Increasing Manufacturing Responsiveness in the E-Economy: An Interview with Paul Wimer
What are the key drivers or mega trends in today´s e-environment?
The pervasive accessibility to the Internet has given consumers, manufacturers, distributors, and suppliers infinite visibility and vast information resources, enabling and requiring manufacturers to more quickly and more accurately respond to changes in the marketplace. The global presence of the Internet means that manufacturers are serving more markets than ever before, a situation helped by lowered export and import tariffs and duties. In addition, manufacturers now have access to an expanded base of suppliers, which stimulates competition and provides the ready opportunities to form new and more flexible alliances in the supply chain process. Another dramatic trend spawned by the Internet is the increased demand for custom-configured products. With increasing frequency, consumers are in search of goods that are tailored to their own specifications. Examples of this range from computers to appliances and include a wide array of soft goods, clothing, home furnishings, and recreational products. This phenomenon challenges manufacturers to hone their build-to-order capabilities while meeting increasingly rapid order cycle times and maintaining or increasing profitability.
How has the Internet impacted consumer behavior and what has this meant to manufacturers?
Customers are increasingly using the Internet to make purchases formerly made in brick-and-mortar stores, or through the telephone centers of traditional mail order catalogue houses. The flexibility and freedom of the Internet are beginning to supplant these traditional purchasing channels as they come to be regarded as time-consuming and somewhat cumbersome. The buying public is now looking for overnight or two-day delivery on orders placed via the Web. Whether it´s a stock order or a custom-configured product, they have demonstrated an appetite for Mach speed. And they are finding it on the Internet.
This change in demand profile has rather profound implications for manufacturers in the way they manage new product development, supply chain resources, production processes, and inventory control. In this custom-oriented environment, all supply chain participants are impacted. The creation of modular designs that leverage common sub-assemblies have become more critical to meeting short manufacturing cycles and achieving optimal flexibility. The trick is in being able to effectively realign manufacturing processes. Manufacturers must find a way to align their supply chain partners with a common set of goals and metrics to ensure that all the elements of the supply network are focused on flexibility, speed, and cost. Almost daily, they need to react to shorter manufacturing turnaround and changes in product specifications.
What approaches can companies take to become more responsive in this environment?
There are four fundamental approaches that a manufacturer can take to become more responsive to these Internet-driven changes. The extent to which a company pursues these options is a function of the market in which they compete, their existing capability, and the capacity to change to new manufacturing models. Consequently, you may find that taking only one step is sufficient in meeting the needs of your particular market environment.
At the first level, manufacturers must change the way they plan their inventories. They must develop a distinct inventory profile that accommodates short-cycle demands and coincides with rapidly changing consumer preferences and requests for customized products. This requires the manufacturer to build in as much flexibility as possible in terms of inventory of production goods, scheduling of assembly processes, warehousing of finished goods, and delivery of product to the marketplace. There are, of course, limits as to how much manufacturing flexibility is viable, cost-efficient and profitable. There reaches a point at which manufacturers must limit the availability of product choices. It then becomes the marketing department´s mission to steer the customer to available products while at the same time giving the impression that there is a greater range of product than actually exists.
A second technique is to postpone final assembly. This requires developing a product line that can be custom-configured very rapidly. Core products are pre-assembled up to the point of customization and finished quickly at the eleventh hour, either at the factory or at a distribution center. In order to achieve this result, the product line must minimize the differences between individual items, and the assembly processes must be readily adaptable to short-notice changes in demand. In many instances, such as with white goods (appliances, for example), products may need to be redesigned in order to shorten the manufacturing cycle. Quick-fix cosmetic treatments – such as color changes and optional features – serve to create quasi build-to-order products.
