How to Prepare for the New Normal in Manufacturing: An Expert Discussion

With global pandemics, oil-price fluctuations, supply chain disruption, unprecedented changes to supply and demand, and tariffs, manufacturers can’t seem to catch a break. With so much to consider, what should manufacturers be doing, today?  

In this video, Richard Blatcher, Director of Industry Marketing & Business Intelligence at PROS, interviews Philip Daus, Managing Partner at Simon-Kucher & Partners; Kevin McCraw, Sr. Director of Strategic Consulting for Automotive and Industrial Manufacturing at PROS; and Kim Watson, Senior Strategic Consultant for Automotive and Industrial Manufacturing at PROS, to discuss this and more.  

Hear these experts’ perspectives on what manufacturers should do as they navigate this crisis and prepare for the new normal. 

They also provide expert advice on commercial responsiveness, digital transformation, pricing, selling, and driving true value.  

Other resources on how to navigate disruption through COVID-19:  

Resources from Simon-Kucher & Partners:  

Resources from PROS 

Highlights

[03:30] How to navigate through changing conditions and plan for volatility
[07:31] The important aspects manufactures need to be considering, like commercial responsiveness
[10:45] How COVID has accelerated digital in manufacturing
[15:00] Why manufacturers need to focus on more than just cost reductions
[18:20] How to gain real value in today’s volatile market
[20:00] How B2B customer expectations have changed
[23:18] What self-service and guided selling looks like in manufacturing
[26:12] Practical steps to take today

Full Transcript:

Richard Blatcher: Well, welcome everybody. My name is Richard Blatcher and I lead industry marketing for PROS and very delighted that you can all join us here today. We're going to be talking about what is going on in the manufacturing industry, both in respect of our experts you're looking at the new normal, but most importantly, give some recommendations on some of the actions and strategies that can and should be in place now to help compete in what we believe would be the new normal....

So I'd like to make some introductions: I'm delighted to be joined by Philip Daus of Simon-Kucher and Partners, Kevin McCraw, and Kim Watson, who are our strategic consultants from PROS. So maybe Philip we could start with you if you could just introduce yourself to the audience.

Philip Daus: Yeah. Hi everyone. My name is Philip Daus. I'm a partner with Simon-Kucher Partners. I'm managing partner of the office here in Houston, Texas. Been with the firm for 16 years now, actually today is my anniversary with the company and I work for B2B vertical. So that's manufacturing companies, but also industrials. It's companies that supplying into the oil and gas industries here in Houston, as well as chemicals companies.

Richard Blatcher: Well thank you for that and happy anniversary. And today being the 1st of May and PROS is very proud to be a strategic partner with Simon-Kucher Partners. So we're really pleased with that.

Richard Blatcher: Kim, maybe you could introduce yourself to the audience.

Kim Watson: Yeah. Hi everyone. My name's Kim Watson. I'm a senior strategic consultant with the PROS based in Houston, and I've been with PROS for about 12 years now. I've worked in research development, implementation, and now on the presale side of things with really a focus on industrial manufacturing and distribution and automotive.

Richard Blatcher: Thank you, Kim. And Kevin.

Kevin McCraw: Yeah, absolutely. Kevin McCraw. I'm a senior director in our strategic consulting team as well. Additionally, I've worked across professional services. What's now known as our customer success organization over into presales and now lead a team of strategic consultants that are focused on automotive and industrial manufacturing in addition to food manufacturing and food services and food distributors.

Richard Blatcher: Well thank you all for spending the time to talk to our audience today and clearly we are in an unprecedented situation that the likes that we've never seen before, and particularly in manufacturing, even before the current COVID crisis, there was some dynamics going on, which were really challenging when you think about the, some of the tariffs going on and some of the macro economic data even before the crisis.

Richard Blatcher: But what's really interesting is when we were discussing and preparing for this call with the conversations that you've all been having, there's some real variance between the different pockets and different segments, even within manufacturing. So, Kim, maybe I could start with you because you've been having a lot of conversations and depending on the, even to individual companies in their different product lines, there's a lot of difference going on a lot of volatility, a lot of variables that are happening in the market.

