Posts Tagged "Consumer Preferences"

Seven Reasons to Shorten the Sale to the Customer

Posted by on Apr 12, 2013 in Uncategorized | 0 comments

American Manufacturers must turn the clock back 180 years, before the start of the Industrial Revolution. Consumers purchased their goods and materials directly from the people that made them. There was no question as to the identity of the maker. If a custom was required, it was not a problem. If the the item broke prematurely, it was easy to return for repairs/replacement.

blacksmith

Businesses are returning to their roots.  It is now very easy for businesses to design, market, and sell products directly to consumers. Manufacturing can be internal or contracted out, advertised and sold directly over the internet, and shipped via UPS, FedEx, or the U.S. Post Office. Avoiding traditional sales, marketing, and distribution channels provides several benefits. Many small companies do this, as do the likes of Apple, American Airlines, Proctor & Gamble, Dell, etc.

 

American Manufacturers gain several benefits from the reduction of size and complexity of their supply chain to the end user. Manufacturers historically have been very interested in profitability inside their factory walls. By considering the flow of their goods when they leave the factory walls, they are finding new benefits through the reduction in the size of their supply chain to the end consumer. The structure of the modern Internet has allowed for ease of advertising, contact, communication, and payment. The modern American logistics market allows for fast and inexpensive delivery of goods directly to customers.

delivery truck

Here are seven benefits for OEM manufacturers that shorten their supply chain:

 

  1. Customer Satisfaction

Customers that are able to communicate easily with the manufacturer of their goods tend to have more positive experiences. Consumer preferences can be accommodated when they can be easily voiced by the consumer and fulfilled by the manufacturer.

 

  1. Quality Control

Reduced inventory in the supply chain is easier to control should there be a quality problem. Smaller supply chains result in fewer warehouses holding goods that would require inspection should a quality problem occur. Customers who receive their goods faster help to identify quality control problems sooner. Manufacturing problems that leave the factory are recognized in a faster manner.

 

  1. Market Response

Shorter supply chains allow for the market to interact with the product sooner and provide feedback on its attributes. The introduction of new products to the market is faster and easier with more direct access to end users. Quick feedback can allow for faster adaptation to market conditions.

 

  1. Customization Opportunities

Shorter supply chains coupled with greater interaction with the end users allow for more opportunities to provide customization to the customers. This may include product attributes, quantities, product mix, etc.

 

  1. Faster Payment

Cash flow cycles from the customer back to the manufacturer are shortened along with the supply chain. The reduced number of entities owning the products along the supply chain will translate into a reduced number of entities to buy and sell the item on terms before the cash reaches back to the manufacturer.

 

  1. Competitive Advantages

Lower inventory levels and more efficient distribution networks provide financial advantages as compared to other products/manufacturers in the same market.

 

  1. Product sell price

The ability to keep a stronger hold on the distribution network reduces competition among resellers that can work to drive down product sell prices. Resellers may also offer the same product from multiple manufacturers and compete them against each other.

 

The above are 7 reasons for OEM Manufacturers to work towards closer relationships with their customers.

 

The How:

 

–One piece flow: Allows for fast manufacturing of customizable products. Not waiting on batches of similar goods.

 

–Flexible production: Value Streams that are adaptable and flexible to compensate for the various operations that are required for special features and benefits.

 

–Design for Manufacturing: Designed so products can be manufactured in a cost effective manner.

 

–Disposable Packaging for Direct Delivery: Depending on outside logistics companies doesnt allow for returnable packaging. Packaging needs to be presentable to the customer.

 

–Lean Accounting: Traditional accounting encourages batch production, high inventory levels. Very counterproductive. Instead, consider lean accounting. The important things to measure include Inventory Turns, Machine Downtime, First Pass Quality, Dock-to-Dock times, etc.

