Feb 11 2016

What Global Manufacturers Can Learn From the Insurance Business

risk-pooling-manufacturingCan manufacturers learn something from the insurance industry? Perhaps so, at least according to this article published here. The author suggests that “risk pooling” is the single most important concept in supply chain management. While this concept is not new, there are reasons why it is becoming more important than ever before. Those who work in the insurance industry will likely have a firm understanding of its importance.

The idea is that if you have a large enough population of independent random events, the variations will even out. This is why insurance companies depend on having a large pool of participants—so they can pool risks to reduce variability. In statistical terms, variability of a random variable is measured by standard deviation or variance. The sum of variances from a group of independent random variables is always larger than the variance of the aggregation of all the random variables in the same group.

Risk Pooling for Manufacturing

By applying this principle to manufacturing, an enterprise can reduce variability across operations by aggregating materials and resources across locations, across products or even across time.

So far, so good.

But there’s a catch: aggregation has a downside in terms of agility and responsiveness. A simple example illustrates this.

Suppose a manufacturer decides to pool variability risk by aggregating warehousing in a single centralized facility for all of Europe. It’s true that variability of demand would then decrease, but what happens when plants that are not close to the warehouse need to change their supply stream? Well, they would have to wait until new parts could be shipped from the central warehouse. In addition, such centralized facility also increases the location risk of the supply chain. What if there is an earthquake or a volcano eruption close to the centralized warehouse? What about business continuity?

The result, as the article points out, is that manufacturers must make trade-offs when using risk pooling. But what if there is another way to pool risk?

How A Manufacturing Operations Management Solution can Extend the Benefits

Insurance companies don’t have the trade-off problem described above because they don’t need warehouses. Insurance products are virtual and customers can be aggregated in databases.

Could manufacturers do something similar? Increasingly the answer is yes, thanks to the advancing technologies now available. Today many global enterprises have digitized and standardized their product design, manufacturing execution and supply chain management systems. This provides the visibility and control needed to implement risk pooling across multiple sites across geographical locations without significant trade-offs.

Returning to the warehouse management example, with sufficient visibility and integration between systems, a manufacturer could maintain multiple warehouses across multiple locations, while at the same time pooling inventory and resources to reduce variability. As long as you can see demand changes early enough, and respond quickly by robbing Peter to pay Paul, you can come much closer to the risk pooling benefits that insurance companies enjoy.

Beyond the Warehouse

Besides warehousing, the article mentions several other manufacturing areas where risk pooling could be beneficial, including transportation, push-pull strategies and product design. In each of these cases, a standardized enterprise platform across design, engineering and manufacturing operations could be a key enabler that allows manufacturers to take the concept of risk pooling much further than what is possible with legacy systems.

There has been a lot written about how taking an enterprise approach to manufacturing operations management can be an enabler of everything from Six Sigma and Lean manufacturing to manufacturing-as-a-service. The concept of risk pooling has added another reason to the list of why enterprises are transforming how they are running their business.

The investment in modern IT solutions to deliver clear visibility and control across a wide network of distributed plants, warehouses and distribution centers continues to unlock new value propositions in re-thinking how the processes of manufacturing can be done in new ways. Successfully applying techniques such as risk pooling could lead to improved delivery performance, reduced supply chain risk, less waste and greater operational excellence – all desirable outcomes in the increasingly competitive world of global manufacturing.


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Permanent link to this article: http://www.apriso.com/blog/2016/02/what-global-manufacturers-can-learn-from-the-insurance-business/

Feb 09 2016

Are Robots About to Take Over E-commerce Warehouses?

robots-warehouse-ecommerceYou could say that implementing robotics in warehouse operations is nothing new. After all, “dumb robots” have been used for some time now for performing repetitive tasks. The advancements in artificial intelligence have also introduced us with their smart counterparts, which can perform duties on their own or cooperate with humans. It seems that this cutting-edge technology is changing the way work is handled in warehouses around the globe, and taking it to the next level.