Kim Watson: Absolutely. When you look at some of our customers, let's say even in the tire industry on the fleet side, they're really seeing a surge in demand with all of the distribution that's having to be done right now during COVID while on the retail side it's really decreasing because we're all staying at home. We're not able to go out and do all the work on our vehicles that we normally would be doing.

Kim Watson: And there's a major shift in how people are even using their plants. So we have customers that are taking advantage of the fact that they have these 3D printers and being able to make face shields for the front line. So they have that type of protection. Even with the rubber from the tires they're able to make different types of mask and things of that nature that are able to really help their customers protect themselves and stay afloat during this time. So it's really important to really look at everything that you're manufacturing and in some cases, people are shifting needs.

Philip Daus: So all of that leads to the conclusion that you cannot really plans for a secure new normal or a new rebound. There will be a lot of volatility in the market. So essentially you have to prepare for that volatility overall. And going back to manufacturing I think what all manufacturing companies have in common is there's a huge financial impact. I think everybody's scared of a financial recession.

Philip Daus: Yesterday the numbers were that the GDP for this quarter will go to a minus 30%. So 3-0 percent. I mean, we haven't had that since the great depression. There are changes in operations connected to health of the workers and so on and so forth, and last year the supply chain disruptions, but from there on how this thing affects different pockets within the manufacturing industry overall is actually very different. So we need a differentiated approach.

Richard Blatcher: Yeah, that's a great point. I mean, even in Germany, they kind of ease, they're at the forefront of easing the restrictions and they're even getting very nervous now when they've seen an uptake in new cases. So you're right. But the key phrase with both of you so far is kind of that volatility. So it's unpredictability, it's unprecedented, and Kevin maybe I could bring you in and talk more about this volatility, because you've been having a lot of conversations with manufacturers in different industries and at different levels, but that seems to be a central theme that keeps coming through.

Kevin McCraw: Absolutely. It's the one thing I'd say, just to build upon what Philip was saying is across all of the manufacturers that we speak to there, whether they're food manufacturers, to Kim's point, tire manufacturers or industrial manufacturers is notion of volatility in being able to react with speed has become increasingly important. Whether you're dealing with higher demand, higher supplies, whether you're dealing with lower demand, the ability to react as it relates to price and service has become at the forefront of all manufacturers over the last few weeks.

Richard Blatcher: Yeah. And what's under-pinning that is this kind of the different, and Philip, you talked about it as far as this change in behavior. So we don't know what and when that new normal will be, but we know it will be different. And clearly there's been a lot of discussions that you've all had around that change in buyer behavior. So the different channels that manufacturers need to service and offer value through, be it digital, be it through a dealer, be it through a distributor or direct to the customer. So Philip, maybe you could talk about some of the important aspects that manufacturers need to think about when thinking about this new normal of this new behavior that's rapidly coming through.

Philip Daus: Yep. Yeah. So the term that we're using is that manufacturers need to work on their commercial responsiveness. So how they react to changes in the environment. By the way, when you look at changes in the environment, you have the demand. So that's typically not just the volatility in demand that's increasing, but it's also how high or low those spikes go because you could be benefiting from the crisis because all of a sudden customers come to you, but again, that also would create a problem [inaudible 00:08:00] new supply chain.

Philip Daus: So it's the demand changes it's behavior in customers. Customer may be shopping more online or using digital center channels or your sales force, going out using Zoom 24-7. It's how price sensitive customer groups are, and Kim was mentioning different industries, currently directing differently.

Philip Daus: I was talking to a manufacturer of labels, a paper and packaging company, and they're currently celebrating because they make those labels that go on to the COVID testing packages. So they have completed different problems than folks in the automotive industry. So it's the price sensitivity around this. It's also how do competitors react? Are they more peaceful or even collaborative in the approach, or is it right now, everybody fighting for themselves and trying to attack each other with price concessions and discounts? And then of course, global supply within the industry.

