After a long 18 months of COVID “work from home”, I finally started “getting on the road” to meet with customers, prospects, and others in the broader Industrial OEM ecosystem to re-establish connections, relationships and cultivate new business. During these meetings with 20 odd companies and 40-50 business leaders, I was struck by the seeming permanence of the changes I saw in the broader ecosystem/economy. This post is a collection of observations and trends based on these meetings:
Supply-driven inflation is very real.
- Almost every OEM has material availability issues from suppliers. Long lead times means inventory levels are increasing, delays are commonplace, and missed deliveries are the norm. Customers wanting priority supplies are either paying premiums or simply waiting for material.
- Lack of resources across the board is also creating supply challenges; not enough factory workers, or service technicians, etc is creating a strain on supply.
- The combination of these 2 issues is fueling a rapid rise in prices across the board, or if suppliers cannot pass along these costs, creates a profit squeeze in the supply chain.
- Inflationary pressure is expected to continue throughout the supply chain next 18-24 months.
Shortage of qualified workers is an existential issue for OEMs and their customers. In all functional areas
- Retirements are becoming a big problem – the COVID crisis tipped many over the edge (and the 12-year bull market helps significantly)
- Recruiting is not filling in the gaps – fewer technically proficient people coming to work for OEMs
- Relative unattractiveness of these companies vis a vis alternative (e.g. the tech industry is hoovering up people with relevant skills – especially that remote work is an option for most of these companies)
- These issues are hurting companies all the way across the value chain – OEMs, partners, customers
Tribal knowledge is neither permanent nor scalable
Tribal knowledge is a real thing and Industrial OEMs rely on this far more than other companies
- Long tenured sales/service people know what’s happening, and use this knowledge to cut through the antiquated systems and processes to get to the answer quickly
- Reliance on experience and tenure is good but is not scalable. Very often we’ve seen examples of “Bobby knows this, so let’s make sure he’s available on Thanksgiving to answer support questions”
- Retirements are a problem that are going to really impact OEMs significantly in the next 3-5 years.
Automation and consolidation are the natural consequences of this situation
- “Cost out” by offshoring to low-cost locations will become a thing again for many knowledge jobs.
- Reduction of reliance on people through automation will be the norm – in all aspects of business workflows, starting with high volume/high headcount roles
- Seamless value chain management via collaboration tools. There are too many handoffs, too many information chain drops across an OEM’s ecosystem. This will change with collaboration tools across companies.
- There is no sales/commercial talent on most aftermarket teams – all reactive customer service or order management. Very few hunters/prospectors.
- The “urban sprawl” of tech is real. Too many tools, too little governance. The ecosystem will collapse under its own weight
- Adoption and usage of tools are fast becoming a problem with this proliferation. The company that uses available tech the best will win.
- Very little institutional sharing and collaboration – Microsoft Teams and others are chat tools, not sharing at scale
- OEMs are investing in 4 areas:
- ERP upgrade/consolidation
Winners will win big, losers will vanish
These observations were remarkably consistent across a variety of manufacturing companies. It will be an interesting next few years to see how the industry manages itself through this transition. Winners will win big, losers will vanish.