How U.S. manufacturers can adapt to changing expectations of customers.
Back in 2007, Trans-Tex LLC, based in Cranston, R.I., was struggling to survive. Management quickly concluded that the company, a dye sublimation heat transfer printer of narrow web fabric, could not compete against overseas competition by attacking their strengths. Those competitor strengths included manufacturing long runs of commodity-type products and relying on armies of low-wage workers to hand-assemble the final product.
Instead, Trans-Tex management studied the weaknesses of Pacific Rim manufacturers. They concluded:
- The business model of low-cost Pacific Rim manufacturers makes it difficult for them to handle shorter production runs.
- Geographic distance negatively affects those companies’ speed to market. Being halfway around the world also forces them to ship massive quantities on slow ocean freighters instead of providing the smaller quantities that most U.S. importers prefer.
- In general, Pacific Rim manufacturers have a poor grasp of the importance
of U.S. product safety guidelines.
- Intellectual property infringement is a constant threat.
- Finally, whether inadvertently or purposely, these companies often bypass the importer and sell directly to the ultimate customer.
After considering those weaknesses, Trans-Tex built a competitive strategy around three central principles of fewer, faster and finer:
Fewer: shorter, more customized production runs
Faster: hyper-fast production lead times
Finer: good quality and safe products paired with exceptional customer service
The principles are proving effective, because they strike directly at the weaknesses of overseas manufacturers. Today’s U.S.-based consumers and B2B (business to business) buyers are changing in ways that dovetail with the imperatives of fewer, faster and finer.
In the past, manufacturers scaled up production and profitability by treating customers as populations, not individuals. Internet technology, however, has shifted the balance of power from the supply side to the demand side. The new consumer and B2B customer have higher expectations when it comes to product differentiation, lead times and product and service quality. Those expectations are forcing a transition away from mass production and toward mass customization; this trend has major ramifications for domestic manufacturing and is likely to lead to the geographic compression of supply chains.
The fewer principle
People increasingly want products that are tailored specifically for them. Baby boomers may remember going into a diner for a cup of coffee back in the 1960s and having the options of regular coffee, decaf or a cup of hot water with a tea bag. A single Starbucks store now offers 80,000 beverage combinations.
Remember how we once listened to music? If we only liked three songs on one side of an LP we had to listen to the entire side unless we took the time and effort to walk over to the turntable and move the needle. Today, music downloads and iPods give us the opportunity to create a custom album for any artist in any genre.
Online apparel companies such as Stantt are now turning three customer-supplied body measurements into custom-fitted shirts. And 3-D printing allows for the manufacturing of one customized widget. Nike is using 3-D printing to “hyper-customize” track shoes; Local Motors in Phoenix, Ariz., is doing 3-D printing of cars.
In his book, The Long Tail: Why the Future of Business is Selling Less of More, Chris Anderson makes the case that the future of business is selling fewer of more products. Anderson’s point is that the Internet has created niche markets for virtually everything. Today’s customer expects to find exactly what he or she wants and is reluctant to settle for anything less. If a customer’s usual source cannot provide it, that customer will find someone else on the Internet who will. B2B buyers will continue to demand shorter production runs, and consumers will increasingly want products that are more customizable.
The fewer principle worked for Trans-Tex through slashing the minimum order size by 75 percent and investing in digital production technology to enable shorter runs. By anticipating smaller average order sizes, Trans-Tex developed the capability to upload customer orders directly into their ERP (enterprise resource planning) software system to allow for more efficient order entry.
The faster principle
The best example of how people are obsessed with ever-quicker delivery is Amazon’s experiments with drones. Next-day service is already available, but Amazon founder and CEO Jeff Bezos is anticipating that next-day service won’t be fast enough.
Consider something as common as oatmeal. The difference between making regular oatmeal and microwave oatmeal is only four minutes. Millennials won’t even microwave oatmeal because it takes too much time—hence the spike in sales of power bars from $1.7 billion in 2011 to anticipated sales of $6.2 billion in 2018.
Social media is turning all of us into obsessive compulsives when it comes to responding to text messages and comments within our online communities. And how do we react when we click on a search result and that blue circle of death spins in the tab? We give it two or three seconds before moving on to something else. The need for speed has become hard-wired into our culture.
Trans-Tex implemented the faster principle by slashing lead times by 75 percent. Orders can be ready in 24 hours by staffing three shifts in the most critical production area and two shifts in others. The batch processing of orders was eliminated; they are entered immediately into production once uploaded into the system. The team was upgraded to include battle-tested veterans who understand how to accommodate a sense of urgency.
The finer principle
In 2007, unsafe lead levels in millions of imported toys led to massive recalls. Consumer outrage resulted in the passage of the Consumer Products Safety Improvement Act (CPSIA) in 2008. CPSIA exposed the problem of unsafe imported products, creating an opportunity for U.S. manufacturers to take back business that had gone overseas.
The new law, combined with the glare of social media, has increased scrutiny on the lack of oversight by international brands and retailers on their geographically far-flung supply chains. Ignoring supply chain risk can kill a business. In 2015, prior to the broadcast of a 60 Minutes exposé accusing Lumber Liquidators of selling laminated flooring laced with unsafe levels of formaldehyde, the company stock price was $68. Two weeks after the broadcast, the stock had tumbled to $30. It now sells for $16. The flooring was imported from China.
There are other examples, involving more immediate health risks. The twin 2012 disasters in Bangladesh of the Tazreen factory fire (117 dead) and the Rana Plaza building collapse (more than 1,100 killed) created a social media firestorm and increased consumer demand for supply chain transparency.
A trust issue also exists. Intellectual property theft is a long-standing problem in China. Many Pacific Rim manufacturers, lacking a solid grasp of U.S. distribution networks, have bypassed their U.S. import partners to sell directly to the ultimate customer. This creates an environment of uncertainty that opens a window of opportunity for domestic manufacturers.
Trans-Tex became a finer company by pursuing a distribution strategy that preserved the relationship between company customers and the ultimate consumer. The temptation to sell around the customer is always there, but Trans-Tex remains committed to the traditional distribution network in all of the markets. To ensure the quality of the customer experience, an experienced customer service team was hired. Compliance with CPSIA guidelines continues to be a concern of the operations team.
By utilizing the fewer, faster and finer principles, Trans-Tex generated double-digit sales increases during the worst economic environment since the Great Depression. The company now processes six times more orders than it did in 2008, and employs four times more people.
Michael McKeldon Woody is CEO of Trans-Tex LLC, Cranston, R.I.