 

American manufacturers must turn the clock back 180 years, before the start of the industrial revolution. Consumers purchased their goods and materials directly from the people that made them. There was no question as to the identity of the maker. If a custom item was required, it was not a problem. If the the item broke prematurely, it was easy to return for repairs/replacement.

 

American manufacturers gain several benefits from the reduction of size/complexity of their supply chain to the end user. Manufacturers historically have been very interested in profitability inside their factory walls. By considering the flow of their goods when they leave the factory walls, they are finding new benefits through the reduction in the size of their supply chain to the end consumer. The structure of the modern Internet has allowed for ease of advertising, contact, communication, and payment. The modern American logistics market allows for fast and inexpensive delivery of goods directly to customers.

 

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Direct Sale of Automobiles

Posted by on Feb 23, 2013 in Uncategorized | 0 comments

A report written by the United States Department of Justice considers the advantages of shortening the distribution system for automobiles as a way for the manufacturers to improve profitability.

The report, “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers” by Gerald R. Bodisch* EAG 09-1 CA May 2009 can be found here.

The auto manufacturers are currently prohibited by law from selling their products direct to consumers.  If the laws were changed, there would be huge economic benefit to the profitability of the manufacturers.

From the report:

Perhaps the most obvious benefit from direct manufacturer sales would be greater customer satisfaction, as auto producers better match production with consumer preferences ranging from basic attributes on standard models to meeting individual specifications for customized cars. With better information about consumer demand, optimal inventory levels should fall, even short of full build-to-order capability by auto manufacturers. To the extent that there are cost savings from leaner inventories, a portion could be passed on to consumers as lower prices. The total value of new car inventory held by the 20,700 franchised new car dealerships in the United States near the end of 2008 was about $100 billion and the annual carrying cost of that inventory was estimated as $890 million.(9) These figures may provide an order-of-magnitude perspective of the savings potential from a reduction in inventories that might derive from direct manufacturer sales of autos.

The most comprehensive estimate of the savings in the vehicle order-to-delivery cycle from build-to-order, direct manufacturer sales is set out in a 2000 report by a Goldman Sachs analyst.(10) Based on an average vehicle price of $26,000, total cost savings in the order-to-delivery cycle were estimated as $2,225 or about 8.6%.(11) The components of those savings were as follows: $832 from improvement in matching supply with consumer demand; $575 from lower inventory; $387 from fewer dealerships; $381 from lower sales commissions and $50 from lower overall shipping costs, since fewer dealerships would reduce the number of distribution points. The Goldman Sachs report identified other possible build-to-order savings of about $1,000 per vehicle in product development, manufacturing flexibility and procurement and supply but the lion’s share of the benefits were attributed to improvements in the order-to-delivery cycle. In a nutshell, the current auto industry make-to-stock sales model takes a lot of money, much of it tied up in inventories and devoted to discounting to clear lots of less popular vehicles, to try to sell cars that can come up short of what customers would really prefer.

While the Goldman Sachs report provides estimates of potential cost savings, a real-world example of the benefits of a build-to-order, direct manufacturer sales model is GM do Brasil’s experience with production and sale of the Chevrolet Celta economy car at its modern Blue Macaw plant in Gravatai.(12) Since 2000, customers in Brazil can order the Celta over the internet from a site that links them with GM’s assembly plant and 470 dealers nationwide. By 2006, 700,000 Celtas had been produced and the car continues to be one of Brazil’s best sellers.(13) Consumers have 20 “build-combinations” from which to configure a model of their choice, including colors and accessories, and can view each change as it is being made. GM built five distribution centers throughout Brazil to reduce transportation time from its assembly plant and buyers can track location of their car online on its way to delivery at a dealer of their choice. The time from configuration at the factory to delivery is only about a week, in contrast to the several week wait that can be common in ordering a car in the United States.

Automobiles are expensive purchases that require maintenance and warranty work, so there is still a valuable service that would need to be filled by local dealers.  Human, face-to-face interaction would still be a valuable part of the customer experience for problem resolution after the sale.

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