Value-Chain Report -- Next Generation Manufacturing

Dec. 21, 2004
Manufacturing responsiveness creates supply-chain opportunities.

Although a great deal of attention related to supply-chain operations tends to be centered on eProcurement, B2B marketplaces, real time visibility, and similar issues, manufacturing's potential contribution to supply-chain effectiveness is often overlooked. Yet, for manufacturing firms and their trading partners, manufacturing operations can create an enormous opportunity for competitive advantage. According to Forrester Research, many companies it has surveyed "increasingly manufacture products all over the world. Although firms benefit from this trend, most far-flung manufacturing operations can't respond to demand swings -- nor do they have the communications infrastructure to coordinate production." The result is reduced responsiveness, greater inventory investment, and lower customer service. However, manufacturing's role in the connected supply chain is gaining attention. Leading firms are recognizing that increasing flexibility and responsiveness in their extended manufacturing network, including internal and external production facilities, allows them to leverage gains already made or in progress in other areas, such as planning, sourcing, and logistics. Evolution of Manufacturing During the last few decades, we have witnessed several major shifts in the emphasis and focus of manufacturing activities. From the early part of the 20th century through the mid-1970s -- the era of mass production -- manufacturing's focus was centered on cost reduction, efficiency, and scale. During the late 1970s and throughout the 1980s, this focus had shifted to the principles of TQM, which emphasized quality and continuous improvement through product design and process control. U.S. manufacturers were facing increased competitive pressures from offshore producers, particularly the Japanese car and consumer-electronics companies, who had begun to focus on quality much earlier. Improved quality, when added to production efficiency, provided a competitive edge. As the quality landscape leveled, manufacturing's focus again shifted in the late 1980s and 1990s toward streamlined production. It emphasized JIT, kanban, lean manufacturing, and similar processes. Again learning from Toyota, Canon, Sony, and other international competitors, global manufacturers adopted methods and systems that supported the principles of elimination of waste. Lean capabilities, when added to quality and cost effectiveness, raised the competitive bar again. Current Manufacturing Approaches Still Fall Short In spite of all the gains made during the evolution from mass production to lean-manufacturing principles, current manufacturing capabilities have significant shortcomings that need to be addressed if significant further progress is to be achieved. Lack of flexibility and inadequate information systems are frequently cited as significant barriers to achieving manufacturing responsiveness and true flexibility. In a July 2000 survey Manufacturing Deconstructed, Forrester Research noted that 74% of the global manufacturers participating in their survey "noted that inconsistent production systems and equipment make it impractical to transfer production from one plant to another." In the same report, 62% of the global manufacturers interviewed cited poor visibility or poor communications within the supply chain as their biggest problems related to flexibility and responsiveness. Global manufacturing companies and their extended supply-chain networks are facing increasingly intense competitive pressures. Traditional manufacturing operations are being challenged to transform to a more responsive and dynamic execution model. Next Generation Manufacturing As it already has for many other supply-chain processes, the Internet is creating an environment that will enable the next generation of manufacturing capabilities. Cap Gemini Ernst & Young (CGEY) believes that next generation manufacturing, which it terms Adaptive Manufacturing, will focus on:

  • Building to demand at Web speed
  • Flexible production with smaller scale -- modularization
  • Self-organizing work team and processes
  • Electronic signaling and intelligent agent-based execution
  • Fully networked assets and expertise According to Ernest Miller, CGEY vice president and global practice leader for Adaptive Manufacturing, "Today's frequent planning and re-planning will be replaced with execution based on real-time demand. Custom orders will be captured in an automated manner, sequenced, and then executed by the factory with little to no intervention from personnel." These capabilities are being supported by new technologies that enable the connectivity, visibility, and flexibility necessary for increased manufacturing responsiveness and flexibility. CGEY has partnered with GE Cisco, a leader in automation, networking, and e-manufacturing services, to provide a road map for manufacturing organizations that want to move to an adaptive operation. Next generation capabilities are built upon: Enterprise Connectivity -- Building the foundation by linking the business and shop-floor systems and devices, allowing data to be visible and transportable to different layers of the organization. Real-Time Performance Management -- Taking advantage of immediate and accurate information to enable rapid and intelligent decision making. Decision Support System Optimization -- Allowing information to flow between shop-floor and critical supply-chain applications to bridge the gap between real-time planning and execution. Distributed Shop-Floor Decision Making -- Using bi-directional information flow and behavioral rules to support day-to-day changes in demand and product mix, while adapting to changing business and manufacturing environments. Benefits of Adaptive Manufacturing Manufacturing organizations that have implemented adaptive manufacturing methodologies are realizing significant benefits. Typical results include:
  • 30% - 50% inventory reduction
  • 50% - 70% production cycle time reduction
  • 5% - 7% revenue increase
  • 10% - 15% cost reduction One of the early adopters of Adaptive Manufacturing concepts was a leading electronics components manufacturer. Following implementation, this company reduced overall supply-chain inventory by 40% and accelerated production cycle times by 30%. Similar results were achieved at Mitsubishi Motors. According to Richard Gilligan, president and COO of Mitsubishi Motors Manufacturing of America, "We are extremely pleased with the progress we've made in making the Mitsubishi Automotive Assembly Plant one of the leaders in overall productivity and quality. We have increased productivity over 35% while improving our first-time quality rate from 25% to 90%." In order to remain competitive, manufacturing organizations will need to implement next generation adaptive manufacturing methodologies. These methodologies raise the competitive bar and leverage the gains being made in planning, sourcing, and logistics to create leading edge supply chains. Kevin P. O'Brien is a Cap Gemini Ernst & Young practice leader for supply-chain consulting with high-growth and middle-market companies.
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