Transforming the manufacturing sector

According to global management consulting, technology services and outsourcing company Accenture, consumers perceive little real innovation and see many product categories as commodities.

Wayne Borchardt , Accenture senior manager, believes that 74% of consumers say all stores look alike within certain categories: "Connecting with these elusive consumers is both more complicated and more costly."

Borchardt says today's consumers are more difficult to predict due to their diverse and segmented nature. Increasing health concerns, diet trends and the need for convenience also make them harder to satisfy, while the fact that they are spoiled for choice and overloaded with information makes them tough to reach.

"At the same time, margins are being squeezed by static or decreasing retail selling price and increasing supply chain costs."

Local challenges

It appears South African manufacturing companies are facing greater shareholder expectation challenges than their global counterparts: "Investor expectations of South African FMCG companies exceed the global average."

Accenture conducted research using a proprietary model that assesses the premium on stock price based on shareholder expectations of future growth of companies.

In South Africa, this research assessed the locally-listed major local companies, viz. ABI, AVI, Illovo, Rainbow Foods, SABMiller and Tiger Brands. It was found that the average global shareholder expectation of future value premium in manufacturing companies is 31%, while the weighted average premium of South African manufacturing companies is almost one and a half times as much at 46%.

Delivering value

Yet some companies are delivering value despite the challenges faced by the manufacturing industry.

Borchardt says that Accenture's global research has indicated that high performance companies have used four key competencies to overcome these obstacles and provide long term shareholder value:

Obsessive customer focus, which involves proactive management of brands, markets, and customers, plus the ability to translate customer insights into economic value and differentiated customer offerings.

Innovation and commercialisation, which requires a culture that promotes risk-taking and innovation, and a robust structure and processes to drive agile commercialization.

Operational excellence, whereby infrastructure is efficient and adaptive, there is excellent functional integration, and information and technology is appreciated and leveraged.

Alliances and collaboration where there is competence in selection, structure, and management of strategic alliances, and there is expertise in capturing synergies and promoting collaboration.

The high performance companies that exhibit these competencies also excel in having a clear strategic intent and largely dismiss with the traditional human resource function, focusing instead on talent management.

"These key competencies allow manufacturers to improve their value proposition in several ways. First, they facilitate increased flexibility and responsiveness. They result in improved quality and compliance, increased asset utilisation and decreased costs, and they lead to homogenous solutions in all plants," Borchardt says.

Accenture has identified the key levers that high performing manufacturers typically use to make direct improvements to sustained shareholder value:

Following a clear Manufacturing Strategy that focuses on (a) the alignment of corporate and supply chain goals to those of the end customer, and (b) managing total supply chain performance in order to drive customer and shareholder value.

Using enhanced Planning and Scheduling to improve forecast accuracy thereby reducing inventory levels while improving customer services levels.

Driving operational improvements that streamline processes to increase responsiveness and lower the total cost of operations, while maintaining quality levels.

Employing Asset Management to balance conflicting business drivers in order to generate the highest level of sustainable financial returns while maintaining obligations for system performance, customer service, safety, regulatory and environmental stewardship.