Philip Daus: But that's on that side and then commercial responsiveness, what does it actually mean? So there are different aspects to this. One is, what goals do you have? How do you strategically plan currently in this environment? And we all find that companies are much more, of course, cash focused, but also more profit focused. So if you have initiatives, you can't wait five, six years for them to turn into black numbers, you have to have a profit mindset from the get go.

Philip Daus: Then the commercial operating. That needs to be much more flexible and agile, likely integrate more digital elements. You need to have a monetization strategy that also sets you up for price defense, and also for these swings in demand. So dynamic pricing comes to mind, but also recurring revenue models.

Philip Daus: And then other things, for example, more flexible product design. So if you deal with industries where essentially presence [inaudible 00:09:50] higher or willingness to pay is going down, you have to come up with product alternatives that you can bring to the market quickly that are essentially representing what we call less expensive alternatives.

Philip Daus: So you don't put up the same value that you had before the crisis. You reduce the value, and then you also reduce the price point. So lots of different moving pieces that, that altogether make up what we call commercial responsiveness.

Richard Blatcher: And to that point, Kim, if I can bring you in. So you spend 20, 25 hours a day, eight days a week, helping manufacturers to implement this approach, particularly to that commercial responsiveness as Philip puts it. And really one of the most important leavers is to have that agility around strategic pricing. Maybe you could talk a little bit about what you've seen customers do to get ahead of this pure volatility that we've seen today and we're going to continue to see for, I suspect a long, long time.

Kim Watson: One thing is for sure that change is continuous and that our manufacturers have been dealing with this for a long time. Maybe not to this scale, but it's something that's been impacting them. And what that is really leading to is that digitalization is becoming a mandate.

Kim Watson: We've done surveys in the past. Manufacturers have always said that in two to five years, they're probably going to be more E-commerce, more driven through a more digitalized experience. But I think that COVID is really accelerating this. I'm seeing customers that in the past, if I needed to have a product service, I would be able to take it into a shop and get my new parts. I'm interacting very heavily and it's very relationship based.

Kim Watson: But now what we're seeing is that sales and service interactions between the employees and the customers are really being conducted virtually over the phone, by email, where customers can schedule specific times to pick up their orders, their parts, accessories, and it's no person-to-person interaction and I think that's something that's not really going to go away.

Kim Watson: And so we need a way to be able to communicate quickly with sales on what is the change and how we're going to the market. If there's new terms and conditions that need to be applied or restructuring of how we're doing rebates, all of this needs to be conveyed very quickly to be actual sales force. And that's really possible through that digitalization and taking a more approach that's going to allow you to have interactions with a customer online and then be able to have a sales person pick up right where that customer's left off.

Richard Blatcher: And Kevin, again, you've helped companies, manufacturers implement this process. And of course, both Philip and Kim make a fantastic point that if people are talking years, even months, that's too long now and you've been talking about digitalization for many, many years.

Richard Blatcher: So maybe you could just give some practical advice to manufacturers because they're very used to applying these digital tools and these approaches to manufacturing, to production, to the product life cycle, but maybe struggle a bit more when approaching it to this commercialization to pricing. What are some of the practical steps that you would advise to manufacturers to look at today that can make a real, tangible difference very quickly?

Kevin McCraw: Yeah. You and I, Richard have worked on this for the last few years, just looking at manufacturers and distributors and manufacturers have tried for probably the last three to five years to get closer to their customers. Some have a greater sense of urgency than others. I think now that sense of urgency is higher than ever. I think the need to be closer to your customer to serve your customer is going to be the new norm as we come out of this.

Kevin McCraw: To Kim's point, just this notion of contactless service, being able to actually fulfill an order, be served without actually having that physical relationship with the other person is going to be the new norm. As we've now gotten accustomed to self service portals, being able to get delivery service, being able to still operate while some of us have been quarantined or at least on lockdown and working virtually and remotely.

Kevin McCraw: And so I think this is going to be now accelerated at the top of minds for most manufacturers, just given the new norm that now their customers are going to be expecting from a service perspective and not just in trusting the other channels in which they've sold to provide that service.

