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Process Manufacturers: When Times Are Tough, Which Customers Should You Prioritize?

Process Manufacturers: When Times Are Tough, Which Customers Should You Prioritize?

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Process Manufacturers: When Times Are Tough, Which Customers Should You Prioritize?

May 7, 2021

Daniel Erickson

Putting the customer first is a basic business building block. But in reality, it’s impossible to put EVERY customer first. When things are running smoothly, careful planning and attentive service can keep most of your clientele satisfied—but what happens when you can’t get everyone everything they need, when they need it?

The manufacturing industry faced this exact dilemma during the pandemic, as critical supply chain issues drove material shortages. According to Ernst & Young data, 72% of manufacturers said their demand channels were negatively impacted by COVID-19.

These supply chain challenges were compounded by labor shortages. Staff went off sick, remote working affected operational efficiency, and social distancing measures impacted the number of people able to physically work on the production floor.

Hopefully, we won’t have another global disruptor like COVID during our lifetime, but it always pays to prepare for the most extreme circumstances. With this in mind, if times get tough again, how do you decide which customers you should prioritize?

Base Future Choices on Current Context

On first look, prioritizing customers should be straightforward. Just review the sales orders you receive from each client and put the ones that request the most orders at the top of the pile. Right?

Yes and no. There’s huge value to understanding individual customer value, and interrogating your business data is the best way to understand it in full. However, order trends change over time. The information you hold from five years ago might not be an accurate reflection of demand sources from the past six months.

The best way to create an accurate customer hierarchy is to make future decisions based on current context. Using forward-thinking metrics helps you to accurately prioritize customer order fulfilment. For process manufacturers, this could mean investing in an enterprise resource planning (ERP) solution with predictive analytics.

Predictive analytics enable you to make demand projections based on how customer order history has evolved. As demand patterns change, so do their forecasts, to reflect shifts in your work weighting. This way, if there are material shortages and difficult decisions need to be made, you don’t penalize that big client you landed the previous quarter.

See Profit As Well As Size

The number of jobs a customer places only tells half the story. If there’s trouble in the market, your process manufacturing business needs to hold onto profit wherever possible; and your largest clients won’t always be your best money spinners.

Too many manufacturers think of customer hierarchy purely in terms of contract size. This is important, but it won’t guarantee your financial security if you have to choose between jobs. You need to balance the biggest fish in your pond with your most profitable.

Process manufacturing ERP software enables you to map order history against expenditures such as materials cost, labor cost and the utility cost for operating machinery, to ascertain which types of job drive the greatest profit.

When you put this in place, there’s a strong chance you will change which customers you choose to prioritize if the going gets tough. 

Use Data To Shape Strategic Decisions

So far, we’ve looked at how to create a customer hierarchy when you’re facing challenges that impact production capabilities, such as labor shortages or supply chain disruption. But even when resource availability gets back on track, process manufacturers are still on a road to recovery. And this also creates difficult decisions.

Demand challenges can push up the price of raw materials. Changing suppliers can make sourcing ingredients more expensive. Finding a hybrid working set-up, where some staff are based at home and some on the shop floor, can create the need for new connecting technologies. All of which come with a price tag. How do you pass through increased costs in a way that keeps customers, but protects your margins?

Investing in process manufacturing ERP software supports smart decisions in this area too. For example, your profitability analysis will identify if certain jobs aren’t driving business growth, so you need to focus on changing the cost structure for this type of work. With ERP software in place, you can use previous orders to model the cost of future jobs when generating quotes—to ensure that you’re building in a big enough profit margin.

Analyzing profit margin at customer level will also empower you to make major strategic choices.

For example, if there’s a particular customer whose requirements are costing you a lot to manufacture, you may gradually want to evolve your cost structure to improve profitability without scaring them off. Or you may want to ‘tough love’ them and completely restructure your charges, knowing they may vote with their feet. In the second scenario, however, you could replace them with a more profitable prospect if they choose to go elsewhere.

Ultimately, it’s up to you how to run your manufacturing business. But data empowers rational decisions.

Find Alternative Ways To Keep Customers Happy

The process manufacturing landscape is incredibly complex, with many variables affecting workflow and revenue growth. While trying to navigate these nuances, it’s important to still ask yourself a basic but critical question: if demand goes up and supply goes down, which customers are you prioritizing?

You may not be able to answer this question straight away. You may not be sure that the answer you give is the right one. Either way, rather than cause concern, this is an opportunity to look at what measures your organization should take to reach a confident conclusion.

As we emerge from the eye of the COVID 19 storm, process manufacturers can now strengthen operational infrastructure, to weather-proof against future disruption. Give yourself the business intelligence tools to understand customer value and profitability, and use this data to underpin strategic decisions.

Process manufacturing ERP software provides powerful insight into every customer relationship, so you can carefully consider which customers to move to the front of the queue if demand becomes disrupted.

Critically, ERP software also enables you to map customer workflow against other operational variables like labor, inventory and delivery lead times, so you can base every choice on real-time context. For example, your usual supplier can’t get a certain ingredient to you for three weeks, but an alternative provider already on your books could get it to you in six days at a slightly higher cost. Pushing deadlines back a week are less likely to upset your client base, and getting more jobs completed for slightly less profit is preferable to holding out and upsetting your biggest customers.

Data is all-powerful in the future manufacturing environment, and using technology will help you harness information and understand every aspect of your operations in granular detail. It’s access to this real-time, contextualized insight that allows you to prioritize your most valuable customer relationships, when you need forward momentum the most.

With Aptean Process Manufacturing ERP, you’ll have the power to make data-driven decisions with an ERP solution developed for your industry.

Request a free demo of our process manufacturing software.

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