Manufacturers must adopt an “edge” mindset to bridge the gap between the customer and what the customer wants.
By Lee Yee
The smartphones we carry around today have about 100,000 times the computing power of the Apollo 11 lunar module that landed on the moon 50 years ago. You do not have to go back 50 years – the evolution of technology just over the past decade has been impressive. But the truth is, most people do not pause to appreciate it. We take it for granted. People click their devices on and expect them to work, unaware of the hidden design, development, testing, production and delivery mechanisms that make it possible.
This is true in the manufacturing sector as well, where supply chains mostly operate in silos where each silo functions as an independent business with its own objectives apart from the overarching goal. But that is about to change. Artificial intelligence, the Internet of Things, 5G, 3D printing and other technological innovations are making it possible for new products and services to emerge at a more rapid pace, putting pressure on manufacturer’s current capabilities. This calls for a new, more collaborative strategy; one that tightly knits production and logistics closer to consumption so manufacturers and their stakeholders can move more products—and make more profits—in the on-demand economy.
The On-Demand Economy and Just-in-Time Inventory System
The rise of the on-demand economy is changing consumer wants and altering the way B2B businesses access the products and services they need to fulfill them. Thanks to digital marketplaces and technology companies, today’s customers expect nearly all of their products built to their specifications, delivered quickly and supported easily. And to make it happen, manufacturing companies must change the way they operate product lifecycles and supply chains so they can deliver product modularity, variability and choice rapidly. This has implications for every stakeholder across the product lifecycle from product conceptualization, architecture and design, development and testing, deployment and maintenance and support.
The Just-in-time inventory system, also known as the Toyota Production principles, have been the go-to solution for optimizing manufacturing workflows for decades. Here adoptees align raw-material orders from suppliers directly with production schedules in contrast with just-in-case strategy that encourage manufacturers to hold sufficient inventories to have enough product to absorb maximum market demand. The results are almost always positive; better streamlined workflows, decreased supplier lead times, lower inventory and production costs, more efficient space utilization and faster shipments.
But manufacturers need a more modern methodology if they’re going to be able to surmount current industry challenges like new market demands, customer segments, technology adoption curves and competitive threats.
It may take some struggle but embracing the on-demand economy can be done. For example, Nike introduced Nike By You in 1999 to let customers put a personal touch on the design of their shoes, an application that is still heavily in use today. Since then, Nike has continued to reconfigure its enormous supply chain and fulfillment operations in step with its customers’ demands for faster customization and fulfillment.
Nike is not the only company that has been shaped by consumer demand: the on-demand customization trend is changing the way customers get the technology products they want as well. Technology companies are quickly moving into the more complex territory of selling solutions—a combination of hardware, software, and services. And just like a pair of shoes, these solutions cannot be one-size-fits-all. For instance, a consumer might want to purchase a computer, but not spend money on features the manufacturer have included that they do not want or do not need. Dell Inc., the personal-computer maker learned that lesson the hard way. In 2011 it announced it would it scaled back its build-to-order model in favor of selling prepacked systems, which did not generate more revenue as it hoped.
Within Dell’s customization crisis is a lesson for all manufacturers: Consumers want what they want how they want it, and that applies to those who are buying retail goods just as much as those who are shopping the commodity hardware market. Consider the growing popularity of white box hardware that is eating into major technology brand market share: it is another indication that people want the features they want, and there is a limit to their willingness to allow manufacturers to restrict their choices.
Edge Manufacturing for Complex Custom Products
So, what do these new expectations mean for manufacturers? On one hand, more challenges. Manufacturers who fully embrace a the on-demand economy have to centralize manufacturing and set up production lines to accommodate customization, which is costly. Furthermore, managing supply chains in a mass customization environment is also more complex. The approach requires more highly skilled workers and complying with applicable regulations, which may be more difficult.
But on the other hand, new expectations more opportunities. If manufacturers adopt an edge manufacturing mindset they will be better able to bridge the gap between the customer and what the customer wants. Like the Just-In-Time Inventory System, edge manufacturing is an approach to managing the product lifecycles that moves the logistics of production closer to the buyer at the time of order and point of consumption. It happens at the stage where semi-finished products, sub-assemblies and final goods are produced closest to the needs of the buyer.
By centralizing manufacturing efforts physically closer to a company’s existing and prospective customer base, manufactures can better overcome today’s challenges. Yes, it can take time and money upfront, however it is worth the investment. To get started, manufacturers should consult with an edge manufacturing partner who can help them identify the resources they will need to pull their own resources together. The sky is limit for product organizations with leaders who comprehend the scale of the opportunity and understand how to navigate the on-demand environment successfully.
Lee Yee is SVP of corporate strategy and marketing at AMAX (www.amax.com), an international engineering, technology and smart manufacturing company. As a digital transformation strategist and practitioner, Yee helps companies build high performance organizations and connected systems. Contact Yee at Lee_Yee@amax.com.