Manufacturing Cost Management and Innovation Drive Sales and Profits

“After several years spent cutting costs, many manufacturers realize that they can’t afford to sit back and wait. They must deploy capital to develop the products that could give them a competitive advantage,” commented Dobbs. Innovation is not going to happen in isolation according to the survey findings, but increasingly in collaborative arrangements with suppliers, customers and partner companies over the next 12-24 months. Just over 60 percent of respondents globally said they will work with customers for customized product development and with suppliers for product design.

“Customer and supplier collaboration in the earliest stages of product development allows for cost and risk sharing and lets manufacturers focus on what they do best by leveraging the expertise of external partners, accelerating speed to market,” Dobbs said. “For example, GE partnering with Microsoft to launch a joint venture aimed at global healthcare system transformation.”

The stronger focus on innovation – coupled with dramatic technological advances – is having a significant impact on manufacturing business models, which are becoming more service-oriented. This is giving manufacturers new ways to gain competitive advantage, for example in the provision of development and maintenance contracts and other collaborative services.

Shifts in their value propositions – such as pricing models or augmenting products with value-added services – ranked third (49 percent) after cost structure and new sales targets as intended changes respondents plan to make to their business models. This rise in value-added services is expected to boost profits. Nearly two thirds of respondents predicted new/enhanced customer services will make a significant or very significant contribution to profits in the next 12-24 months.

“In an attempt to buffer down-cycles, manufacturers are expanding their product offerings to include value-added services,” said Dobbs. “While this may potentially add to their profit margins, it should also help them strengthen customer relationships and identify future sales opportunities.”

KPMG surveyed 241 senior manufacturing executives. Respondents represented the aerospace and defense, metals, engineering and industrial products sectors, including industrial conglomerates. KPMG International is a global network of professional firms providing audit, tax and advisory services in 152 countries, with 145,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. www.kpmg.com