Richard Blatcher: Yeah, that's great point. And Philip, just to answer that, you've always talked about how important profitability and how important strategic pricing is as a lever to that profitability. Maybe again, you could expand on what Kim and Kevin have already talked about as far as how important it is to have that in place and to have that agility, but you have to do it digitally. You cannot any more rely on these manual processes that so many manufacturers do rely on.

Philip Daus: Yeah, exactly. Actually I couldn't agree more with Kim and Kevin. So I mean, we all have seen the industry 4.0 kind of taking off as a buzz word. And the undernote of things is kind of the big topic in the industry.

Philip Daus: So digital, I think has been for the last year is a big topic, but I also agree that most of the initiatives are more around production and operations, not necessarily on the commercial side. Right? I even recall last time we did our global pricing and sales study. 75% of the digital initiatives, they're all geared around essentially cost reductions, efficiency gains. And the rest was regarding, how can I use this to grow commercially? And now that has totally flipped because there's no way to go and sell our products. So the sales force is essentially relying on digital means.

Philip Daus: And with that comes, with that territory, come a couple of complexities, such as if you compete on the online channel, everything you do on pricing typically becomes a bit more transparent and visible, whether it's being through your own sales force or whether it be through online shops and so on.

Philip Daus: So, if you have somewhat of a chaos in your pricing, once you go digital, it all becomes much more transparent to the market and that's why it's so important. Plus of course, right now in the current environment, everybody's asking for discount and everybody's asking for a better price. So you have to be kind of double prepared.

Philip Daus: And I think in terms of pricing, it always depends a little bit on where you currently are on that journey. So if you kind of get started on the pricing journey, it's really more about the immediate price defense. How can you give maybe very practical tools to your sales force to their Zoom calls and avoid giving these large discounts or help them talk about value. If it's a bit more advanced, we would probably talk about some type of guided setting in terms of pricing.

Philip Daus: So some type of recommendations or even a dynamic pricing system. And I would say kind of the non-plus ultra in most cases is when we talk about recurring revenue models, because particularly right now that allows companies to avoid these deep investments, right? It's not a one and done deal with a lot of cash, but it's rather recurring revenues that allows the customers to kind of ease their purchasing pain, so to say, over time, and it makes it a little bit easier also to weather those changes in demand and keep a loyal customer base,

Richard Blatcher: The experience, the price, the value, the perceived value that a customer would have when dealing with a manufacturer is so important. And maybe you could talk a little bit more about how manufacturers can really get to offering that value. I mean, what's the sort of data? What's the sort of steps that they need to take to be able to offer up that value, which is based on value or willingness to pay or those conditions, not just on so many manufacturers have a traditional kind of cost plus manual approach, which is not going to cut it in a particularly with this new normal you're all talking about.

Kim Watson: Yeah, absolutely. I mean, with all of this rapid change due to the pandemic, it's really important to have a strong control over your pricing and the agility of your pricing strategy. So you need to understand really what is driving your demand so that when you're taking action, you're not eroding your future price points. And one of the ways that you can do that is really by going through and looking at the different segments of your customers, understanding at a minimum, how does geography play into this? How does their annual spend?

Kim Watson: Truly being able to track those volume commitments that they're making to you and making adjustments within your pricing based on that. And then as you get more complex into that, and you can always pull in some of your survey information that you've done with your customers, really understanding what are the pieces that are differentiating you from your competition and using that as part of what you use to create these very personalized offerings based on the segment that that customer is falling within.

Richard Blatcher: Yeah. Makes perfect sense. And Kevin, you've seen a lot of that and you've seen customers that are living in the world of manual overrides and discounting and missing catalog sections online and you've helped them get out of that pain. And as you said, you can't wait years for this. You have to do it today, if you're not already doing it. So what have you seen?

