Having worked in several different industries, from FMCG to Defence, I have always been fascinated by how manufacturing is perceived in the wider organisation. Despite often being the largest population of employees and cost to the business, many companies seem to have traditionally seen manufacturing as an expense related to delivering their products or services.
In contrast with say New Product Development, Sales or Marketing which depending on the industry seem to have reputations as the lifeblood of an organisation. As such, when companies are looking at growth strategies, innovation and investment are typically driven into these areas of the business. Whereas when there is a drive for cost efficiencies, investment is channelled into the supply-chain.
The assumption that improvement in the manufacturing base can only deliver cost savings I believe is best demonstrated in the business cases behind the off-shoring and re-shoring trends we have seen over the last 50 years. Off-shoring or outsourcing is a very clear demonstration that an organisation sees manufacturing as a commoditised function. In this mindset, if there is a seemingly cheaper option that doesn't risk a company’s IP, then it will take it. I have seen FMCG and Food and Drink companies that when introducing new products will pit their internal factories against external contract manufacturers and select the lowest price bid.
This is a slightly bleak perspective on the role of manufacturing and I am not offering a representative view of all manufacturers. However, this does highlight what I see as one of the most fundamental impacts of the 4th Industrial revolution and a shift I think our industry will see over the next 5 –10 years.
Consumers are becoming increasingly more demanding and this is driving an unprecedented level of competition and dynamism in B2C industries and is flowing back into their partners and suppliers. Additionally, the internet has matured to a level that it is now easier than ever to start a business, with market research, product development, sales, marketing, web development, digital infrastructure, payment processing and distribution being easily accessible to anyone at commoditised prices. This is driving credible disruption in almost all industries, from Fintech to Space.
Disruption in the Financial Services Industry:
A few years ago, banking had all the hallmarks of a stable industry. High barriers to entry, highly regulated, very strong mature brands, high customer loyalty.
However, Monzo, the pink bank card touting champion of the millennial fintech movement, now has 800k monthly active customers. 15% of new UK bank accounts opened are with Monzo and are making a gross profit on every account. 6 months ago they were valued at a £1bn. They are now valued at £2bn.
All of this change in business has meant that innovation in sale/marketing/ product development is no longer enough. Two good examples of this are -
- Dollar Shave Club is a B2C subscription service for razor blades. Offering significantly better pricing by cutting out complex distribution and retail networks. Customers can customise the contents and frequency of their regular deliveries. In 2016, 4 years after starting, Unilever bought the company for a reported $1 billion in cash.
- Jali, the Kent-based furniture manufacturer has created an entire business around one of the most digitally integrated enterprise systems I have come across. Users log onto a website and select a furniture design, which they then customise with their own elements and measurements. The customer facing website then automatically adds this order to the MES system, which without human intervention creates and runs jobs on the CNC machines in the factory which are then loaded into custom cut packaging and shipped. The only manual intervention is required for certain products that require spray painting. Jali has created a niche in the hugely competitive furniture space by offering bespoke products at mass produced flat pack prices. A product and service underpinned by manufacturing capability.
The final trend that I see as fundamentally changing the role manufacturing plays in a wider enterprise is the increasing role that value systems have in how organisations are seen by their customers, current/ prospective employees and partners. For me, this is best illustrated by the recent trend to reduce single-use plastic. It feels like over the last 2 years, this has become a headline agenda item and the companies who were able to respond in an agile way and get on the front foot reaped significant rewards. Carlsberg was the first brewer to remove plastic rings from their multi-pack cans, reducing plastic usage by 76%, receiving widespread publicity and putting their competitors on the back foot.
All of these trends demonstrate that as all industries develop and become ever more competitive, manufacturing is positioned to move significantly higher on the corporate agenda and become a critical strategic enabler for growth and success. This, I believe, will drive a significant shift in the ways manufacturing plants are invested in, the skills they require, the operating model of how they integrate and interact with the wider organisation and the culture of the workforce.