Manufacturing and operations can unlock significant latent value by developing the capabilities that support a company’s strategic value proposition. Winning companies already are starting to tap into that value.
Flexibility and a Better Footprint
Among the top capabilities to consider is a more flexible supply chain. By today’s standards, most supply chains have been reasonably flexible; they can accommodate multiple products and relatively rapid production changeovers. But as consumers demand more variety, and expect frequent changes in recipes, portion sizes and packaging, the complexity of the product mix has grown dramatically in the past few years. In the food industry, for example, there may be dozens of versions of products as simple as boxed macaroni and cheese.
By focusing on making a supply chain flexible, rather than on cutting costs across the board, manufacturers can more easily provide shoppers with more variety and, at the same time, help differentiate their goods. They can produce some goods with lower margins, for low-cost channels such as dollar stores and discount club chains—without squeezing profits unsustainably—and, at the same time, offer retailers some unique products that competing stores won’t have. In this way, manufacturing makes the jump from cost center to profit driver.
A more differentiated capability around organizing the supply chain footprint is also critical. Over the years, in their quest for ever-increasing economies of scale, many manufacturers have built up vast networks for plants to churn out whatever products they had the equipment and floor space to produce. These structures weren’t built to handle the complexity and variability that markets now require.
This requires a fundamental change in thinking for supply chain organizations; they have hewed to a cost-containment agenda for decades, and now must think instead about which locations and arrangements will enable the most growth. Typically, this will mean having smaller, more agile manufacturing footprints that can manage variety without being overwhelmed by complexity—often by focusing each plant on one or two activities where its capabilities give it a competitive advantage. After deciding on the role of each plant, manufacturers can link them together in a cohesive, flexible network capable of responding smoothly and quickly to a wide range of customer demands.
Executives are also learning that some of the most prevalent ways of driving down costs—factory automation, outsourcing production to low-wage plants in China and other distant locales—can undermine the capabilities manufacturers need for expansion.
For example: Despite the advantages of automation, some manufacturers are discovering that they are better off with manual assembly in some steps; it can make it easier to introduce variability into their products. Similarly, the long shipping times from low-wage countries have made it harder to rapidly refine the product mix in response to changing customer requirements and market opportunities. This is a major factor behind in-sourcing: moving manufacturing closer to home.