We are the Robots

As usual, it is from the shoulders of the industry giants that we can see the horizon of the future. Take the example of Amazon, which uses some 30,000 robots in their warehouses. Manufactured by the Kiva Systems, these automatons can pick items from the shelves and bring them to the human worker. As a result, the orders are filled two to three times faster than previous methods. Robots can even use advanced algorithms to “figure out” what objects are most used, and put them closest to the picker.

This goods-to-person concept has been copied around the world. Fetch Robotics, a Silicon Valley-situated company, has followed the example by launching a Fetch and Freight system. It consists of two robots that cover all aspects of pick and pack process. Coming with support software, these robots can be efficiently integrated into warehouse systems. Other companies have also made an effort to streamline workflows in warehouses and jump on the tech bandwagon.

Tech Magic

Indeed, many companies have grasped the advantages of using technology in dealing with high-volume and high-value orders. Others utilize high-speed sorting systems in order to prepare them for shipping. These developments have propelled warehouse operations towards complete automation.

Yet, despite all the potential system improvements that are now available, the capital investments in material handling equipment have plummeted since the financial crises. This has led many warehouses to use systems that are at least 15 years old.

So, there is definitely room for improvement. Of course, the performance advantages of using robots are obvious, in that they can work 24/7, don’t need health insurance, a coffee break or vacation time. Moreover, warehouse managers are under pressure to reduce logistics and fulfillment costs, and deliver goods quickly. As more and more people turn to online purchases, meeting customer needs becomes an imposing task. It turns out that the new tech is arriving just in time and filling the gaping void.

When it comes to workers, this technology can reduce the strain on their bodies and spares them of the monotonous tasks that can lead to injury.

Increasingly, companies are coming to the conclusion that “hybrid” scenarios make a lot of sense whereby few workers can effectively manage, program and maintain robots across the warehouse that, in the end, can lead to greater productivity and performance of output. This strategy isn’t without cost … Robots are still costly: Fetch robots, for example, cost around $35,000 each. On top of that, some commercial builders might need to be hired for integrating the new tech in the warehouse processes. This is no small investment, but it should pay off in the long run.

The Age of Automation

Many warehouses are converting to automation in an attempt to stay competitive or gain an edge over the competition. New software solutions make it easy to handle, operate and schedule robots and workers as a complete solution that can evolve and improve over time. The momentum and incentive to acquire new technologies definitely exists. So, are we on the brink of an age of robots? Some would argue we are already there. The face of ecommerce warehousing facilities is certainly evolving – and isn’t likely to stop now. Change is never immediate, but over time, it is highly likely the role of robots in the warehouse will continue to expand.


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Permanent link to this article: http://www.apriso.com/blog/2016/02/are-robots-about-to-take-over-e-commerce-warehouses/

Feb 04 2016

What Manufacturers Need to Know About Demographic Trends

aging_workforce_manufacturingWe have all read much about how the Baby Boomers impacted consumption patterns. Just as one example, according to Census data, this demographic is credited with driving up the average home size every decade following WWII to a peak 2,521 square feet in 2007, at which point it began falling.

As we look at today’s manufacturing staffing challenges and the future market potential for new product introduction, global demographic trends will play an important role in what our future will look like. Those manufacturers not tuned into this trend might be adversely affected and surprised, so I thought a review of what these trends currently point to might be of some interest.

2016: A Milestone Year

Based on United Nations projections, for the first time since 1950, the combined global working-age population will decline this year. Further, our global population of workers will shrink by 5% by 2050. This trend isn’t just impacting developed countries – it will impact every country, including China and Russia. Compounding this demographic trend is the fact that simultaneously, the share of these countries’ population over 65 will significantly increase.

Demographics can go a long way to explaining why a historically weak recovery in the U.S. since the financial meltdown of 2008 has seen a dramatic 50% reduction in the unemployment rate. Simply stated, the economy doesn’t need as many new jobs to change the unemployment rate.

