IDC Manufacturing Insights Theory & Practice

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Welcome to the January 2012 issue of IDC Manufacturing Insights' newsletter, Theory & Practice. This monthly newsletter examines recent events and offers opinions on key trends in the manufacturing industry, and works in synergy with the IDC Manufacturing Insights Community. This online community features discussions on topics including M2M, Sustainability, Automotive Industry Future, Cloud Computing, and Supply Chain Risk. It is designed to enable technology buyers to engage with IDC Manufacturing Insights analysts, connect with colleagues, and share knowledge and best practices. In addition to insightful articles, Theory & Practice publishes the hottest Community blog topics so you can preview the content generating the most buzz among Community users, and then visit the Community to view the most current discussions – and then join in! You can also follow us (IDCInsights) on Twitter.

Sales and Marketing – Focusing on Brand Management and the Customer Relationship
By Kimberly Knickle

Once again, Simon Ellis and I will research Sales & Marketing in the consumer products industry in conjunction with Consumer Goods Technology. This research is for brand-oriented consumer products (CP) manufacturers that want to know if they're making the best use of their sales and marketing dollars. At the same time as they fight for the attention of consumers, these manufacturers are also deciding where they belong on the spectrum between private label and "direct to consumer" and how to support that strategy with the right sales and marketing approach. Manufacturers outside of CP may also be interested in learning how CP manufacturers use sales and marketing to develop and maintain both their brands and their relationships with the end consumer. Our research kicks off this month with a survey for consumer products manufacturers on topics such as trade promotions, downstream data, direct-to-consumer, and the application of new technology.

Here are a few examples why:

Trade promotion management is the second-largest cost item on the consumer goods profit and loss (P&L) statement and poorly understood by many manufacturers. Rethinking trade promotions will be an important focus for companies, in terms of the business process and the facilitating IT tools.
Downstream data remains intriguing and challenging in its applicability to sales and marketing initiatives. It has enormous potential to help CP companies improve promotions and new product introductions, but it requires a rethinking of many business processes and the use of more agile business tools. It also holds the promise of supply-side transformations.
Direct-to-consumer, although not yet the highest priority for CP companies, is an interesting growth opportunity and a way for manufacturers to improve "connectivity" with consumers and combat the growth of retail private label. Further, direct to consumer can be viewed through either the lens of fulfillment or communication. But will it endanger the retail channel?
Social media and social business capabilities threaten to revolutionize the way businesses conduct their sales and marketing activities, from lead generation to product fulfillment and support. We think companies that ignore this phenomenon will be marginalized.
Mobility's impact will be far reaching on the way salespeople conduct business and interact with both customers and consumers, not to mention how consumers buy.
Big data is one of those areas that we least understand right now, though it may have the greatest potential. Manufacturers are just learning how they can apply new analytic tools to harness the power of large volumes of data, of different types – structured and unstructured, at much faster speeds. It's ultimately about condensing the decision making process so business can be supported by facts, not instinct.

We're looking forward to sharing highlights of this research with you on our IDC Insights Community home and later in more depth for our customers through our IDC Manufacturing Insights reports. We hope you'll join us when we present the report at the Consumer Goods Technology conference in New York, June 4 – 6th. And if you are a consumer products manufacturer, please take our survey and we'd be happy to schedule a 1:1 conversation with you as well! Just reach out to me at kknickle@idc.com.

Summit 2012 Logo

Click here to join the conversations in the IDC Manufacturing Insights Community.

Supply Chain Segmentation in the Consumer Goods Industry
By Simon Ellis

As we moved through 2011, we found that the demand side of the supply chain was far more volatile and unpredictable, with forecast accuracy becoming even more of a challenge than it had been historically, and the conversation shifted from forecasting to fast planning and responsiveness. Shocks (literally and figuratively) to the supply side of the supply chain are forcing manufacturers to reexamine their supply networks considering risk management and lead-time assessments. There is little question that supply chain complexity level has increased significantly over the last few years, and supply chain segmentation can provide a means of managing that complexity.

