With cable demand declining sharply around the turn of the millennium, the industry has seen demand pick up in recent years, driven by the growth of the telecommunications and energy industries, particularly in emerging markets. This underlines the cyclical nature of the industry.
As a result, cable manufacturers must be mobile enough to respond quickly to changing demand levels.
Force shifts in the supply chain
Cable manufacturing companies often have large raw material suppliers on one side and large consolidated customers on the other (eg wholesalers, telecom providers, and utilities). Furthermore, few cable manufacturers have direct contact with the end customer, giving them relatively little power in the supply chain.
Therefore, cable manufacturers must be smart and creative in the way they create value in this venue.
Manufacturing and working capital
You can call the cable industry a manufacturing industry. This means that the material costs determine a high proportion of the cost of the final product, usually over 60%. As a result, cable manufacturers must strive for perfection in the transformation processes in the enterprise. There the profits are achieved.
In addition, the working capital must be kept in mind. Excessive raw materials and work in progress (WIP) can devour a disproportionate amount of a company’s financial resources. Last but not least, large stocks of non-ferrous metals (Cu, Al) can pose a significant price change risk for the company.
This requires cable manufacturers to carefully manage the risk of volatile prices of these raw materials.
Deregulation lowers the entry barriers
Until recently, the electricity and telecommunications markets were characterized by monopoly suppliers, most of whom bought from domestic cable suppliers. However, deregulation has increased the incentive for customers to negotiate more aggressively with cable manufacturers. In addition, the transport costs are valued at less than 5% of the production costs. As a result, more than 20% of total Western European consumption is imported while about 30% of total production is exported.
The deregulation of markets, the lack of entry barriers and the low transport costs have led to cable manufacturers in global competition.
Trends in the cable and wire industry
Based on the cable manufacturers’ responses to the challenges they face, we have identified key industry trends.
Diversification and consolidation
With the pressure on market share and profits, many cable manufacturers have made their supply chain more complex by expanding their customer base or product portfolio to deliver growth or an acceptable level of capacity utilization. Today, powerful IT solutions are available to support these growth strategies and provide organizations with the control and scalability they need.
The cable factory as LEAN Factory
Continuous improvement has become a necessity in the global competitive marketplace. It introduces LEAN initiatives that provide a systematic approach to understanding the value chain in a business. The sources of waste are identified and eliminated in a series of sequential steps, business processes are redefined to create value rather than waste. The right IT solution supports this process of continuous change by providing the much-needed flexibility. Proper use of IT enables full utilization of employee potential.
Reduction of working capital
The inventory of raw materials and (semi) finished products usually consumes most of the current assets of a cable manufacturer. Therefore, inventory reduction is often an important issue on the executive board agenda. For inventory management and reduction, companies need better visibility and measurability of the inventory supply chain. This requires an IT solution that fits like a glove on the cable business and in which nothing can be lost or disregarded.
Creativity in the creation of values
Cable manufacturers can rebuild their power in the value chain by involving the end-user of their products and developing products and services that create real value through a thorough understanding of end-user needs. This gives them a competitive advantage and a better bargaining position within the value chain. However, innovative and agile IT solutions are needed to support and respond to ever-changing customer demands, and to deepen those demands into the company’s supply chain.
To realize moderate margins, the cable industry as a manufacturing industry must use a plethora of capital. In addition, most of this capital is tied up in commodities that are subject to sharp price fluctuations, such as copper. Cable manufacturers must use IT to control the risk of price changes – the right IT solutions for cable manufacturers provide insight into these risks and provide tools to control them.