Kevin McCraw: That's right. To your point, Richard, that sense of urgency, it's the new norm. The nature in which they sell has always been sort of person-to-person, sales rep negotiating. To Kim's point, maybe there is some segmentation involved in that in order to ensure maximum willingness to pay, but from a pure data perspective we've been developing techniques and working with some of the manufacturers as of recently to be able to use pure data, no human intervention, to understand a person's willingness to pay.

Kevin McCraw: And so some of the challenges we've run into are for a manufacturer, there's a level of data sparsity because a lower number of skews that they stock versus a distributor, but most recently we've brought in quote data, looking at the effectiveness of trying to predict a win or a loss at any given price, and then maximizing the revenue associated with that. And so as we go into this new norm, I think for manufacturers in particular, we've got to think of more creative ways to use data science, to provide that level of service that their customers are growing to expect, and now more than ever because of this situation that we're in.

Richard Blatcher: Yeah. That's a great point. Kevin, could you expand also. Philip talks a lot about kind of sales guidance, and that's a really interesting topic. So maybe you could just expand on just-

Kevin McCraw: Probably in two different components, I'd say. So historically I'd say, and even in the future, it's not like the person's going away, but historically-

Richard Blatcher: Absolutely.

Kevin McCraw: I'd say, we've been more prone to more of a negotiated guidance. For example, if you and I were in the middle of a negotiation, how am I empowered to learn from historical purchases over the years of my company being in business what your willingness to pay might be for the goods or services that I offer?

Kevin McCraw: And so leveraging data science using underlying AI techniques to help me in this negotiation, I can be in power to have a better, more structured conversation around where I think the price might land. The other part of that is when there's no view into human negotiation, but rather think about your experience when you call an Uber.

Kevin McCraw: I don't know the price that it's going to cost when I put up the app, if I'm going to Minute Maid Park now, or if I'm going to Minute Maid Park once baseball starts back up and it's the World Series. The ability to dynamically price me based on what's happening in real time is the level of self service pricing that most manufacturers need as it relates to, how do I give the customer the experience they're looking for and not turning their experience sour by delivering a bad price? And thus prompting them to look elsewhere.

Kevin McCraw: When there's a sales rep involved, the sales rep understands that dynamic and can deliver a more tailored price. When there's no sales rep, how do you then deliver the right price based on that situation at the right time and having the proper data to truly deliver that price where it's meaningful and relative to the person that's looking at the time of purchase?

Richard Blatcher: Yeah, that's great, and-

Kevin McCraw: I think-

Richard Blatcher: No please, Kim, go ahead.

Kim Watson: I think I would add to that the flip side is the actual buying experience. So as you're becoming more digital, I used to go to someone, describe my problem to them. And they're telling me what I need. So providing a more guided experience where maybe on your eCommerce site, you're actually asking more questions that are diagnostic that are leading you to the proper products, making sure that you're getting exactly what you need, having data science, really drive, cross sell recommendations based on what those, what products you need to be purchasing.

Kim Watson: And I mean, this is great, both for digitalization, but also as you have an aging workforce, you're about to have to bring on a large number of new salespeople that haven't been selling your products for 20, 30 years. And that experience is another way to make sure that your customer is getting exactly what they need, not only on the price point, but also on the actual products.

Richard Blatcher: Yeah. And thank you, Kim and Kevin and Philip, you've talked a lot. I mean, it's kind of goes back to, you've got to listen to your customer, listen to the market, you have to personalize and tailor that offer. And you've talked a lot about how important the life cycle of the product is the agility, the reduction in that life cycle being first to market. So maybe you could talk a little bit more about how important that, kind of that agility and that personalization, that tailoring is, particularly when you've also talked about those new business models, the new products as a service, those new subscription business models that manufacturers are looking to introduce.

Philip Daus: Yeah. May I maybe add one more point, because we were talking about kind of the new normal already in what's going to happen because the way we would look at it is right now there say the COVID-19 phase and there's a lot of crazy changes in consumer or customer behavior, but that's not necessarily to be confused with the new normal, right?

Philip Daus: So there's some habits now of how we sell our products, how our sales force is interacting with the customers. But at times my understanding this is more, they need to stay in touch with their customer base and try the best they can. But everybody's really looking forward to going back on the road and doing some of the things that they were doing beforehand.