The third level addresses the flexibility of the actual manufacturing plant. This is a pseudo build-to-order environment. The aim is to reduce manufacturing cycle times, while also increasing the frequency with which products are produced. Manufacturing more frequently will align your production lines more closely to actual customer sales, allowing you to reduce inventory stocks and increase your flexibility to fill orders. You must also evaluate what actions you can take to cycle through the high-running products or low-running products on a more frequent basis. So, for example, instead of having a week-long production run of a given model, you can swing in and out to produce a small amount of each type. You thereby produce an inventory level of finished stock that is commensurate with the actual daily demand. This, however, can be a challenge because every time you change over your manufacturing lines, you are likely to incur additional costs. But if you can take advantage of this flexibility by capturing additional market share or by charging a markup for the faster service, then the more frequent changeovers can be justified.
Finally, certain products might be suitable for a true build-to-order or job shop environment. In such cases, manufacturers may develop new production environments that allow flexible assembly and production on small or large scales. On the small scale, this might translate into a highly flexible and configurable line that can produce small quantities. For example, take high-end custom kitchen ranges: the demand for these items might translate to comparatively small quantities, and buyers in search of highly custom products are typically not startled by high price tags. The manufacturer, in this case, though facing an inflated cost of production, is able to enjoy substantially higher margins and capture additional market share by producing truly unique products based on actual customer orders. Alternatively, in some industries, the switch to configure- or build-to-order may require the complete redesign of a company´s manufacturing process – switching equipment designed for low variability but high volumes to highly flexible equipment that allows reduced batch sizes to be manufactured economically. Like auto manufacturers who have mastered the operation of producing several different models on the same production line, many other industries are being forced to consider similar moves.
What steps should an executive take when deciding how far to travel down this build-to-order path?
Number one is trying to get a better estimate of what percentage of your demand is actually going to follow this path. Rather than giving your organization the blanket challenge of supporting Internet orders better, and assuming that a majority of your production will end up being "order today, deliver tomorrow," understand what an Internet-enabled or custom order looks like, what percentage of volume will actually be of these types of products, and what specific products within your product line will fit these characteristics.
Also, gauging what your competitors are doing is critical to defining what offerings they may have in the marketplace that you will have to match. Understanding what your competitors are considering may allow you to beat them to the punch by developing capabilities that will be difficult or costly to replicate. Another consideration is product uniqueness. The closer a producer gets to a one-of-a-kind product offering, the more likely it will be able to maintain or increase market share. Last, a thoughtful and realistic assessment of individual manufacturing strengths and weaknesses should be a critical component of deciding what products would be most attractive to the multiple demands being generated by consumers and what steps you may take to improve flexibility.
Accenture has developed a wide array of supply chain metrics and techniques for assessing the flexibility of a supply chain. We have also developed proprietary methodologies for answering many of the mission-critical questions we have mentioned previously, like:
- Where is the market going?
- What products will best fit the Internet purchasing process?
- How much of your total demand will originate from an Internet interface?
- What production and/or product flexibility do you have?
- What is your build-to-order readiness?
- How configuration-friendly are your product designs and product design processes?
- How flexible are your suppliers to support your build-to-order capabilities?
- What capabilities can easily be built around existing facilities?
- What capabilities can be outsourced to speed response to Internet demands?
Do you have any final, broad-brush advice for manufacturing executives?
Most importantly, go out and investigate what changes need to be made in order to compete more effectively in the Internet environment. Do not expect to master the Internet overnight. A quick assessment of your capabilities must be made and, once completed, a quick pilot of your best alternatives should be conducted. Take careful, well-studied steps before completely overhauling the way you manufacture. Pay close attention to the supply chain functions of distribution and transportation. They become critical elements in responding to the Internet customer´s demand for immediate gratification. Also, strive for a creative use of existing assets. Though speed is important, rushing into a sudden change of product design, venue, or operating philosophy may result in actually degrading your overall capability. Plan and execute more frequently, particularly before attempting to restructure the manufacturing process. Successful changes are those that are well researched, well crafted, and well executed.
Paul Wimer is an associate partner in the Accenture Supply Chain Practice. He is a leader in the area of manufacturing strategy and operations. He is also an expert on configure-to-order manufacturing processes, which are key capabilities in the e-economy.
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