China Slowdown, Cheap Oil, And Analyzing Demand Signals
Savvy manufacturing executives saw these eventualities coming, but investors and the news media appear to have been blindsided by the slowdown of the Chinese economy and plunging oil and natural gas prices.
They shouldn’t have been, because the information was largely available — if they knew where to look for it, and if they paid attention to it. Those facts hold lessons for any company, but especially for manufacturers that need to closely track supply and demand signals to optimize their supply chains.
You say supply, I say demand
China’s economy, now the world’s second-largest by GDP, enjoyed decades of double-digit or near-double-digit expansion. But in 2015, growth fell short of 7 percent for the first time in 25 years. And after leaping 150 percent in a year, its stock market plunged 30 percent in a matter of weeks and started 2016 with another 7 percent drop.
These developments should have come as no surprise. Beijing’s economic numbers were always suspect. Infrastructure buildout was clearly ahead of demand, with planned housing far in excess of the country’s population. And anyway, just how long can an economy as large as China’s be expected to grow by nearly 10 percent a year?
In the oil and gas sector, crude oil prices have plummeted more than 70 percent in the past two years. While the drop has been precipitous, a decline was predictable. In the past, Saudi Arabia and other OPEC members regulated prices by adjusting production up or down. But with the United States now the world’s largest producer, Saudi Arabia isn’t the only game in town. What’s more, Saudi Arabia has been calling the bluff of other OPEC nations, which often secretly reneged on promises to trim production.
In the United States, natural gas prices have sagged during the same period, from $6 in 2014 to just above $2 today. This was also predictable. Even as producers shuttered wells, overall output continued to increase. And petroleum companies for years pleaded with Congress to allow natural gas exports. In part that’s because gas exports represent tremendous business opportunity. But there’s no question the industry saw the price slide coming and knew exports were the only hope.
From IoT to customer-centricity
What’s the takeaway for manufacturers? The demand signals are almost always there. The key is to capture them, to know how to interpret them, and then to take action based on the insights.
Those imperatives become even more crucial in the era of the extended supply chain — in which manufacturers must manage not just a linear supply chain and not even a complex supply network, but multiple integrated networks of supply and demand networks.
First, the Internet of Things (IoT) will dramatically increase data volumes for manufacturers across industries. IoT holds enormous promise in helping manufacturers to better track upstream supply, monitor downstream demand, and optimize operations in between. But it also means they need to successfully manage all that data — or fall behind competitors that can.
Second, as companies leverage the sharing economy, they need to capture and manage data from more sources. The sharing economy is about more than rides (Uber) and lodging (Airbnb). It’s about leveraging resources wherever they happen to reside, procuring materials, products, services, or expertise from the most efficient and effective sources. But to do that seamlessly, manufacturers need real-time insights into the processes of their sharing economy partners.
Third, data is only as useful as the information it yields. That’s true whether it’s market inputs like oil prices or sensor alerts on equipment operating tolerances. Manufacturers need to analyze their data in as near to real time as possible to stay ahead of supply and demand indicators. Yet nearly two-thirds of companies say they have a hard time getting the right information at the right time.
Finally, the objective of these efforts is to become more customer-centric. That will be necessary as both consumers and B2B customers expect more consistent and individualized service in an always-on, hyper-connected marketplace. And that comes back to demand signals. By more effectively capturing and analyzing demand signals, you can not only respond to but even predict customer needs.
These efforts may not solve slowing markets or the geopolitics of commodity prices. But they’ll help you anticipate and respond to these and other business challenges.
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