After setting the context in this blog, we will identify where IT can contribute most to the business performance in the wire & cable industry in the following blogs.
The wire & cable industry is characterized by ongoing consolidation. The top 10 companies are getting larger and taking more and more of the market share to gain economies of scale and better commercial and financial positions in the market. Still a ‘long tail’ of smaller cable manufacturers exist that focuses on specific customer requirements that the large players cannot deliver.
The industry saw a significant demand fall due to the recession. Some companies could cushion the hit by focusing on demand related to renewable energy (wind, solar). In recent years, the revenues in the industry have been recovering, but margins fail to improve due to strong international competition. Sales volumes in tonnes of copper are improving, but do not compensate for the drop in revenue caused by low material prices.
The competitive pressure has forced cable manufacturers to further rationalize the production processes in their factories. The drive to continuously improve these processes has resulted into a less diverse product mix that is run in factories. In fact, generally speaking, we see factories in this industry moving to two extremes. Operations become focused on either standard cables, or on custom specific cables. Factories that run standard products are optimized for the mass production of cable types with limited variation to minimize change-overs so that material costs are minimized and resources utilization is maximized. Factories that move to a diversified mix of custom cables position themselves to maximize their ability to absorb customer information and process this information throughout the supply chain. For this type of businesses it’s crucial important to be agile to the continuous changing information in their environment.
Risk of price volatility
There is one constant in the wire & cable industry: the continuously changing prices of the conducting materials. In recent years the price of copper has been any place between $3,000 and $10,000 (per metric ton). Price jumps of $500/month are not exceptions. This explains why executives in this industry have a close eye on the operations: a lot of the company capital is stuck in inventory in the factory and warehouses. Significant improvements have been made in working capital reductions, but this remains a top priority for this industry.
What does this mean for the application of Information Technology?
There are numerous possible applications of IT in the wire & cable industry. It’s a matter of validating and prioritizing these potential projects. At the end of the day, IT investments have to obey the same ‘financial regime’ as other investments in a company.
Given the capital intensity of the wire & cable business, it makes sense to assess the impact of an investment in this industry on the capability of a business to efficiently utilize capital to operate, show a profit and grow.
In our next blogs we will take a closer look at the various business domains in a wire & cable business that can benefit from Information Technology, starting with Product Engineering and Quoting.