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Are Changing Business Models the Key to Manufacturing’s Future?

Posted By Paul Tate, July 14, 2015 at 2:26 PM, in Category: The Innovation Enterprise

Strategy_Word_Cloud.jpgIf manufacturing leaders hope to be ready for the major transformational shifts that lie ahead over the next few years, they will need to adopt business models that are a lot more collaborative and agile and that boost their ability to innovate.

And they need to start now.

Recent research from a number of sources has highlighted the gap that currently exists between manufacturing company aspiration, and the real-life adoption of new business models and organizational structures that will truly support more collaborative and agile approaches necessary to cope with an increasingly disruptive future of digitally-driven, highly-innovative, global networks of competitors.

The Manufacturing Leadership (ML) Council’s latest research survey on Collaborative Innovation, for example, revealed that while more than 90% of manufacturing companies say they are now pursuing collaborative innovation at some level in their organizations, these collaborative aspirations still have a long way to go before they are demonstrably making an enterprise-wide difference. 

While 36% of ML survey respondents stated that collaboration is a strategic focus for their companies and that they have formal plans in place to support collaboration, only 22% say they have managed to turn that strategic focus into workable, highly collaborative structures with effective end-to-end approaches across the enterprise.

Far more, 42%, reveal that most collaborations they’re involved in today are still aimed at specific projects or business areas, rather than being ingrained in the business at all levels. And over one quarter, 28%, would still characterize their organizations as taking an ‘ad hoc’ approach to collaboration and are only partially collaborative in their innovation activities.

Now a recent report from KPMG, called the 2015 Global Manufacturing Outlook (GMO), echoes these ML survey findings. The report’s authors conclude that while “major transformation is coming to the manufacturing sector, few manufacturers are truly transforming their business models, operating structure, or supply chain in order to survive the battle.”

The study, conducted by Forbes for KPMG and based on the views of 386 senior manufacturing sector executives from around the world, found that more than three-quarters of respondents believe partnerships will form the basis of innovation for their company in the future, and 32% cite the development of new products and R&D as a top strategic priority.

But with innovative new products comes the need to be equally innovative about the way these are manufactured and delivered to a changing marketplace by ever-more agile supply chains.

The good news is that many manufacturers are realizing that the adoption of new manufacturing technologies could have a significant impact on their ability to deliver new products and improve processes, productivity and efficiency. Almost half also say they are now adopting new manufacturing and supply chain technologies to help drive innovation.

But the need for flexibility and responsiveness to changes in demand or product mix also featured as the top supply chain challenge for these companies, and just 14% of respondents claim to have achieved complete visibility into Tier 1, 2 and other suppliers.

What’s more, only 29% say they actively plan to restructure their supply chains to support future growth, and less than one third are currently reconsidering their existing global footprints.

“It quickly becomes apparent,” notes KPMG’s global sector chair of industrial manufacturing, Jeff Dobbs, in the report, “that while the enablers of transformation are all around us, few manufacturers are truly transforming. Instead, most are tweaking and adjusting their business models and operating structures in preparation for the battle they know must come."

Is this enough? It’s unlikely. There are too many fundamental forces of change underway today, and too many potential challenges along the road ahead, for manufacturing leaders to be shy about restructuring their organizations or seeking out innovative new business models that can help them not just survive, but lead the way forward.

It really is becoming a case of “Carpe diem”, as the old Latin aphorism goes, because in the early 21st century manufacturing industry, the future will wait for no one. 

Written by Paul Tate

Paul Tate is Research Director and Executive Editor with Frost & Sullivan's Manufacturing Leadership Council. He also directs the Manufacturing Leadership Council's Board of Governors, the Council's annual Critical Issues Agenda, and the Manufacturing Leadership Research Panel. Follow us on Twitter: @MfgExecutive

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Posted on
Collaboration happens pretty naturally when a team has a common goal. To be most successful in manufacturing, the collaboration typically has to extend to sales, engineering, purchasing, etc. Economic transparency and a focus on a common, widely understood, objective measure of winning, will create a great environment for collaboration, improving business results and the lives of the employees that drive those results. I have seen this work in 400+ companies I have worked with in the past 20+years, from small / medium sized companies to larger publicly traded companies United Technologies and BHP Billiton in Australia.
This Manufacturing Leadership article, and the subsequent two Harvard Business Review articles provide more background:
This 4 minute MSNBC video of one of my clients provides an example of a privately held company: https://www.youtube.com/watch?v=ev9JBmjjeCU
Are you familiar with economic transparency / open-book principles, and if so, are you a fan?
Posted on
As I am mostly interested in following the traits on Manufacturing models and suggest the best practices, I am here to highlight few pointers, which might help us to take it forward:

1. Why Manufacturing is not working out/happening as it is supposed to be - My first pointer would be Financial Ties, around the sectors the capital/investments not flowing from two sides as it is supposed to be. These days, it so common to see that Manufacturing units majorly depends on public investments and don't seek much attention from Governing Bodies and Agencies in turn pointing to Government sources of income, if we see the past trends the money use to flow from one direction though it is very strong, as much as investment they need Govt use to provide and now the agencies set them up free by involving public and take very less responsible positions in growing the Mfg. sector as they did in the last few decades. I guess this needs to be addressed on the first hand.

My Second pointer, is innovation - We actually run out of creative thoughts and get into factory model so soon and spend so much on operational costs that we cant afford our own investors to buy our goods and off course this is one of the primary reason why Governing bodies also take step back to say we cant invest as there are many questions around why so much in one black hole??
The solution for this is to think creative and build or buy machinery which can do run in more than one mode at a reasonable price to keep our operational costs lower too, which encourages the sector to provide variety of goods in smallest time possible and fit them into different things rather than producing goods far more than demand before they get outdated.

Having these two addressed, we also have to see other options to keep our labor motivated by addressing their needs have a clear road map for them to be entrepreneurs down the line, just not by giving them more money as perks or salaries(which again is another reason for raise in the operational costs)

Promote Lower Operational Costs units with innovative products being sold in smaller proportion, and then focus on factory model to run with an optimized cost, would lead us to right direction.

If we just take Mobile sector, and see the nature of business that are run on mobile platforms this is the best example of evidence where thousands and thousands of apps delivered on day to day and see 60% of them come with success of their investment and continue gaining the profits over the period with less investments for future.

Please correct my thoughts wherever applicable.
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