The Customer is Virtually Global

There's been a lot of talk over recent times about "virtual communities" and "virtual classrooms".

But it's the "virtual customer" that's putting manufacturers into a spin as they try to weather the winds of change blowing them out of the post-industrial era and into a brave world of new competition.

And information technology in a range of guises has been identified as a key enabler of the transformation.

A just-released major global survey -- Deloitte Touche Consulting Group's 1998 Vision in Manufacturing global study -- suggests that in this new "era of the virtual customer", globalisation and rapid technological change are fundamentally altering the competitive landscape. A prevalence of affordable technology and the mass migration to the World Wide Web is helping some niche players and manufacturers in emerging markets to assert themselves globally, while advances in ITT are accelerating productivity and supply chain integration. Manufacturers have little choice but to respond and the best are racing to build flexibility and rapid-response capabilities into their organisations.

The report says new organisational structures, increased outsourcing and new alliances will all be critical to satisfying customers in an era where a strategic focus on the customer is becoming more important than ever before.

And, it says the market leaders and manufacturers are increasingly eschewing process re-engineering in favour of leveraging information technologies such as data warehousing, customer integrated data and electronic commerce to improve marketing, sales and service.

"Customers around the globe are deciding what, when, where and how they will purchase goods and services," the study says. "Customers have virtual access through cyberspace to more products and services than ever before and they are using 'smart' systems to help them make more informed, personalised choices.

Customers are also beginning to exert their bargaining leverage to influence price. And, with instant telecommunications and overnight delivery, typical constraints, such as time and distance, are rapidly diminishing.

"As a result, customers are demanding products and services in 'zero time'. As the millennium approaches, expectations will not only continue to rise, but they will become increasingly unpredictable. This means that planning horizons will rapidly decline and traditional approaches of forecasting, planning and execution may not be enough to achieve success."The Deloitte Touche and Deloitte Consulting study comes with excellent credentials. The Vision in Manufacturing study has benchmarked strategic developments and trends in manufacturing since the mid-1980s, with more than 3000 leading manufacturing executive participants to date. The authors surveyed almost 900 executives in 35 countries for the 1998 study. The result is a top management perspective from executives and their management teams around the world.

"Traditional recipes for success are not adequate to compete in the new millennium. How are market leaders -- those commanding the largest share of their target markets -- meeting the challenges of the 21st Century?" the report asks. "The 1998 Vision in Manufacturing study shows that top executives are shifting their focus from cost to growth. Market leaders are making more than just ad hoc, incremental improvements.

"For most leaders, re-engineering has peaked. Leaders are now racing to build flexibility and rapid-response capabilities into their organisations. They are redesigning?their?business processes,?realigning?their organisations and leveraging technology to develop innovative, integrated solutions. Top performers are changing corporate cultures that impede fast response and harnessing their knowledge assets to do it." While leading manufacturers accept globalisation as a?strategic?imperative?for growth, few see global sales and distribution capabilities as enough to give them sustained competitive advantage into the next millennium.

One way market leaders are responding to the need to find better strategies is by creating global research, manufacturing and distribution networks. Another is to develop superior RD capabilities in sites around the globe, and then transfer knowledge and link RD with other organisational functions across borders. Here, in the Asia-Pacific region, manufacturers have an edge they will continue to leverage over future years, the authors predict.

Creating a new agenda for product innovation. Manufacturers see product innovation as the primary engine of growth and customer retention, with pressures to innovate affecting all levels of the supply chain. But prowess in science and engineering is no longer a guarantee of new product success.

Instead, customers are demanding products and services that offer them solutions. That means market leaders are capitalising on advances in information systems to aggressively create niche products opportunities and value-added services to differentiate their products.

The report detects a global convergence among manufacturers?towards?accelerated product?innovation.?There's also?a?worldwide?focus?on strategies to develop cutting edge new product development processes (NPD).

"Business process re-engineering is the preferred strategy for improving management of the product portfolio. In fact, NPD is currently the most important area for re-engineering and will continue to be in the future in all regions, with the exception of North America. Re-engineering efforts appear to have peaked in North America, where manufacturers have shifted their emphasis to re-engineering information systems, especially in the US."As in other industry sectors, IT is recognised by manufacturers as a key enabler to breaking down the functional "silos" within organisations, and to integrating customer perceived value into products.

"North American executives are the pacesetters in the information era.

Integrating and leveraging information systems and other electronic links have become the principle basis of competition among executives in the region.

Market leaders are using Internet-based technologies to speed up the development process and ensure congruity between NPD and other aspects of the business. Ford Motor Company, for example, is assembling a collection of computing networks through which it hopes to eliminate travel expense and time wasted from its international product development efforts. Ford's computing set includes a company-wide intranet [See our case study, CIO September 1997 -- ed] that lets the company distribute information internally and practice virtual engineering. This has helped Ford to reduce its typical vehicle development cycle by months."Already in the interest of achieving best practice NPD nearly 45 per cent of market leaders use programs such as computer-assisted design and manufacturing systems (CAD/CAM). It is just this strategy has allowed Boeing to cut numerous steps out of the design cycle on many aspects of its 777 aircraft project. In contrast, just 25 per cent of market followers use CAD/CAM software.

