilities of technology and what Deloitte’s report refers to as “The Service Revolution.”
Eventually, BDI approached GRID with a proposition: If this works so well as a VMI for us as a bearing distributor, why couldn’t we offer this same system to vendors for other materials, components and parts?
So that’s what they did. BDI worked with GRID to “white label” the system, so that all of BDI’s clients could potentially implement the platform to other vendors. In doing so, BDI is in the position to track, manage and fulfill inventory up and down the supply chain, beyond its traditional core bearings business. BDI didn’t need to make the component to sell it; it simply needed to fulfill it at the best price and on the most attractive terms. The shift was on, and it opened limitless opportunity that could have never otherwise existed for a traditional manufacturing company in middle America.
Delivering Category "Kills"
If you think about the business model that Amazon pioneered, there is money to be made simply by providing the service of fulfillment, tracking and reporting. Or, take Zappos, which is in the business of “delivering happiness.” These companies ‘make’ nothing, as we have historically regarded the concept. But by managing and delivering inventory, they have each become ‘category killers’ in their own spaces by leveraging innovative technologies in the modern service-based economy.
The same opportunities are available in the manufacturing sector, and that’s why Deloitte has studied and reported on this trend. It’s an exciting turning point for a whole sector of our national economy that has struggled to reinvent itself since the 1990s.
“We have always realized that it was necessary to embrace technology at BDI, but we were mostly focused on product fulfillment technologies, and not necessarily on supporting and accelerating our services. It is easy to be afraid of change, especially in an industry as mature as ours,” said John Newman, vice president sales-Americas. “Instead of being paralyzed by fear, we were invigorated by opportunity and decided that it was time to capitalize on it. There is definitely a shift happening in our industry, one that is calling on businesses to evolve to stay relevant in a 21st-Century service-based economy. BDI wants to lead change, not react to it.”
This evolution may not be natural and intuitive for many Rust Belt firms, but the shift needn’t be disruptive, nor daunting. It is more of an evolution than a revolution. The key is to understand your profit generators, knowing what challenges a particular market is trying to overcome, and exploring how technology and systems can not only solve those problems but also deliver greater, actionable business intelligence in the process.
Paul Tibbert is the co-founder of GRID, a team of designers, developers and business professionals who build software, websites, brands and interfaces for companies of all shapes and sizes. Contact him at LinkedIn, or visit www.workwithgrid.com