Manufacturing & Distribution Industry Opportunities

March 2012
Industry Intelligence from First Research, a division of Hoover's (a D&B company)

Technological Innovation - US manufacturers use technology to lower costs, improve products, and optimize supply chain performance. The US manufacturing sector is evolving toward providing goods that either have a high technology component or are produced with technologically advanced equipment. Biotech and fiber optics provide recent examples of rapid movement from research labs to production facilities.

Improved Logistics - To minimize inventories and speed distribution, many manufacturers invest in distribution technology and better logistics communication. Advancements include satellite communication links with delivery trucks, cargo containers with communication capabilities, specialized cargo ships that can be unloaded in hours, and radio frequency identification (RFID) tags that allow individual products to be tracked. Improved communication between suppliers and manufacturers eases production scheduling and product flow.

Business-to-Business Internet Communication - Many manufacturers can order parts and products through Internet sites, speeding delivery and cutting out a layer of distributors. Internet auction sites let suppliers bid to fill supply contracts. The success of Internet-based procurement is closely tied to the continuing growth and refinement of logistics networks, so suppliers can keep delivery costs low.

Improved Energy Use - Because many production techniques were designed in an era of lower energy costs, manufacturers can often redesign processes to reduce energy use. Some manufacturers use large amounts of energy in production. Due to the high cost of converting to energy-efficient systems, manufacturers are reluctant to approve such projects unless energy costs are projected to remain high.

Green Manufacturing Practices - In addition to investing in energy efficiency, manufacturers are also redesigning plants and processes to reduce emissions and the company's carbon footprint. These green investments can provide an attractive return and allow the company to market a positive environmental message to customers and investors. In recent years the EPA has created national emission standards for hazardous air pollutants.

Internet Sales - Because they already stock a large inventory of products, distributors are in a strong position to sell products beyond their traditional market. Although many distributors use a website for marketing, most present only a limited ability for customers to order online. The greatest difficulty is often in providing an up-to-date catalog that customers can easily navigate. Internet sales are easiest for distributors of small items that can be shipped through regular parcel services like UPS.

Logistics Services for Customers - Distributors can provide inventory management, just-in-time delivery, and order fulfillment services to customers. Inventory management, using dedicated space in their or their customer's warehouse, especially appeals to customers in retail or service businesses that require an inventory of many items. Just-in-time delivery service is most useful to industrial customers, while order fulfillment services are used by retailers with Internet sites that don't want to maintain an inventory. Some distributors provide delivery services to other distributors that sell to the same customers, such as grocery stores.

Product Processing Services for Customers - In some industry segments, processing services have become common. Many steel distributors, for example, process standard steel into semi-finished goods for customers by cutting, welding, or coating. Distributors of electrical products may assemble kits of components that customers use to make products. Food distributors may assemble meats, for example, into sales-ready portions that are packaged and priced according to customer specifications.

Outsourcing Warehouse/Distribution Functions - Recognizing the importance of efficient storage and distribution functions, more companies are outsourcing to logistics specialists, known as third-party logistics providers, or 3PLs. In addition to greater efficiency, companies can lower their capital investment and the risk of being stuck with poorly sited facilities. Outside logistics firms are more likely to use public warehousing to fulfill local distribution needs.

Electronic Record Storage - Some records storage firms are expanding their capabilities from paper documents to electronic records by building computer server farms in secure locations. By providing secure online storage offsite for customers' critical computer applications, storage companies are gradually transforming their business from paper to electronic storage.

Improved Tracking Systems - The industry is developing better product identifying systems for tracking and shipping products. The Price Look-Up (PLU) code has been used in the US for a decade or so for product identification. The GS1, formerly the Uniform Code Council, is developing a smaller bar code that packs additional information into the familiar block of bars to replace regular PLU bar codes. Radio frequency identification (RFID) tags are being tested as a replacement for bar codes.