Two other critical trends also highlight the need for a more segmented approach to the supply chain, driven in large part by the increasing influence of the consumer:

Customer differentiation and customization is driving massive levels of SKU proliferation for manufacturers, often in relatively incidental areas (e.g. 'flavors and fragrances' innovation churn). These product categories tend to be where 'fashion' or short-lifecycles are driving hyper-differentiation.
Private label and direct-to-consumer trends are driving higher levels of competition in the marketplace, with a commensurate increase in efficiency and assortment. This trend is also promulgating an increase in the shopping 'channels' available to consumers who consequently wield more power to influence assortment and availability.

All things being equal, it's no surprise that manufacturers are applying tried and true approaches like supply chain segmentation where it makes sense. In mid-2011, we asked consumer goods manufacturers about their segmentation plans, and we found an almost equal split between those that are and aren't segmenting their supply chain (See Figure 1), but another 16% are exploring it as an option suggesting that growing complexity and supply chain differentiation is stressing the status quo.

For those companies who do currently segment the supply chain, or plan to do so, we asked them about the reasons for segmentation. We found that the key business drivers are the levels of innovation churn and retail channel differentiation, followed by lead-time differences (see Figure 2). Of particular interest is the notion of channel differentiation. Some segmentation is obvious: large sizes of products make sense for the Club channel, but not for Convenience; small sizes make sense for Convenience, but not for Club. But, even this paradigm is shifting as consumers wield more power and influence over retail assortment and manufacturer customization. Although we are not there yet, it seems just a matter of time before consumer demand true, and full, personalization in their purchases.

The consumer goods industry is changing rapidly, and we see manufacturers (and retailers) looking for new approaches and new technologies to try to manage complexity and drive business performance and success. At IDC Manufacturing Insights, we believe technologies like mobility and social business tools are poised to deliver new and exciting capabilities, but don't lose sight of some of the things that companies have done with significant success in the past that may prove to be just as effective at managing the future.

Supply chain segmentation is a perfect example of a 'tried and true' approach that can be very useful in managing complexity across global supply chains. Although the data points in this perspective come from the consumer goods industry, a segmentation approach offers broad applicability across multiple manufacturing industry segments, and we expect to see manufacturing companies using it in 2012, and beyond.

Consumer Goods Manufacturers Rethink Procurement
By Catherine White

Procurement is one of those dark horses in the consumer products manufacturing world. Retailers have to buy stuff from their suppliers (the manufacturer) – there's no getting around it. And if the current system isn't broken, manufacturers shouldn't mess with it. Or should they?

This is where the line between retailers and manufacturers, in the procurement area at least, is starting to blur. As discussed in the recent Perspective: Consumer Goods Collaboration and the Changing Face of Retail Procurement Organizations (IDC Manufacturing Insights, #MI232619, January 2012), retailers are becoming more demanding of their supplier (the manufacturer) community – causing manufacturers to look at their existing procurement practices and determine what can be improved. This includes quality, service, and cost.

We've talked a lot here at IDC about the four forces – big data, cloud, mobility, and social business – and how this is affecting the supply chain. Procurement is an integral piece of making sure the supply chain operates smoothly and procurement vendors are beginning to take advantage of these emerging technology trends as well. Ariba, a procurement provider, has recently announced its Ariba Network – which combines these technologies to create a partner community for services like e-procurement and e-invoicing, all in the cloud. Likewise, IBM purchased Emptoris at the end of 2011 to help give it a competitive advantage in the procurement arena through the use of both the analytics and cloud capabilities that Emptoris brings to the table. There are many other vendors – JDA, Oracle, SAP, and others – all offering procurement applications as a way for manufacturers to better service and collaborate with retailers.

In combination with improvements in procurement software due to emerging technologies manufacturers and retailers are also understanding the importance of profitable proximity sourcing – meaning companies should choose their supply networks based on a combinations of three factors: cost, lead-time, and the location of demand. In a recent IDC Manufacturing Insights survey 22% of manufacturing respondents stated retailers are moving their business closer to emerging regions or new markets. Although these numbers are still somewhat low we do think location of demand will determine how retailers source – similar to the manufacturing industry.

These factors – increased collaboration between manufacturers and retailers, the four forces, and the concept of profitable proximity – are changing the landscape of procurement in manufacturing, and how manufacturers approach their procurement strategy. The underlying cause of all of this of course, is the consumer. Retailers and manufacturers must work together to improve procurement to meet the requirements of a consumer who now has ubiquitous access, and visibility, to the marketplace, demands personalization of products, and has a much more active influence on the products and services provided to them.

