The future of manufacturing: Collaborative value networks

For some years now, a primary driver in the plant operations software market has been the need to align plant operations with the business needs of the enterprise.  Now, market forces are beginning to take this pressure to the next level, as manufacturers face increasingly dynamic market ecosystems and value networks.  

The list of important market drivers has become familiar to many:  global competition, aging workforce, increasing regulations, dwindling resources, increasing energy cost, water scarcity, recycling and disposal, climate change, social responsibility, IT security, and the need to be more responsive to customers and market dynamics.  These are not trivial matters for manufacturers.  The need to deal with them has led to many improvement projects, including plant IT installations and upgrades.  

It is becoming clear that some additional trends are just now gently lapping at the shoreline, but may soon develop into a tsunami that frames the resolution of all other trends.  In particular, three developing trends already impact the industrial marketplace to some degree: the shift in global economic power, the increased accessibility and capability of IT, and the rise of the Millennials.  Together, these forces will pressure manufacturers to better understand and collaborate more effectively with their value net-works.   

Global Economic Shift

Emerging-market companies now make up about 18 per cent of the Fortune Global 500, up from 4 percent in 1995, while developing economies make up half of the global output.  The "BRIC" (Brazil, Russia, India, China) has evolved into the "Big 6," with the inclusion of Mexico and South Korea, and is well on its way to becoming the Big 10.  Increasingly, economic power and activity transcends national and geographic borders, as multinational companies expand.

This global economic shift creates new consumers with new expectations and needs, but also generates new sources of capital, powering many forms of innovation in products, business processes, marketing, sales, and delivery.  New R&D centers sprouting up in the developing economies, plus a broader willingness and ability in these populations to compete for a bigger piece of the innovation pie, also underpin this wave of innovation.  

Powerful, Accessible IT Technology

It is interesting to note that Microsoft Windows 1.0 was launched more than twenty-five years ago on November 20, 1985.  This is but one of many IT technologies that have grown in power and capability — and complexity — in the ensuing years.  In addition, new technologies with demonstrated power to re-make the traditional IT paradigms have emerged, such as smartphones, the cloud, and social computing.  Advances in hardware, software, networking, communications, and other technologies, as well as reliability, usability, and standards, have created an infrastructure expecta-tion for business and consumers.

Taken together, these advances mean that organizations have increasingly easy, low-cost access to incredibly powerful information technologies.  Businesses throughout the value network can create new processes based on analysis of data that was not previously available, monitor and interact in real time with far-flung facilities, collaborate in sub-networks or external competitive value networks, and reach out directly to customers.  Advancements in IT capabilities continue apace, but arguably, IT has already reached a level of maturity sufficient to permit the disruption of existing relationships and business models by introducing innovative new ones.  


Two sides of the same coin — the aging workforce and the rise of the Mil-lennials — drive changes today’s manufacturing enterprises.  Concern about departing expertise and knowledge as workers retire has been one reason companies decide to implement new plant floor systems that can automate many business processes to help mitigate this effect.  What is changing now is that the Millennials have different comfort levels with newer technologies, and their needs will increasingly influence technology decisions.  Another huge dimension to this discussion is that in developing countries, the proportion of young entrants to the workforce is much greater and their impact will likely be greater as well.  

Understanding the Emerging, Highly Interconnected Value Networks 

The three trends — shift in global economic power, increased accessibility and capability of IT, and increased influence of Millennials — act together to create a world in which the rules of buying, selling, marketing, and com-petition will change markedly.  To survive and compete, manufacturers will need to increase the breadth, scope, and character of their external collaborations.  In some situations, they will need to take the lead, dynamically orchestrate distributed network agreements, execution, and transactions to ensure orders are fulfilled as promised.  In other situations, they will need to let others take the lead, while participating profitably and strategically.  

