By Barry Jaruzelski, Vice President and Managing Partner, US Communications & Technology Practice, and Frank Jones, Vice President and Managing Partner, US Operations Practice, BOOZ ALLEN HAMILTON INC. ·
By the end of 2002, Booz Allen was cautiously optimistic that the market for capital goods had finally bottomed out. Business investment appeared to be making a nascent recovery except in the most depressed sectors. Yet, we also believed that significant overcapacity and continued strong productivity gains would dampen any rebound. ·
We were largely on target with that assessment. 2003 presented another challenging year for industrial manufacturers. While 2003 will likely show some growth over 2002, progress has been far from steady. Globalization is a root-cause driver of the challenges US industrial manufacturers face. Their customers continue to move manufacturing offshore, with China gaining rapid momentum. Offshoring of services, such as software development, call centers and other backoffice functions, also gained steam, with India taking center stage. The restructuring of supply networks, along with continued domestic productivity growth, are reshaping the manufacturing and service sectors in the US, fundamentally reducing the long-run domestic demand for manufacturing equipment, support and components. ·
As a result of cost cutting and emerging growth opportunities, industrial manufacturers turned in reasonably good financial performances, given the difficult environment. There have been very few high profile crack-ups seen in the steeper boom-to-bust cycle in the I/T hardware, software and telecom sectors. Today, board and management attention is emerging from its heads-down bunker mentality and turning towards growth. Yet, given persistent overcapacity, there will be limited upturn in demand. Growth will require stealing share or entering new markets. Increased competition is rarely a good thing for producers, and we'll likely see cases of self-destructive industry behavior. ·
In 2003, we advised our clients on these issues and more. At present, our clients are finding four topics particularly interesting: ·
--Supply Chain Management ·
--Managing Complexity ·
--Organizational Effectiveness ·
--Corporate Governance · (Editor’s note: Managing Complexity, Organizational Effectiveness and Corporate Governance will be discussed in subsequent e-newsletters.) ·
Supply Chain Management ·
We believe that significant opportunities exist for industrial manufacturers that view Supply Chain Management as an integral part of their overall business strategy, as well as an embedded, cross-functional capability designed to unify the extended enterprise. In light of a slowed economy and continued customer pressure, effectively managing the supply chain is another tool to reduce costs and improve customer satisfaction. ·
A recent Booz Allen global survey of nearly 200 heads of manufacturing, purchasing, or logistics; "CXO"s (CEOs, CFOs and COOs); general management; and supply chain directors analyzed the reasons why senior executives at large companies worldwide believe SCM has failed to live up to its promise during its first two decades, despite global investments of over $19 billion annually on information technology systems solutions to improve supply chain performance. ·
Among its conclusions, the survey found: ·
-- In organizations where Supply Chain Management is part of the overall business strategy @ and, therefore, a CEO-level agenda item @ annual savings improvements in the ``cost to serve customers," a broad measure of manufacturing costs, were nearly double those of firms where SCM responsibility resided lower in the organization, 8.0% vs. 4.4%. ·
--Companies willing to consider steps as significant as reorganizing the supply chain itself when appropriate (also known as ``breaking constraints") achieve savings in two key cost measures that are 36% and 55% greater than companies willing only to make adjustments within the existing supply chain structure.
--Nearly half (45%) of survey respondents said their supply chain Information Technology (IT) solutions have failed to live up to expectations, suggesting that for Supply Chain Management to reach its full potential, technology alone is not the answer.