Contract Manufacturers are the unsung heroes of modern industry. But if they're going to fight the competition and commoditisation that threatens their growth, isn't it time they emerged from the shadows?
In this article, we will argue contract manufacturing organisations (CMOs) must focus more time and energy on brand building if they want to fight stagnating pipelines and growing commoditisation. They must demonstrate their unique value to their customers or risk losing everything in increasingly vicious and victorless price wars.
CMOs: the strong, silent type?
Since the 1970s CMOs have been the engine of the world economy. They’ve helped ambitious companies find economies of scale in procurement and manufacturing.
Quietly, and behind the scenes, they’ve transformed the lives and choices of consumers by making a wider range of higher-quality goods, cheaper and more accessible than ever before.
CMOs: driving the global economy
Now, as we emerge from the Covid pandemic, CMOs are silently transforming the world once again.
CMOs may not be the household names of the brands they work for, but the sector is critical to the global economy. By 2023 the CM industry will be worth $2.7 trillion a year to the commercial world (source: BCC). That’s nearly 3% of the annual $94 trillion global GDP. And while other areas of the economy have faltered in the wake of the pandemic and geo-political uncertainty, contract manufacturing is still projected to grow at a rate of 6.6% YOY.
Covid has driven growth in key verticals
During the Covid crisis sectors like healthcare received a huge boost from Contract Manufacturing. The instant scalability of CMO supply lines drove the rapid production of vaccines and IVD devices (the personal In-Vitro Diagnostic testing kits) that saved millions of lives.
But it's the future for many sectors
Elsewhere, the CMO sector is supporting the latest innovation in automotive, industrial and consumer electronics. Miniaturised technology and IoT is powering the driverless cars, smart factories and sustainable energy solutions that are shaping our future.
While OEMs (Original Equipment Manufacturers) are delivering cutting-edge research and development, CMs are quietly undertaking the procurement, assembly, regulation, testing and logistic tasks that are delivering the finished products to market on their behalf.
If the sector is growing, why is your pipeline stagnating?
But while the future demand for CMO services seems certain, growth and profitability can still be elusive for individual contract manufacturers trying to survive in a hypercompetitive space.
So, what's holding you back.
1.Supply chain disruption?
Brexit, geopolitical uncertainty, extreme weather and Covid have all hit access to raw materials and components for CMOs. Many have found it hard to fight back from these blows.
Rising prices in labour and materials have eroded margins. Contract manufacturers are finding it hard to remain profitable and keep expanding their client offerings.
3. Lack of IP?
Clients own the products they create but most contractor manufacturers don’t. With no IP to their name, CMOs can feel buffeted by market forces, rather than leaders in innovation.
For too many CMOs, a small number of clients are still responsible for the majority of their revenue. Growth and diversification is vital for survival, but money is often spent on retention rather than delivering new business.
5. CMOs seem interchangeable?
Many OEMs simply can’t see much differentiation in the products and services offered by rival CMOs in the UK. As a result, contract manufacturing partners are seen as dispensable and interchangeable.
Why brand loyalty is in short supply
A lack of communication around supply chain challenges and potential solutions has destroyed trust between many CMOs and their clients. Overseas competition has resulted in increasingly bitter and damaging price wars.
Outsourcing manufacturing might be a strategic necessity, but that doesn’t mean OEMs are embracing their individual suppliers as long-term, strategic partners.
In the age of digital, where moving between suppliers can be as simple as flicking a switch, loyalty is a rare commodity. Many OEMs have numerous suppliers they play off each other; a global network of design, manufacture and logistic companies they use to drive down costs and hedge their bets.
Lack of differentiation is the ultimate turn off
The danger for contract manufacturers who aren’t establishing their unique value, authority and importance in the market right now, is that their clients may choose to permanently ‘switch them off’ in the future.
The fight back has started
But we know contract Manufacturers are fighting back. Faced with stiff global competition and static sales pipelines they’re upgrading their technology and their suite of offerings to meet the challenges of a disrupted market:
- CMOs are developing technology to give clients better supply chain visibility, through new and sophisticated digital platforms
- They are listening to the market’s call for ethical working and procurement practices to protect vulnerable environments and populations
- They’re re-shoring manufacturing to fight the risk of future supply chain disruption
- They are investing heavily in new factories and equipment
- They’re increasing their end to end offerings, through design, regulatory, value engineering and logistics services
But is the message getting through?
But none of this will count if these messages aren’t getting through.
According to research by the CMI (Content Marketing Instuitute), 50% of contract manufacturers admit their reliance on traditional marketing strategies is failing them in this brave new world.
As the CMI notes, ’outbound strategies’ such as cold calling, email shot and direct mail are failing to find and nurture right fit leads. They’re failing to help CMOs gain the confidence and trust of sophisticated and knowledgeble media consumers.
Instead, to build better long term and proftitable pipelines, they argue, more time and resource needs to be spent on building the authority and authenticity of their voice in the marketplace. CMOs need to build trust, demonstrating expertise through content, becoming a strategic resource that prospective customers naturally gravitate towards for insight and support.
In other words, CMOs who are positioning themselves for growth need to cut through the noise of a crowded, undifferentiated market through a focus on brand and 'inbound marketing'.
It’s easier said than done
And some in the industry can, ineed, see the writing on the wall. The latest CMI research is showing many CMO marketers are pushing for more investment in content publishing and brand focus, to support differentiation and long term sales growth. But they still need to persuade the board that this focus is the way forward.
In fact, the CMI say over half of manufacturing marketers are struggling to sway the traditional, interruptive sales mindset that prevails in senior management. That, they believe, together with a lack of time and dedicated resource for content creation and promotion is standing in the way of sustained and strategic lead generation.
The hunt is on
But finding the right agency partners to help contract marketers build their case is a huge challenge. There’s currently a lack of industry knowledge in the agency world. There’s a lack of leaders with experience who can advise CMOs on marketing strategy. There’s not enough expert manufacturing writers who can author compelling content for the sector. Worse, there’s no confidence that agencies have got the track record and methodology to bring about rapid brand growth with the trackable ROI they need.
Stepping out from the shadows
The time for Contract Manufacturers to be the invisible heroes of the sector is past. These companies need to become a real, trusted and vivid presence in the lives of their customers as they make their critical buying decisions. But to make this happen, CMOs must find the partners who can help them find their voice in the market, tell their stories in uniquely powerful ways, and fill their pipeline with long-term and sustaining sales opportunities.