As is always the case when significant shifts occur, it is difficult to see exactly what the landscape will look like on the other side.  But it is possible to discern some important dimensions of the change already underway.  For example, it seems certain that companies will benefit from using new technologies to collaborate more extensively with other value network participants in all phases of value creation including product conceptualisation and design, development of production assets, supplier acquisition and management, sales, distribution and logistics, and warranty support.  

Consumer Market Power and Collaboration

Social media, mobility technology, and other technology advances now empower consumers in new ways.  They can readily discover friends’ opinions of a company’s products, services, or brand.  They can collaborate in ad-hoc buying groups to negotiate for discounts or other terms.  They can discover competitive products and pricing.  They can publish their own opinions and thereby influence a company’s profitability.  And they can find comparable products available nearby while shopping.  We have just begun to see the way these emerging behaviors will influence the manufacturing ecosystem.  

Crowdsourcing, Co-Production, Outsourcing, and Intermediaries

Consumers can now also help design a manufacturer’s products.  This can take many forms, including "crowdsourcing," in which members of the ex-ternal community develop the design; or custom designs developed by and for one customer, but made available to others.  The idea of product and packaging design collaboration with customers, sometimes termed "co-production," is expected to have a significant impact on competition.  Greater connectivity and collaboration will also lead to more outsourcing of core activities, expansion of players in various parts of the value network into adjacent segments, and competition from new players that can leverage the cloud or other technology to quickly establish a presence and exploit underserved or especially profitable niches.  

Product and Manufacturing Process Innovation

Another important aspect of value network collaboration involves collaboration and virtualisation in both product and manufacturing process design.  Much progress is being made in technologies that take time and cost out of some key bottlenecks in moving new products into production.  These advances can be seen in several areas, including product modeling and simulation, production process modeling and simulation, virtual commissioning, digital manufacturing, and digital automation.  

Collaborate Throughout the Design-Make-Deliver Value Network 

Today, manufacturers operate within one or more networks of companies that work together to provide goods and services to end consumers.  To compete effectively, better IT tools are being utilised throughout the value network to speed and optimise innovation, production, and delivery of goods and services.  This trend will accelerate in the coming years.  


Collaboration opportunities in this area include co-production with customers, more integration with component suppliers and other suppliers during the planning and design process, and better integration with production operations, including outsourcing partners.  In addition, there is room for better information sharing and collaboration in designing, building, commissioning, and handing over production assets.  


The developing economic and technical changes will drive the need for additional connectivity with distributed engineering organisations, suppliers, customers, outsource partners, and other entities in the value network.  This will require more robust, modern plant floor systems than currently found in many traditional manufacturers’ operations.  This represents both a real threat and a huge opportunity for manufacturers.  Things are already beginning to change, and this time around, it’s not likely to be a slow, li-near, incremental process.  Those companies that have been investing in plant systems are probably in reasonably good shape to make the next steps, but it could be another story for those that continue to "wait and see."  


In some ways, the supply chain leads the way in collaboration.  Players here have been among the early adopters for mobility solutions, cloud computing, GPS, RFID, and other technologies.  The changing industrial value network ecosystem will assuredly present many additional opportunities for these players to take advantage of the lessons learned in supply chain collaboration to expand their business and better serve customers.  


Three trends — the shift in global economic power, increased accessibility and capability of IT, and increased influence of Millennials — will drive industrial companies to ramp up the pace of innovation in products, business models, and manufacturing strategies and processes.  Robust, collaborative plant IT systems will become even more important to enterprise success than they are today.  Engineering and supply chain systems will also play an im-portant role in supporting the increasingly dynamic enterprise.  

Because they already invest in their plant IT systems, leading manufacturers have a good handle on how they can address and improve operating excellence and compliance.  Going forward, manufacturers will need to re-visit these areas with an eye to increasing external collaboration and information sharing with consumers and other value network partners.  

Be effective.  Be proactive.  Be responsible.  This is the mantra for industrial companies in the coming decade. 

[Greg Gorbach is Vice President Collaborate Manufacturing, ARC Advisory Group.]


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