As we examine the world of procurement more closely in an upcoming report we look forward to your feedback in this area. Do you think there is room for change in the procurement arena, and if so – in what way? Please be sure to visit our blog community and leave your opinion.

Click here to join the conversations in the IDC Manufacturing Insights Community.

Mentor Graphics builds up its Mechanical Simulation Product line: Acquires Flowmaster
By Sanjeev Pal

Manufacturers and product development companies have realized immediate cost savings by using Computer Aided Engineering (CAE) software or commonly known as the simulation software, contributing to the growth of CAE market across industry verticals.

Product development companies have been able to lower development costs and shorten the time to market their products by virtually testing product designs in conditions the final product will endure during its useful life, even before the design is finalized. This has helped firms in few cases to entirely eliminate or in most cases to reduce the number of expensive physical prototyping cycles before production. Firms are able to define acceptable product operating conditions, improve useful life and improve overall quality of their products with CAE software. Manufacturers and product development companies have realized immediate cost savings by using Computer Aided Engineering (CAE) software or commonly known as the simulation software, contributing to the growth of CAE market across industry verticals.

Mentor Graphics a key Electronic Design Automation vendor or better known as EDA, recently acquired Flowmaster group. Flowmaster is a UK based CAE vendor that offers CFD (computational fluid dynamics) software packages, it specializes in simulation for one dimensional fluid and heat transfer analysis. Mentor Graphics acquisition should not just be considered a new step into bigger PLM software application domain that includes CAE software; rather Mentor's current acquisition complements its 2008 acquisition of Flomerics a CFD applications provider.Flomerics had a limited offering in EDA space, Mentor Graphics acquisition was clearly targeted to exploit the opportunity that exists in CAE market applicable to its sweet spot within EDA. The importance of thermal analysis early in the design of printed circuit boards, other aspects of chip design, system level simulation etc have made CAE an important aspect in EDA space. Increasing level of design automation has helped designer to reduce chip size resulting in increased chip complexity – greater gate count, input/output further focus on reducing power consumption. Such complex, miniaturized but highly powerful semiconductors have helped consumer electronic goods manufacturers to produce new line of products such as powerful handhelds. These systems require multi disciplinary knowledge of electrical, electronic, thermal, packaging etc during design phase to produce highly reliable products largely addressed by CAE packages.

Mentor Graphics Corporation's Mechanical analysis division incorporates Flomerics product line, Flowmaster is expected to be merged into the same division. Flowmaster has been implemented in many industry verticals like Automotive, Aerospace, Shipbuilding-Marine and other process industries. Mentor Graphics has gained a significant knowledge base and technical know-how to expand its foot print in simulation with these two acquisitions. Despite wide applicability of CFD, Mentor Graphics traditionally has been known for CFD products in electronics industry with its IC, ASIC design and PCB design offerings. Given its EDA roots and a big customer base, Mentor's concentration in EDA simulation market is very natural.

EDA players have grown by acquisition due to limited innovation in this market segment especially with pressure from end-users that seek low cost applications to help them achieve higher productivity from their current processes. Mentor Graphics acquisition of Flowmaster increases the depth of its offering in CFD applied to EDA customer needs. Its customer base should expect a deeper functionality from its products in systems design, heat transfer analysis and flow balancing. This acquisition systematically moves Mentor Graphics to open up into mechanical simulation which has many well established vendors. These existing CAE vendors address traditional discrete industries and other emerging areas like environmental factor estimation in designing structures, process, chemical and environmental engineering. Given limited growth in EDA domain, this acquisition enables Mentor Graphics to further build its CAE portfolio and increase its market share. It remains to be seen whether Mentor Graphics exploits the opportunity to become a real mechanical simulation player or limits to enhance its EDA simulation portfolio with limited reach in discrete CFD segments.

Click here to join the conversations in the IDC Manufacturing Insights Community.

NEWS

Special Announcements:

Click here to view all of IDC Insights' Predictions 2012 Web Conferences: www.idc.com/IDCInsightsPredictionsWebcasts.

