• Industry: Automotive, Industrial Manufacturing
  • Type: Survey report
  • Date: 6/4/2012

Achieving success, overcoming challenges 

Achieving success

To compete for higher-margin business, manufacturers may need to alter their business models and strategic approaches to supply chain management, cost optimization, and product offerings.

This year’s Global Manufacturing Outlook: Fostering Growth through Innovation report finds evidence that the global economic recovery is gaining momentum, but that global manufacturers do not expect to simply “ride the tide” back to previous rates of growth. If they are to compete for higher-margin business, these companies must experiment with new ways of working, enlisting key partners to help them add value through service-based offerings.

Global manufacturers may need to alter their business models – and their strategic approaches to supply chain management, cost optimization and product offerings – in the following ways:

  • Move to occupy areas of innovation that can distinguish them from new entrants.

    Global manufacturers must therefore focus their innovation efforts on increasing levels of sophistication and integration in their offerings, and on providing associated services.

  • Develop even closer relationships with customers and suppliers.

    If manufacturers are to offer increasingly sophisticated, integrated and high-margin solutions, they need to collaborate more closely with key partners both up and down the supply chain. As far as customers are concerned, it will be vital to work with them not only to better understand their challenges and co-develop solutions but also to ensure that manufacturers have the nearshore facilities and capacity to serve them adequately when growth rebounds.

  • Find ways to build value-added services around their products, even in commoditized lines of business.

    The advance of manufacturing technology is accelerating thanks to convergent systems and concepts. As a consequence, it will become increasingly difficult to maintain high levels of growth based solely on the supply of low-margin products. However, as our interviewees demonstrate, even manufacturers of commoditized products can find ways to sell ongoing services to their key customers by taking a holistic view of those customers’ needs.

KPMG Insight:

What factors will be critical to industrial manufacturers in achieving success and overcoming challenges over the coming year?

Innovation and the speed at which innovative ideas are put into action are the keys to success. Manufacturers are focusing their efforts on their core competencies, both externally and internally, forming outside alliances or joint ventures with others who complement them and driving greater efficiencies from within by analyzing and transforming their supply chain and internal processes. This focus will provide the needed agility companies must have in order to compete in the new economy.”

- Ken Seel, KPMG Global Head of Conglomerates

To succeed in Brazil, companies first need to understand that Brazil is no longer a low-cost manufacturer. Companies here have evolved significantly over the last decade and are now struggling with the same issues that companies in mature markets are facing, including increased demand for R&D, rising labor costs, and understanding the role of government in promoting the manufacturing sector.

To be successful, I think companies need to invest in Brazil for Brazil. There are plenty of opportunities for more integrated, global investment, but I advise companies to keep abreast of complex tax policies and to hedge for currency volatility when developing their investment strategies in order to convert these potential challenges into competitive advantages.”

- Charles Krieck, Partner in Charge, Audit, KPMG in Brazil

“While carefully managing your cash as an organization is still essential given the current economic environment, we may have reached a stage where some large manufacturers have become overly cautious and risk-averse, reluctant to spend in order to generate better shareholder returns. Many manufacturers now sit on significant amounts of cash but are almost too risk adverse to deploy it by investing in innovation and product development, strategic acquisitions or new markets. Manufacturers simply can’t afford to sit still: they need to focus on risk management rather than risk avoidance or they will be left behind by bolder competitors who aren’t afraid to invest in the future growth of their business.”

- Graham Smith, KPMG Global Head of Engineering & Industrial Products

“The manufacturers that I would consider leading-edge, or operating at “best practice levels,” are integrating tax into their global procurement and supply chain organizations. I see a trend beginning whereby companies are including tax measurements into the internal Key Performance Indicators (KPIs) of the supply chain.

- Loek Helderman, KPMG Head of Global Tax Efficient Supply Chain Management, KPMG in the Netherlands

In order to succeed in high-growth markets, I believe global conglomerates need to be on the ground, developing and producing in these destinations. Customers in rapidly rising economies not only demand and expect that global players provide investment and employment opportunities locally, but that they work with them to develop products specifically targeted towards their own needs and desired price-points.”

- Harald Heynitz, Partner, KPMG in Germany


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