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The manufacturing network of the future

Kearney Guest Blog: The manufacturing network of the future – setting guide rails for success

Manufacturers’ response to the pandemic can accelerate changes that have long been in demand.

After decades of globalization and trade liberalization, manufacturers are now operating in a rapidly changing and insecure business environment. Over the past few years, the world has regressed toward protectionism with Brexit and Trumpism becoming the buzzwords of our time. And now, COVID-19 is amplifying and accelerating this trend—revealing just how vulnerable our global supply chains are. Almost every company we work with has experienced supply chain disruptions related to COVID-19.

The pandemic has had a heavy impact on both supply and demand. Across the globe, millions of people have been infected, our lives have been put on lockdown, and consumption patterns have taken a dramatic shift. More than three-fourths of the world’s manufacturing output has been directly impacted by limited availability of the workforce, border restrictions, and supply disruptions.

In Kearney’s cross-industry study, more than 80 percent of executives say COVID-19 has caused severe supply chain disruptions. As a result, the business environment will be deeply reshaped in the short, medium, and long run. During the short-term survival mode, companies have focused on business continuity, repurposing capacities, and pivoting from supply disruptions and manufacturing and logistics capacity constraints. But in the post-pandemic world, management will need to address more structural questions and make strong decisions about how to move forward. About 30 to 40 percent of the companies we work with have already moved sourcing and manufacturing activities out of China or plan to do so within the next three years to sustainably enhance supply chain resilience and mitigate tariff change risks.

The guide rails are moving

Manufacturing success factors have evolved from capitalizing on global scale and labor cost advantages toward creating flexibility and resilience in both costs and capacity. Looking ahead, we expect to see a reshoring resurgence to serve local markets. More companies will collaborate in ecosystems to benefit from complementary capabilities and other synergies. This will be accompanied by a new perspective on manufacturing participation strategies, such as rethinking the relevance of manufacturing operations for the overall business model. We are already seeing contract manufacturers that provide complete product platforms to take care of the full product value chain. In the past, networks were optimized based on the cost of goods sold (COGS) and service considerations. Going forward, we’ll see more risk exposure, sustainability, and social responsibility as design criteria. Industry 4.0 technology will be used more rigorously to reduce the dependency of human labor and enhance factories’ production capabilities. Market demand volatility will require accelerated decision-making and pivoting asset capabilities.

Strong decisions will pave the way for success

Given these challenges in the business environment and the shifts in manufacturing success factors, forward-thinking companies are formulating a clear perspective about the future network and developing a mid- to long-term plan of attack, including a clearly formulated ambition level (such as performance and sustainability targets, level of manufacturing participation, or degree of redundancy in the network), defined sources of value, essential capabilities, and a road map with timing, sequencing of measures, and required investments.

Strong decisions can pave the way for success and redesign the manufacturing network. Answering the following questions is a good place to begin:

What are the strategic guide rails for the future footprint?

  • Definition and balance of key design parameters, such as COGS, service levels, and supply chain resilience
  • Striking a balance between global scale and localized production
  • Pivoting from changing duties and tariffs
  • Clear perspective on sources of value

How can asset flexibility be improved?

  • Multi-technology capabilities
  • Use of assets (degree of redundancy in the network)
  • Balance of internal and external capacity
  • Asset-light manufacturing (enhanced cooperation models)

What does the network operating model look like?

  • Orchestration of the ecosystem (network governance)
  • Management of assets on a network level, such as optimizing overall equipment effectiveness (OEE) across the network
  • Real-time decision-making, such as product allocation

How can Industry 4.0 technology improve the network?

  • Connectivity and real-time visibility on a network level
  • Definition of the level of automation, such as a lights-out factory
  • Human–machine interface, such as in planning

The answers to these questions will create a target picture for the future manufacturing network. A clear understanding of the network characteristics and capabilities as well as the sources of value will help create cross-functional stakeholder buy-in. Several digital front-runners are already showcasing that the manufacturing network of the future is no longer fiction; it’s becoming a reality.

Four network capabilities to unlock success

The manufacturing network of the future will be defined by four capabilities (see figure). A tailored configuration will allow companies to address the big decisions and trade-offs.

The manufacturing network of the future

Cross-site connectivity. Data is the backbone of the new network. Manufacturing assets need to be connected on site and on a network level to allow for almost real-time decision-making. For example, when unplanned downtime causes a production delay, cross-site connectivity allows for short-term mitigation and adjustments of product allocations or shifts in production schedules.

End-to-end transparency. Integrating suppliers and customers is essential to creating visibility into product flows, shipments, and process statuses across the value chain. This is the basis for network performance management (such as optimizing OEE on a network level), orchestration of supplier ecosystems, and moving as closely as possible to customers (such as accelerating the time to market and unlocking “anything, anytime, anywhere”).

Network operating model. To facilitate flexibility and resilience and harness the power of technology, the network operating model and governance will need to be adjusted. For indirect functions such as planning, maintenance, and quality, technology can enable a remote way of working to unlock cost efficiencies, create flexible cost structures, and support accelerated market development through skeleton sites. A remote planning function will require a different governance model to allow for fast decision-making on cross-site product allocations. Key performance indicators will need to be defined to manage performance on a network level, such as for network personnel costs, OEE, or CO2 emissions.

Multi-technology sites. In addition to addressing the data backbone, managing interfaces with internal and external players, and adjusting the operating model, the manufacturing network of the future will require hardware adjustments. Industry 4.0 technology can enhance asset capabilities and produce a wider range of the portfolio to enable changing product allocations across sites, such as for demand changes or supply disruptions. As a result, the network will be able to breathe easier and adapt capacities.

Embrace the opportunity

The humanitarian and economic costs of COVID-19 cannot be understated. However, we believe manufacturing networks can emerge from the crisis stronger and better able to manage disruptions. Manufacturers’ response to this crisis can accelerate changes that have long been in demand, including from customers, to make the value chain more efficient, effective, and customer focused. The pandemic has created an opportunity for us to learn, to change, and to do better when the next crisis inevitably occurs. Let’s not waste it.

Authors: Marc Lakner & Philip Wessely

Read the original article here

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