IDC Manufacturing Insights Predictions 2012: EMEA Manufacturing
January 19, 2012 - 9:00 a.m. U.S. Eastern time; 14:00 GMT
This EMEA-focused IDC Manufacturing Insights web conference will discuss the Top 10 Predictions in the manufacturing industry that will impact technology spending and the use of information technology in key process areas in Europe, Middle East and Africa. Web conference attendees will benefit through our latest findings and learn about EMEA IT investment trends for 2012 and urgent business initiatives impacting the budget dynamics during this one-hour, complimentary event. Our coverage includes supply chain, demand management, product lifecycle management, operations technology and sustainability in the EMEA region. Further insights will be provided into near-term issues and innovation, as well as longer-term and emerging trends. IDC Manufacturing Insights' Head for EMEA, Pierfrancesco Manenti, will be joined by analysts Craig Simpson and Lorenzo Veronesi.

IDC Manufacturing Insights Predictions 2012: Manufacturing Operations Technologies
January 31, 2012 - 10:00 a.m. U.S. Eastern time; 15:00 GMT
This IDC Manufacturing Insights Top 10 Predictions web conference promises to be an informative session discussing the impact of economic uncertainty, demand volatility, and business complexity within manufacturing operations management. This complimentary, one-hour session will outline technology trends in the areas of operations management, while providing recommendations on how operational technology can support manufacturing organizations globally to shape the plant floor IT strategies, align plant floor technology investments with business goals, optimize resources and drive critical business investments in 2012 and beyond. Pierfrancesco Manenti, Head of Europe, Middle East & Africa, IDC Manufacturing Insights will be joined by analysts Sanjeev Pal and William Lee during the web conference.

Exclusive Series of IT Executive Programs

IDC’s IT Executive Programs consist of a family of research programs intended to help today’s time-constrained IT executives make more effective technology decisions. The goal of IDC’s IT Executive Programs is to offer accurate and timely research that will assist IT executives in mitigating technology risks, maximizing the effectiveness of IT investments, identifying and capitalizing on new opportunities, and bringing forth solutions that are aligned with the organization's business objectives. The flagship offering of the series, the Executive Technology Advantage Program, includes a strategic partnership with IDG's CIO Executive Council, a global peer advisory community of 750 global enterprises and more than 1400 IT leaders.

IDC's IT Executive Programs' offerings include:

IDC's Executive Technology Advantage Program (ETAP)
IDC's senior IT advisors will partner with CIOs throughout the year to work through the most pressing agenda items. This program includes customized research as well as a personal advisor and a knowledgeable and experienced sounding board for decision making by connecting clients with IDC's 1000+ analysts and the CIO Executive Council's member CIOs for inquiries and discussions.

IDC's Industry Technology Advantage Program (ITAP)
This program helps IT executives bring forth technology solutions that are aligned with the organization's business objectives by combining industry-specific and technology-specific research together in one offering.

IDC's Global Technology Advantage Program (GTAP)
This program empowers IT executives to make better technology decisions by providing access to IDC's community of global analysts and their associated research.

For more information on IDC’s IT Executive Programs, visit www.idc.com/iep.

News Mentions

AECCafe 1/13/12
Autodesk Introduces Cloud-based Product Lifecycle Management
IDC Manufacturing Insights

Supply Chain Management Review 1/10/12
Cloud sourcing for a “people-centric” supply chain
Simon Ellis

Supply Chain Management Review 1/9/12
Risk Mitigation Will Continue to Rank High With Supply Chain Managers
Simon Ellis

Supply Chain Management Review - Blog 1/6/12
Supply chain “differentiation” is key to success in 2012
Simon Ellis

SearchManufacturingERP.com 1/6/12
Companywide view key to manufacturing S&OP process
Simon Ellis

Industry Week 1/6/12
Technology Predictions for 2012
Robert Parker

Interest!ALERT 1/4/12
Next Generation Manufacturing Europe Summit 2011 Fosters Innovation For Industry Leading Executives
Robert Parker

SearchManufacturingERP.com 1/3/12
Cloud computing, mobile ERP, analytics expected to gain traction in 2012,
Robert Parker

SearchManufacturingERP.com 12/20/11
Mobile ERP, social media rank among manufacturing technology trends of 2011
Robert Parker

Industry Week 12/14/11
The Next Generation of Plant Mobility
Joe Barkai

LATEST RESEARCH

Research reports may be found by entering the Document #
in the Search box at the top of any page of our web site. Clients may download full reports after logging in.

