Creating change to deliver growth and increased profitability, quickly descends into discussions around digital transformation, industry 4.0 or other technology enablers. There has been lots of good content produced around some of the change management best practices and how they can be applied to your business, for example the impact on culture, leadership, training or organisational design, so I won’t cover those. However, one area that I think manufacturing has only just started to look at, is how a radical rethink of your partners can deliver a step change in growth and efficiency.
We come from a paradigm where, when upgrading or buying new capability, whether that is a machine, production line or a whole new facility, we tend to ask our incumbent OEM supplier and several of their direct competitors and then run an evaluation process. This typically yields a faster machine with new features and brighter touch screens, although in my experience, rarely delivers a step change from the 20-year-old piece of equipment you are replacing. There are many advantages to this approach, like maintaining your relationship with a strategic supplier, reducing the learning curve for machine operators / maintainers and maintaining your current level of standardisation in the factory. Probably most importantly, there is a level of trust that you know how reliable the machine is likely to be, the quality of the follow-up support you are likely to get and a confidence all round that you are likely to deliver against the original CapEx Investment case that justified the project.
If we look to other sectors or areas of the value chain that have seen radical innovation, it is typically characterised by an influx of new vendors that drive competition.
I usually use the UK FinTech industry as an example here, but for variety, I’ll look at marketing and space. Marketing is probably one of the most extreme examples, where exclusively digital companies have created industry’s upon industries and created a paradigm, where now a business can advertise on multiple social media platforms, which can be managed in one place by an additional service, they can analyse and optimise each post. Then capture all the activity to drive e-commerce sales, or sign users up for an email marketing list which can automatically warm up leads with email sequences before inputting them into a CRM system which leverages AI to dynamically prioritise which leads should be pursued first.
That example is tangential to manufacturing, however, essentially every piece of functionality on that list did not exist 20 years ago and is now mature and deployed in a wide range of businesses from enterprises to SMEs. Studying the supply ecosystem that has delivered that radical step-up of functionality shows a competitive ecosystem around every single feature on that list. As the vendors around a feature iterate and innovate their products to differentiate themselves, a new product set is created, which in turn attracts competitors and matures. This is clearly applicable in a highly digital, visible, global market and do the same principles apply in hardware-based industries with much higher barriers to entry.
The US Governments decision to encourage competition to launch vehicles into space is a great example of this. The incumbent supplier is the United Launch Alliance which is a joint venture between Lockheed-Martin and Boeing. Rather than competition being provided from other US (or international) defence prime-contractors, this move encouraged a great influx of private investment into new business concepts, often backed by some of the highest profile technology leaders in the world. Without wanting to go into the details of this history and the outcomes, the punchline is that Elon Musk’s SpaceX can now deliver per-launch costs of $83M, as a pose to the ULAs cost of an average of $422M. This innovation flows right through into the supply chain, even in the UK, there are now over 60 registered SMEs, delivering high end products and services into international space programs.
So what does this all mean for manufacturing? The recent addition of “Innovation Alley” at the Smart Factory Expo and the co-located Hack & Pitch events run by the Digital Catapult are a great example of this shift starting to occur. I would encourage you as a manufacturer, or as a OEM supplier to think seriously about whether the start-up ecosystem can add value to your core operations. When the major OEMs partner with smaller players, the results are truly impactful. Go and look whether there is any niche capability that they can add to your next major project, rather than going sole source to your incumbent supplier and then looking at start-ups as an afterthought at a trade show. I am confident you won’t regret it!