Manufacturing is having its ‘retail moment’, where it needs to think about how the internet and digital technologies are impacting the fundamentals of the industry’s business models - as we have seen with traditional stores struggling to compete with online giants, such as Amazon.
The industry should be thinking about how cloud, analytics, the Internet-of-Things, mobile and social can bring it closer to its customer base.
This is the opinion of Lisa Pope, who heads up Infor’s sales and strategy. I got the chance to sit down with Pope at the annual EEF Manufacturing Conference in London this week, where she spoke about how Infor is working closely with its manufacturing customers to ‘digitise’ their business models.
For more background on Infor’s rapidly evolving business, which has undergone a massive shift in recent years towards cloud, data and design investments, take a read of my analysis here.
Speaking about the trend towards manufacturers selling their services, as opposed to one off products, through the use of cloud, data and IoT, Pope said:
A manufacturer thinks they sell a product, but that’s not really what the customer views what they’re providing them with.
The manufacturing industry is in huge jeopardy, with the lines blurring between distributors, retailers and manufacturers, and the competitive pressure. Then there’s Brexit and the political agendas in the US. So it’s like a perfect storm of technology being available and the industry being in crisis.
Learning from retail
Pope went on to say that the retail industry went through a similar transition a few years ago, where it was faced with competition from new online companies that could service their customers more efficiently and provider a better digital experience. As online sales soared, traditional retailers struggled to compete when faced with the costs of their physical footprint.
Pope added that manufacturers are now having to rethink their supply chain and distribution, as often a better ‘service’ can be provided by dealing directly with the customer, as opposed to via a variety of traditional outlets. She said:
We’ve learned a lot from retail. Retail really went through their mass of compelling events a few years ago, with online proliferation. The minute that online sales overtook store sales, many retailers found themselves, because of the expense of the stores, literally going bankrupt and out of business. The really nimble companies figured out that they could still have some stores and an online presence.
That experience in our retail group has led us to now be able to take that same kind of thought process and offer it to manufacturing. And I think there is a lot of synergy between the two.
One example is Infor customer Nike, which Pope said would traditionally be thought of as a fashion apparel manufacturer, making running shoes, and with some retail stores. However, she said that the company was spending too much money on branding with celebrities in an attempt to boost sales, which wasn’t working.
Nike needed to rethink about what business they were actually in, according to Pope, which isn’t manufacturing, but health and fitness. Having worked with Infor, Nike then developed applications, such as its running app, alongside the online running community, to help bring the brand closer to the customer base.
Nike also realised that some customers would pay a significantly higher price tag, and would wait significantly longer, for shoes that are personalised. Again, this cut out intermediaries and brought Nike closer to its customers. This strategy, according to Pope, led to Nike increasing its sales by 50% and decreasing its advertising spend by 70%. She added:
It’s thinking differently about what business you’re in. Yes you produce goods, but that’s not what the customer wants. The customer wants more than that now. That’s what we try and focus on with digital transformation, the end customer. What digital experience can you provide to them that makes them more loyal and changes the nature of the supply chain, so that you’re really one to one?
Because the lines have blurred between distributors, manufacturers and retailers - that whole view of how people used to distribute has changed. Customers want service. It’s not so much that you can make money on the service, it’s more that if you’re not giving your customers a service based solution they’re more likely to go somewhere else.
It’s no different to what we are doing in software with cloud, we would much rather us run your software than you buy it from us. Because once we are running it, it’s very hard for you to leave. It’s a long-term partnership.
The Infor approach
Pope said that the timing is “perfect” for manufacturing companies to adjust their thinking on how they operate, as the technologies to make the adjustment are now mature. However, she also warned that the sector can’t be complacent, as she’s seen too many companies disappear because they’ve been ‘Ubered’ by a digital-native competitor. “This is really about survival”, said Pope.
But, as we know, change, or ‘transformation’, isn’t easy. It’s definitely easier said than done. So I was keen to understand how Infor is working with its manufacturing client base to make the transition. Infor’s approach across all industries is to ‘co-innovate’ with its customers, so that the IP can be fed back into Infor’s products, benefitting other customers and its product line.
It’s no different with manufacturing. Infor’s approach is to initially get its manufacturers to work with Infor’s design agency, Hook & Loop, which will help companies to think differently about the challenge and the service they should be providing. Pope said:
We use a workshop, rapid prototyping approach. Hook & Loop is really the team that we have lead these, through digital transformation workshops. We bring in the C-level first, that’s the first workshop, that’s very much focused on what business you’re in and what challenges you have. We like to hold these off-site, we have this creative area called The Garage in Hook & Loop’s offices in NYC.
Once we get the C-level thought process on that, then there’s a series of workshops that focus on this rapid prototyping of what this application or service could look like. It’s not meant to be a big ERP, three year implementation worth millions of dollars, it’s fast projects, solving a quick need and issue.
However, once this has taken place, the company in question needs to think about its back-end transformation too, as this will allow it to fully take advantage of cold and analytics, said Pope.
But for us, it’s not just about the front-end app. You can go and build a front-end app in India - that’s like putting a $5,000 tap on four year old plumbing. The water’s not going to come out any better or hotter. We look at all of that.
Our message has been about moving your applications to the cloud because it gives you the infrastructure, it allows you to store all the data and the analytics. We can wrap a prototype and show you something, but the transformation is going to be a series of steps that you take to getting those pieces in place.
Prepare for change
Finally, I wanted to get Pope’s opinion of the current political climate. It’s inevitable that Brexit and the uncertainty in the United States will affect buying decisions to some extent. The problem is that we aren’t yet sure how. Will the uncertainty restrict budgets? Or will it force companies to go faster into digital in order to compete?
It seems that change is good, in Infor’s books. Pope said:
I still think the UK will be a close alignment for us, I don’t see the relationship between the UK and the US changing at all. Trump is very pro-business, so he’s not going to be doing things that are going to restrict any issues.
When I was here last year the whole conversation was about how Brexit wouldn’t happen and that Trump would never get elected. So, to a manufacturer that’s exactly what I’d say - think back to a year ago and what we thought was happening. And now look what’s changed in twelve months. What’s going to happen in the next twelve months? The unpredictability is a huge factor. This idea of embracing change and thinking ahead.
I’ve said it before, but I find Infor’s strategy incredibly cogent and well thought-out. It has benefited from being privately owned, so it didn’t need to worry about scaring off investors with its aggressive push into the cloud. And it has the portfolio of vertical applications that serve it well for targeting specific industries, which other cloud vendors are only now attempting to do.
However, what’s more impressive is how it works with its customers. It has a genuine culture of figuring out the problems in cooperation with its client base - with the theory that this will benefit its other customers down the line.
And as for manufacturing, it’s certainly an industry that’s heading rapidly for change. Customer expectations have changed and the models for success are different. As Pope notes, its now largely about how you service the customer, not how many products you can make at scale for the cheapest price point.