But in the future it is how effectively RD integrates with the entire supply chain, including vendors and customers, that will make the real difference.

The?authors?say?increased coordination of RD with procurement, manufacturing, distribution, marketing and sales will undeniably be a critical component of new product development improvements in the 21st century. And around-the-clock development strategies, fuelled by advances in software, will also be a major differentiator, allowing companies to actively exploit global time differences and research sharing.

The "customer paradox". For years most manufacturers have relied on superior product quality to attract and retain customers. But theory has not matched reality: customer satisfaction ratings have declined over the past five years even while the emphasis on quality has risen. The reason, the authors suggest, is that for customers, quality is not enough. Instead they want value -- translated as quality and delivery and service and flexibility and increased customisation -- at a competitive price.

"Providing customers with the greatest perceived value will be the foremost challenge for manufacturers in the 21st Century. Manufacturers who consistently offer higher value will leave their competitors behind. This requires a solid understanding of what customers actually value. For global companies, it also means gaining in-depth knowledge of customers in new, uncharted markets. The task will require manufacturers to integrate new, innovative sales and marketing strategies with their manufacturing and RD capabilities," the report says.

Market leaders -- especially high technology and chemical manufacturers -- are investing heavily in capabilities that will let them capture and integrate critical customer and market information into their strategic planning processes. They are also re-engineering their market and customer service.

Although the report finds this activity has reached a zenith in North America, it says executives in Europe and Asia-Pacific will focus primarily on re-engineering their marketing and sales processes, honing in on front-end capabilities to support their globalisation initiatives.

At the same time, the Internet is reshaping the manufacturer-customer relationship,?forcing manufacturers?to?re-evaluate?how?they market, sell and service their products. "In every industry, the leaders are deploying a cadre of new information-intensive technologies to 'lock-in' customers. The implication is clear: Companies whose marketing and manufacturing strategies respond to the 'voice of their customers' will evolve into 'customer-centric' organisations," the report says.

Market leaders leverage Internet technologies to link real-time business processes directly with suppliers and customers to improve customer service, increase responsiveness and expedite delivery. And it's working. Those manufacturers that emphasised the importance of value-added services in 1993 are performing significantly better this year. Clearly, getting closer to customers does improve profitability.

Meanwhile leveraging IT is becoming the means to improved marketing, sales and service. The report finds most manufacturers only capture a fraction of the value potentially inherent in customer interactions, yet IT should be enabling them to gather, capture and integrate critical customer information. In the US in particular, market leaders and executives are already leveraging IT in service, marketing and sales to more closely align with customers.

"Data warehousing, customer integrated data systems and electronic commerce are the primary tools for improving marketing, sales and service. Market leaders use these technologies at nearly twice the rate of market followers. They use data-mining tools to segment customer groups, develop targeted-marketing campaigns and enhance direct sales. Executives in Europe view data warehousing as the most critical tool. The proliferation of call centres for sales and service in Europe is supported largely by data warehousing technology.

Executives in Latin America are also placing a high priority on data warehousing.

"In North America, electronic commerce is the primary tool used to get closer to customers. The Internet provides an avenue to improve support, enhance efficiency and increase profitability. On-line ordering can reduce the need for employee assistance in research, ordering, tracking and service. By placing product information and technical support on-line, Dell Computer Corporation has improved customer responsiveness. Dell also customises Internet sites for its largest corporate clients, thereby simplifying procurement and support processes for their customers."Forecasting 175 million Web users by 2000 and electronic commerce to turn over $US220 billion by 2001, the report says market leaders are already leveraging Internet technologies to recast their marketing, sales and customer service functions. And they are creating repositories of critical customer information that will serve as the foundation for the customer-centric organisation.

Global supply chain. Executives see supply chain integration as vital, and industry leaders have gone beyond creation of smooth links between departments to the wider challenge of "creating transparency" between core business partners such as suppliers and customers.

Today, 68 per cent of manufacturing executives indicate above average commitment to customer integration and 73 per cent to integration with suppliers. The report says supply chain superiority will be a decisive competitive advantage in adapting quickly to the increasingly unpredictable shifts in customer demand. The Internet will be the key enabler of the change.

Yet the study shows the typical manufacturing company is far from achieving ideal supply chain integration and forecasts an all-out push to improve the level of integration with every partner in the supply chain. A major driver of supply-chain integration is the absolute imperative of achieving reliable and expeditious delivery to the customer, with most manufacturers admitting a weakness in this area.

Technology is seen as the key enabler of better supply chain performance.

"Two-thirds said they plan to use electronic links such as electronic data exchange (EDI) and related Internet-based technology platforms to enhance supply chain relationships.

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