Expert Roundtable: Tips for Boosting Manufacturing Margins During Uncertain Times

Key Takeaways:

• Executives with backgrounds from Lightning eMotors, PTC, Spirit AeroSystems, and aPriori shared their insights on topics ranging from increasing manufacturing margins to navigating the road ahead

The Full Article:

A panel of manufacturing leaders joined us at the 2023 aPriori Manufacturing Insights Conference for a lively discussion covering pressing issues facing today’s manufacturers – from protecting manufacturing margins to mitigating risks. Learn more about the panelists and get the session highlights below*.

1. About the Panelists
2. The Strategic Role of Procurement & Supply Chain in Profitability
3. Managing Inflation and Manufacturing Cost Pressures
4. Leveraging Digital Transformation for Cost Reduction and Efficiency
5. Supplier Relationships and Collaboration
6. Industry Trends and Future Outlook

1. About the Panelists

I was fortunate to moderate a roundtable titled “Navigating The Road Ahead: How to Drive Profitability in Uncertain Times,” which featured three manufacturing experts with expertise in procurement, supply chain, and digital transformation (DX) implementations. Below is a brief overview of each of the speakers:

• Ramelle Gilliland is the Executive Vice President (EVP) of Global Supply Chain and Logistics at Lightning eMotors, an innovator that specializes in producing premium commercial electric vehicles (EVs). She has more than 20 years of experience in supply chain management, having worked across multiple automotive manufacturing companies, such as Ford Motor Company. Ramelle has also successfully led the deployment of aPriori into two organizations.
• Craig Melrose is the EVP of Digital Transformation Solutions at PTC. Mr. Melrose is dedicated to assisting customers in developing, scaling, and implementing tailored Industry 4.0 programs that align with their specific operational goals and needs. Additionally, he is a current member of the aPriori Executive Advisory Board (EAB).
• John Pilla is a former executive of engineering at Spirit AeroSystems, one of the world’s largest manufacturers of commercial and defense aerostructures. Mr. Pilla’s experience spans from directing research and development (R&D) to managing product lines and programs. He is also a member of aPriori’s EAB.

2. The Strategic Role of Procurement & Supply Chain in Profitability

Question 1: Is procurement directly responsible for driving manufacturing margins (profits)?

A: Ramelle Gilliland: “Sourcing always has a goal of profitability, but it comes through costs. It’s our role to reduce (or control) costs year-over-year from a negotiation standpoint with suppliers. We also discover new suppliers and technologies to help drive out costs or provide more value to customers. So, profitability for us comes through how we manage costs and how we bring technology into the company.”

A: Craig Melrose: “Cost-per-unit is an easy way to start thinking about profitability. However, the hidden piece in all of that is timing, lead time, and cycle time. All are critical and will vary depending on the business. Lead time and cycle time are critical to achieving the entire equation of ‘getting to the customer at the right time, in the right quantity, at the right place, and with the right quality level.’”

Watch the entire panel discussion on navigating uncertain times to achieve higher profitability.

3. Managing Inflation and Manufacturing Cost Pressures

Question 1: What strategies have you employed to offset inflationary pressures in the manufacturing industry when working with suppliers?

A: Ramelle Gilliland: “Inflation usually comes around raw materials or labor costs. So, it is necessary to work with suppliers to understand what we can do to manage those costs. Is there an opportunity to opt for other materials that have a lower cost or to approach the design differently so we’re not using as much of whatever is driving inflation? Another thing is negotiating with suppliers. When conceding to inflation, you need to put the tools in place to manage the relationship over time so that you can claw back when the material or cost-driving element starts to deflate.”

A: John Pilla: “I agree with Ramelle. I would say that it is an open discussion, depending on the length of the contract. If it’s a one-year contract, it’s not that much risk; the buyer or the person receiving the things might want a longer contract to try and lock in their pricing. But then you must have a clear discussion of, ‘Okay, how much of this new price is going to be based on inflation?’”

4. Leveraging Digital Transformation for Cost Reduction and Efficiency

Question 1: How do you define digital transformation, and how can we put it into perspective?

A: Craig Melrose: “What’s a less painful way of leveraging data to run our business bigger, better, and faster? That is the definition of digital transformation. The challenge is that single silos and functions have data, but they’re also missing data, and they want to share that data. Two people may be measuring the same thing differently, which can look like two independent data points. But they are really looking at the same data. So, you’re trying to standardize definitions and data systems, fill out incomplete data systems, and then share and collaborate to achieve common goals. You share incentives, rewards, and recognition, which brings it back over into a cultural change aspect of getting it right. There are many challenges in there, but I think it’s about bringing all the pieces together where one plus one truly equals three.”

Question 2: What are the driving factors behind your organization’s decision to transform digitally, and what process was involved?

A: Ramelle Gilliland: “When you consider the traditional way of cost estimating, you may seek a solution that standardizes your work and has greater capabilities than hiring a specific engineer for every type of product you plan to make. So, when we looked at aPriori, it was a clear choice because it eliminates the need to read CAD files and drawings and understand what’s critical to the print. aPriori automates all these processes, allowing the estimator to focus on identifying opportunities and analyzing parts much faster. To me, it was a lot about speed and not having to build an organization with the perfect skillset for estimating different products.”

5. Supplier Relationships and Collaboration

Question 1: Discuss the level of transparency regarding margin targets with suppliers. Should they be shared across different tiers?

A: John Pilla: “It’s important to talk about the individual cost of capital, but many people don’t think of it. Smaller companies have a higher cost of capital than larger ones because there’s more risk. I would also add that trying to share margins will go a lot further if there’s a partnership that says, ‘Let us discuss how to make this thing, where can we shave costs together, and then share in that together.’ But, it’s really tough as a lot of that ‘together stuff’ doesn’t happen, but that’s the way to achieve success.”

A: Craig Melrose: “Absolutely, margin goals should be shared and co-owned across the supply chain … if the supplier survives and thrives, the OEM will also survive and thrive, and they both realize this. Everything I just described is a cultural construct that has operational and financial metrics within it, including margin. It’s challenging, but it is the right destination to strive for, in my opinion.”

6. Industry Trends and Future Outlook

Question 1: Can you provide some advice for navigating the uncertainties of 2024?

A: John Pilla: “I would advise you to schedule enough time in your day to think about the future and plan on doing something different. If you look at a CEO’s calendar, it should be one-third focused on the future, one-third on today’s problems, and one-third on developing the team. So, what you’ve done this week is actually thinking about the future. So, keep doing that, as it’s key to making a change.”

A: Ramelle Gilliland: “I think people forget to spend time developing their team, instead focusing solely on what needs to be done today. So, it’s important to look at the long-term and ensure that you cascade those goals to the team, both vertically within your organization and then across. Then, think about how to collaborate with your peers to share those goals, especially because they’re not always interpreted the same way. So, I think it’s crucial to have that cross-collaboration with your peers to make sure you’re all going in the same direction, have buy-in, and you work together to get there.”

Drive Profitability Proactively and Collaboratively in a Challenging Environment

The insights and strategies shared by these industry experts can be highly beneficial for manufacturing businesses looking to improve their cost control, DX, and supplier collaboration efforts. By embracing these approaches, manufacturers can enhance their gross profit margins even in times of economic uncertainty while ensuring resilience and success in challenging environments.

*NOTE: The roundtable discussion has been edited for clarity and brevity.