Philip Daus: So again, I think one of the big questions for every vertical would be what is the new normal going to look like? Because based on that new normal, that's how you have to scale your operational model and make the changes, right? So as not to overreact, but also not to kind of sleep on making the right decisions moving forward.

Richard Blatcher: Yeah. I could just go around you all and just, if you could summarize some of the practical steps and advice you would give to manufacturers of where to look on what to do.

Kim Watson: Yeah. I think you need to think about this in several parts. First doing a realistic review of where you're at right now, and then developing multiple versions of scenarios of where you want to go into the future. And then making sure that you have robust tools to make these strategic moves and making sure that you know the trigger points that really are the ones that you want to take to drive that organization just to act at the right times.

Richard Blatcher: And Kevin, you're perspective?

Kevin McCraw: Absolutely. I think that many manufacturers have seen a drop in their sales revenue and profits. Some may or may not have a good understanding as to where those leakages are coming from. And so the first step is just to take a step back and look at that entire gross to net profitability waterfall.

Kevin McCraw: Understand exactly where you could be having areas of leakage that are being maximized and highlighted during such a time like this, having the right infrastructure in place, to be able to assess a situation, whether it comes upon you, whether it's just normal business, but having something in place to where you truly have a handle on what's happening in your business, as it relates to sales all the way through to profitability is extremely important and more now than ever.

Kevin McCraw: Once that is done, we can then take a look at how do we get smarter about our pricing decisions? How do we maximize the top line and the bottom line? How do we infuse that one data science and AI, but without doing the former and jumping into the latter, to Philip's point, I think that we might be rushing into something that it may not be right to do at the moment given where we are right now.

Richard Blatcher: Philip?

Philip Daus: Yeah, I would have full points. I mean, the first one is obvious. Don't just focus on cost cutting and operations. You have to also focus on the top line and particularly on price defense. Lots of sub points there, as, for example, when you have to do or when you have to give discounts, make sure they're tied to a date, make sure to think of alternatives before cutting price and so on, so forth, but it's really price defense is key right now. So make sure you're properly prepared. That's number one.

Philip Daus: Number two is try to understand the new normal. I mean, I know right now everything is in flux, but there are ways to talking to customers, talk to your sales reps, talk to competitors, understand not what's going on right now, but what will be the new norm moving forward and then more importantly, how do you need to change your commercial operating model? So in terms of how do you set up your sales team? What percentage is inside sales? How do you work with digital sales and so on? And how do the different channels interact?

Philip Daus: The third point is maybe move away from all the gloominess and think about some of the strategic growth areas. And there are a bunch of them currently as well, right? So there might be areas that are not as much impacted by the crisis, such as service areas or after sales areas. There may be businesses, regions, product lines that are not that much effected by COVID-19 that you could focus on. Or if you think of competitors everybody's struggling and somebody might be struggling even more. So coming up, maybe with a strategy to acquire customers from the competition. All of these might be steps towards getting into a growth mindset versus a very defensive mindset.

Philip Daus: And then last but not least just have a look at your monetization strategy. And as I said before, it depends on where you are on your pricing journey can be very basic. But I think this is a good moment to think about dynamic pricing and it's particularly a great moment to think about recurring revenue models and the subscription economy also in the manufacturing space. So yeah, there's a lot of opportunity on that side as well.

Richard Blatcher: Well, thank you all on behalf of our audience of manufacturers globally. So Kim, Kevin, and Philip, we really appreciate the points of view that you've given, the expertise, and most importantly, the practical advice that you've given. It's fantastic, as I say, we will share in the description, some additional resources, both from PROS and from Simon-Kucher and Partners. And I'm sure we'll be getting together very soon to follow up on when we have more information on what the new normal is. We can discuss that, but once again, thank you all for your time and your expertise today. Thank you so much.

Kevin McCraw: Thank you.

Philip Daus: Thank you for having me.

Kim Watson: Thank you.

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