April, 1998 Feature Article Get Ready to Welcome in the Era of the Virtual Customer The manufacturing sector is on the cusp of a new era, the "era of the virtual customer," where customers will surface any time, any place, and can disappear just as quickly. This will have a profound impact on manufacturers, consumers and governments around the world in the new millennium, according to a new study conducted by Deloitte & Touche and Deloitte Consulting Group (New York, N.Y.; www.dtcg.com ) in collaboration with Aleda Roth at the University of North Carolina's Kenan-Flagler, and announced at National Manufacturing Week '98 in Chicago. This era will be characterized by fierce competition due to accelerated globalization and technical progress, and a rise in demand for customized products and services. Customers are deciding when, where and how to purchase goods and services, demanding them in zero time, and influencing price. Technology is enabling it and globalization is fueling the new era. The "era of the virtual customer" will be marked by manufacturing grappling with increasing -- and more difficult to pinpoint -- customer expectations, new approaches to product innovation, worldwide supply, and distribution chains and organizational realignment. As a result of technology innovations, customers will become fully integrated into the entire fabric of the manufacturing process, blurring boundaries, and determining exactly when, where and how they will interact with products and services. Quality is now a "qualifier" in this new era. "Just as the era of mass production gave way to the era of quality, we are in the midst of a manufacturing renaissance where the leaders of today may not be the leaders of the next century," said Mike Fradette, global practice leader for Deloitte Consulting's Manufacturing Practice. "Customer demands have changed radically, and traditional recipes for success leave executives ill equipped to meet the 21st Century challenges. The speed required to not just adapt, but also anticipate, market forces in an increasingly unpredictable environment will separate the winners from the losers." He believes that manufacturing will remain a core engine of growth and wealth-creation well into the next century. The study examined the high tech, chemical, aerospace & defense, automotive, consumer product and pharmaceutical industries, and uncovered several key areas that manufacturers must address in the new millennium if they are to survive: THE GROWING CUSTOMER PARADOX The "Quality Era," which has driven the manufacturing sector over the last 25 years, is not enough to stem the growing "customer paradox" identified by the study. "Over the last five years, there has been a steady decline in customer satisfaction despite increased focus on quality," said Jim Quigley, managing director of Deloitte & Touche's Manufacturing Services Practice. Beyond the Quality Era: Differentiation in the next century will mean reaching beyond product quality and reliable delivery to include on-time delivery, effective marketing and customer service. The manufacturing sector, however, is largely unprepared to meet these challenges. Only 23% of manufacturers currently have world class capabilities in market and customer research. Integrating the Customer: Market leaders will take advantage of brand awareness to leverage new products and invest in IT to help capture and integrate crucial customer information into the entire organization. GLOBALIZE: THE MATURING OF THE EMERGING ECONOMIES The Asia Powerhouse: Based on the interpretation of the study data, the antiquated and inefficient policies in Asia will be swept away by the current economic crisis and lay a more solid and lasting foundation for growth. Leading global manufacturers may alter production or procurement strategies, but they clearly see the long-term benefits of expanding in the region. For example, China is the target of over 45% of leading manufacturers worldwide, led by the high-tech and pharmaceutical sectors, with over 57% planning to expand in China. Asia/Pacific holds a clear edge in tapping new technologies and leveraging knowledge assets globally via "on the ground" R&D strategies. How to Go Global: Nearly 75% of manufacturers have insufficient global capabilities. While sales and distribution used to bring advantage, success now requires putting a stake in the ground in global markets. Market leaders will fortify their positions in North America and Western Europe via mergers & acquisitions activity, and utilize joint ventures and alliances to move into higher risk markets. To compete more effectively in global markets, the leaders are strengthening their manufacturing and assembly operations and integrating local expertise into management. PREPARE FOR THE COMING FLOOD OF PRODUCT INTRODUCTIONS New Revenues from New Products: On average, executives anticipate the share of revenues from new product introductions to increase by 50% over the next three years. The leaders are looking to product innovation as the primary engine of growth. By 2000, sales from new products will account for about one-third of the typical manufacturer's total revenues. For example, while the high-tech industry is expected to derive the largest share of their revenues from new product introductions in the next three years (44%), the aerospace and defense industry anticipates the largest percentage increase -- a 56% increase. Over 45% of market leaders are going beyond traditional new product practices, such as computer-aided design/manufacturing, to activities that leverage the entire enterprise. Savvy Companies: Market leaders will foster 24-hour global R&D facilities, make new product development a top priority for business process reengineering for all regions around the world (except North America), enhance use of CAD/CAM systems, and increase coordination between R&D with procurement, production, delivery, and marketing and sales. INTEGRATE THE GLOBAL SUPPLY CHAIN: GLOBAL "NERVOUS SYSTEMS" Leading manufacturers are extending their focus beyond creating efficient supply chain links within the organization to creating "transparency" between business partners, including vendors, distributors and customers. Speed and fast delivery will determine success in the new era. The Internet: Utilizing technology to create a global "nervous system" that will link a continuous flow of supply and demand information internally between businesses, their suppliers and customers around the world is high on executives' agendas. From Costs to Integration: In the quality era, focus was on zero defect production and its relation to cost; leaders in the new era will now look to fully integrate customers and suppliers. This "supply web" is replacing traditional supply chains and allowing quick turnaround in an era of radical unpredictability. "We are at a pivotal moment in the history of manufacturing," said Quigley. "This new era will require market leaders to recast their enterprises to improve new product development, create customer-centric orientation, tighten global supply chain links, and harness the intellectual capital of the organization. Ready or not, the era of the virtual customer has arrived." The Manufacturing Report © Copyright 1997, 1998 by Lionheart Publishing, Inc. All rights reserved. E-mail Editorial Dept: tmr-editorial@lionhrtpub.com Lionheart Publishing, Inc. 2555 Cumberland Parkway, Suite 299, Atlanta, GA 30339 USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com Web Design by Premier Web Designs E-mail: lionwebmaster@preweb.com