One of our favorite activities at Manufacturing Insights is compiling our annual top ten predictions. The exercise allows our global research team to take a breath, aggregate our conversations in the marketplace and set the key areas of investigation for our research agenda.
Our top ten predictions for manufacturing include:
- Prediction #1: Companies will exploit existing tangible and, especially, intangible assets to ride out the financial crisis and prepare for recovery.
- Prediction #2: IT organizations will put budgets under severe review and new investments will require shorter payback periods.
- Prediction #3: Companies will "right size" their supply chains for profitable proximity. Standard corporate platforms will seek to configure, calibrate, and control increasingly complex scenarios.
- Prediction #4: Supply chain technology initiatives must support the standard business platform and focus on modernization and decision making.
- Prediction #5: To serve the value imperative, manufacturing companies will revisit past product investments and look to reuse existing designs, technology, and knowledge.
- Prediction #6: Product management software will be geared toward harmonizing product information to rationalize and better position the product portfolio.
- Prediction #7: Effectively managing manufacturing assets has become something of a lost art but companies will realize that, given the challenging economic environment, can be a significant competitive weapon.
- Prediction #8: Investments in digital manufacturing (preparation), modern execution platforms, product performance, and manufacturing intelligence will come together to begin to support the factory network of the future.
- Prediction #9: The urgency for better knowledge management via the use of Web 2.0 tools will increase due to volatile staffing scenarios. The quick and substantial return doesn't hurt.
- Prediction #10: Sustainability discovers metrics. No longer a feel good public relations proposition or even a regulatory compliance mandate. Emerging standard measures and a desire to benchmark will impact sustainability initiatives and the associated investment in technology and services.
The predictions that are likely to be of the most interest to IW readers are numbers 7 and 8 which relate to manufacturing assets and the implications for investment in operations technology.
Prediction #7: Effectively managing manufacturing assets has become something of a lost art but companies will realize that, given the challenging economic environment, can be a significant competitive weapon.
The manufacturing industry has experienced ten years of a reconfiguration of production facilities. At a minimum, excess demand did not lead to new investment in plants but rather increased use of contract manufacturing such as the use of co-pack facilities in consumer packaged goods. For more highly engineered products like automobiles or, more recently, commercial aircraft, increasing amounts of production responsibility was shifted to suppliers. At the extreme, the high tech industry sold their circuit board and assembly assets to contract manufacturers. All of this activity is really a form of "asset arbitrage" -- getting expensive equipment and tooling off the books to improve return on asset (ROA) performance (by shrinking the asset base).
This asset redistribution activity was underpinned by high liquidity for the sellers and cheap capital for the buyers. However, the world changed fairly suddenly at the end of 2008 with a premium on cash and a tightly constrained capital market. In order to deliver on ROA goals, industrial firms will have re-ingratiate themselves with manufacturing principles and assure optimal performance of those assets.
One example may come from the craft brewing industry where brands originally only made locally enjoy broader distribution by contracting with other craft brewers to produce their recipe in local markets. This pooling of manufacturing resources may prove itself to be applicable to many other vertical sub-segments within manufacturing. A good early example may be Nokia. They, like other consumer electronics companies, make liberal use of contract manufacturing. However, the also maintain several of their own facilities where manufacturing issues can be vetted early before being produced elsewhere. This approach has proven to deliver an advantage over rivals in the mobile phone industry.
Industrial enterprises will return to their manufacturing roots and put a renewed premium on production knowledge. This trend will not necessarily produce new investment in plants, but tighter linkages with manufacturing partners around the world and a willingness to produce other companies' products within their own plants. The overall effect will be higher utilization of manufacturing assets worldwide, greater flexibility in responding to demand, and significant new challenges in managing the execution.
Prediction #8: Investments in digital manufacturing (preparation), modern execution platforms, product performance, and manufacturing intelligence will come together to begin to support the factory network of the future.
The new challenges to manufacturing execution mentioned in the previous prediction will expose the weaknesses and the fragmented nature of software applications used by the industry. The need for tighter integration, data standards, and better intelligence will become readily apparent.
The application set begins with digital manufacturing, tightly linked to engineering tools. These applications allow companies to test the manufacturability of designs in silica and establish a baseline for expected performance. Modern execution platforms that include autonomic data acquisition and the ability to manage quality, schedule, product structure, assets/tooling, and cost workflows and data will be specified and assembled. New investment in manufacturing intelligence will concentrate on creating closed loop control over the network of manufacturing -- the portfolio of assets, the configuration of the network, the ability to calibrate to demand, and, of course, the ability to make better real time decisions on the shop floor.
Leading manufacturers will see the competitive advantage of being savvy regarding manufacturing processes. However, technology investment at the plant will focus on modernizing data acquisition from existing production assets. Another set of investments, will focus on standardizing activity and system interfaces that allows a consistent view of workflow and a common understanding of information. These investments will be augmented by manufacturing intelligence implementations that take a holistic, closed loop view of the entire network.
The coming year will be challenging to say the least. High unemployment, low consumer confidence, and low manufacturing economic at the end of the year may get even worse before it improves. However, many manufacturing companies are viewing this pause, coming after six years of fairly steady profitable growth, as an opportunity to recalibrate their business models and invest for the inevitable recession.
Our advice to manufacturing IT organizations includes three areas of focus, each with four specific projects. There is an opportunity to take cost out of IT itself through investment in virtualization, unified communications, application consolidation, and open source software. IT can be used to take the cost of doing business in the areas of healthcare, government compliance, energy consumption, and financial services. Lastly, investment in improving decision making in operations, integrating product management, supporting sustainability, and using Web 2.0 tools for knowledge management must continue.
Technology will continue to deliver productivity gains and serve as a key element in surviving recession and preparing for recovery.
Bob Parker is vice president of Research at Manufacturing Insights. Manufacturing Insights produces reports and web casts for the industry overall, the supply chain/operations domain and product lifecycle management as well as regional views for Europe and Asia. www.manufacturing-insights.com.