Perspective: Consumer Goods Collaboration and the Changing Face of Retail Procurement Organizations - Jan 2012 - Doc # MI232619
Perspective: The General State of Collaboration in the Brand-Oriented Value Chain - Jan 2012 - Doc # MI232590
CEMA Manufacturing Industry 2012 Top 10 Predictions - Jan 2012 - Doc # EMI03U
Perspective: Supply Chain Segmentation in Consumer Goods - Jan 2012 - Doc # MI232595
Worldwide Manufacturing 2012 Top 10 Predictions - Jan 2012 - Doc # MI232476
Worldwide Industry 2012 Top 10 Predictions - Dec 2011 - Doc # 232547
Worldwide Manufacturing Supply Chain 2012 Top 10 Predictions - Dec 2011 - Doc # MI232456
Czech Republic Vertical Markets 2011–2015 IT Spending Forecast - Dec 2011 - Doc # EV04T
Perspective: Supply Chain Differentiation — What Do I Stand For? - Dec 2011 - Doc # MI232360
Perspective: New Technologies Drive Business Transformation in Wholesaling - Dec 2011 - Doc # GRI232114
More IDC Manufacturing Insights Research

EVENTS

Complimentary Web Conference

For more information, visit our Events page.

Click here to view all of IDC Insights' Predictions 2012 Web Conferences: www.idc.com/IDCInsightsPredictionsWebcasts.

IDC Manufacturing Insights Predictions 2012: EMEA Manufacturing
January 19, 2012 - 9:00 a.m. U.S. Eastern time; 14:00 GMT
IDC Manufacturing Insights' Head for EMEA, Pierfrancesco Manenti, will be joined by analysts Craig Simpson and Lorenzo Veronesi.

IDC Manufacturing Insights Predictions 2012: Manufacturing Operations Technologies
January 31, 2012 - 10:00 a.m. U.S. Eastern time; 15:00 GMT
Pierfrancesco Manenti, Head of Europe, Middle East & Africa, IDC Manufacturing Insights will be joined by analysts Sanjeev Pal and William Lee during the web conference.

Meet Our Analysts at Upcoming Industry Events

For more information, visit our Events page.

The Green Biz Forum
January 24, 2012 - New York, New York
Kimberly Knickle will attend.

Warranty Chain Management Conference 2012
March 6-8, 2012 - Orlando, Florida
Joe Barkai and Sheila Brennan will provide a keynote presentation.

Directions 2012
Competing for 2020: Delivering on the Promise of the Connected World
March 7, 2012 - San Jose, California
March 13, 2012 - Boston, Massachusetts
Many analysts from IDC and the IDC Insights business units will participate.

Supply Chain World North America
April 2-4, 2012 - Miami, Florida
Robert Parker will be speaking.

Complimentary Resources

To access recordings and slides from these web conferences, visit our Archived Events page.

IDC Insights Predictions 2012: CIO Agenda
IDC Manufacturing Insights Predictions 2012: Product Lifecycle Strategies
IDC Manufacturing Insights Predictions 2012: Supply Chain
IDC Manufacturing Insights Predictions 2012: Manufacturing
IDC Insights Predictions 2012: Cross-Industry Overview
Balancing Demand-Side Forecasting with Supply-Side Responsiveness in the Modern Supply Chain
Major IT Trends in Western European Manufacturing Sector: Results of 2011 IDC Manufacturers' Survey
The Impact of New Vehicle Technology on Service Technicians' Safety

To access presentations and other complimentary resources, become a member of our Community.

IDC Manufacturing Insights assists manufacturing businesses and IT leaders, as well as the suppliers who serve them in making more effective technology decisions by providing accurate, timely, and insightful fact-based research and consulting services. Staffed by senior analysts with decades of industry experience, our global research analyzes and advises on business and technology issues facing asset intensive, brand oriented, technology oriented, and engineering oriented manufacturing industries. International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology market. IDC is a subsidiary of IDG, the world’s leading technology, media, research, and events company. For more information, please visit www.idc-mi.com, email info@idc-mi.com, or call 508-988-7900. Visit the IDC Manufacturing Insights Community at http://idc-insights-community.com/manufacturing.