Wire & Cable Industry challenges
From research of the industry we learned that cable companies face several challenges
Cyclical Market
After facing a major decline in the demand for cables around the turn of the century, the industry has begun to see resurgence in demand in the recent years driven by growth in the telecoms and energy industries especially in emerging economies. This underlines the cyclical nature of the industry.
As a result, cable manufacturers need to be agile enough to respond quickly to changing levels of demand.
Power shifts in the supply chain
Cable manufacturing companies often find themselves dealing with large suppliers of raw materials on one side and large consolidated customers (e.g. wholesalers, telecom and energy operators) on the other side. Further, few cable manufactures have direct interaction with end customers, giving them relatively little power in the supply chain.
Therefore, cable manufacturers need to be intelligent and creative in the ways they capture value in this arena.
Conversion industry and working capital
The cable industry can be considered a conversion industry. This means that material costs determine a large part of the costs of the end product, typically over 60%. As a result, cable manufacturers need to strive for perfection in the transformation processes in the company. That’s where the profits are made.
Also, a close eye needs to be kept on the working capital. The expensive raw materials and work-in-progress (WIP) can consume excessive amounts of the financial resources of a company. Finally, the large inventories of non-ferrous metals (Cu, Al) can pose a significant price variation risk on the company.
This requires cable manufacturers to carefully manage the risk of volatile prices of these raw materials.
De-regulation lowers barriers of entry
Until recently, the electricity and telecom markets were marked by monopoly suppliers purchasing largely from domestic cable suppliers. However, deregulation has increased customers incentives to bargain more aggressively with cable manufacturers. In addition, transportation costs are estimated at less than 5% of production costs. As a result, over 20% of the total Western European consumption is imported while about 30% of total production is exported.
The deregulation of markets, the absence of entry barriers and low transport costs have put cable manufacturers in a competitive global arena
After facing a major decline in the demand for cables around the turn of the century, the industry has begun to see resurgence in demand in the recent years driven by growth in the telecoms and energy industries especially in emerging economies. This underlines the cyclical nature of the industry.
As a result, cable manufacturers need to be agile enough to respond quickly to changing levels of demand.
Power shifts in the supply chain
Cable manufacturing companies often find themselves dealing with large suppliers of raw materials on one side and large consolidated customers (e.g. wholesalers, telecom and energy operators) on the other side. Further, few cable manufactures have direct interaction with end customers, giving them relatively little power in the supply chain.
Therefore, cable manufacturers need to be intelligent and creative in the ways they capture value in this arena.
Conversion industry and working capital
The cable industry can be considered a conversion industry. This means that material costs determine a large part of the costs of the end product, typically over 60%. As a result, cable manufacturers need to strive for perfection in the transformation processes in the company. That’s where the profits are made.
Also, a close eye needs to be kept on the working capital. The expensive raw materials and work-in-progress (WIP) can consume excessive amounts of the financial resources of a company. Finally, the large inventories of non-ferrous metals (Cu, Al) can pose a significant price variation risk on the company.
This requires cable manufacturers to carefully manage the risk of volatile prices of these raw materials.
De-regulation lowers barriers of entry
Until recently, the electricity and telecom markets were marked by monopoly suppliers purchasing largely from domestic cable suppliers. However, deregulation has increased customers incentives to bargain more aggressively with cable manufacturers. In addition, transportation costs are estimated at less than 5% of production costs. As a result, over 20% of the total Western European consumption is imported while about 30% of total production is exported.
The deregulation of markets, the absence of entry barriers and low transport costs have put cable manufacturers in a competitive global arena