New Challenges Ahead

What do these demographic insights mean? The hurdles manufacturer’s face today to find skilled labor isn’t likely to go away soon – instead, things might actually get worse in the years ahead!

Compounding matters further, not only is there forecast to be a reduction of the global work force, but the proportion of our population aged 65+ will expand, changing buying patterns.

Consumption habits change as people age. Younger households spend more on homes, cars and their children’s education. For the typical American between 35 and 44, 8% of total consumption goes toward mortgage interest, compared with just 3.6% for someone over 65. By contrast, the typical over-65-year-old devotes 13% of total spending to health care, compared with 6% for a 35- to 44-year-old.

Some manufacturers will benefit from this shift, such as those operating in the healthcare or pharmaceutical manufacturing industry. Others won’t, such as those operating in the consumer goods, automotive and high-tech industries might be facing further issues on the horizon.

Look at the construction industry as an example. This industry is simultaneously suffering from shrinking demand – homeownership rates are declining – and from labor shortages, as the baby boomers retire.

According to an article in the Wall Street Journal, another example is Peltram Plumbing in Auburn, Washington. Karel Peltram, the owner, has about 100 employees, which is down from the market peak in 2007. Nonetheless, he is short workers. Three have recently retired, and three more are approaching retirement, including his estimator for multifamily units. “I’m going to have a hard time replacing him. I just don’t have anyone available with that knowledge yet,” he says.

What to Do?

Perhaps the investment in automation and IT solutions as part of today’s digital transformation might be a smarter move than previously considered? Such a strategy can boost worker productivity and support the burgeoning ranks of the elderly. A transformation of factory work activities from managing production processes from a computer can be more readily done by an older worker vs. more manual tasks that are better suited to a younger worker.

Assumptions about aging need to change. The typical 65-year-old today is roughly as healthy as a 58-year-old was four decades ago. This change, coupled with the fact that an increasing number of folks can’t afford to retire as soon as the last generation, might be a compelling case for the average age of retirement to be extended so people can work longer. This is already occurring in Japan where 22% of those over 65 are employed, compared with 18% in the U.S.

At an individual country level, another way to address worker shortages is to boost immigration. Obviously, this won’t help at a global level. That is, unless we are visited by an alien race eager to work in our factories. J

The countries with high fertility are mostly in Africa and Asia. In 2050 India will be the world’s most populous country, Nigeria will be third and Indonesia fifth, according to the U.N. Most, though, will still be poor. Indeed, low-income countries will make up 14% of the world’s population in 2050, compared with 9% now. These are, therefore, the countries that are likeliest to provide immigrants.

Embrace a New, Older Workforce

Manufacturers needing to fill all their vacancies are likely to come to the conclusion that they will need to adapt to better attract an older workforce. In 2007, the German car maker BMW AG redesigned a gearbox production line to fit the older profile of workers it expected in 2017 (source). Among the changes: wooden floors and special shoes to ease joint strain; flexible magnifying glasses for working with small parts; and larger typefaces on computer screens. The changes brought the productivity of older workers up to that of younger workers at minimal cost and have since been applied across the company.

Indeed, several studies have found that older workers are as, and often more, productive than their younger colleagues. And, who knows, there might just be a few more benefits that could be captured as part of this demographic transformation. The younger workers may have more stamina to work longer hours with greater manual labor. But older workers might be able to teach a trick or two on how to work a little smarter, having learned a few shortcuts along their life’s journey.


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Permanent link to this article: http://www.apriso.com/blog/2016/02/what-manufacturers-need-to-know-about-demographic-trends/

Feb 02 2016

Why Your Factory is Failing in Its Green Initiative

Why Your Factory is Failing in Its Green InitiativeEmbarking on a green initiative can be a great boon for your industry, your factory, and your workers – if it succeeds. Nothing feels more frustrating than setting high expectations and working to meet them, only to feel yourself falling further and further behind.

Here are some reasons why your green initiative might be under-performing your goals, and how to resolve this.

You Have Kept Workers in the Dark

Part of succeeding in the “greening” of your factory involves getting everyone in the organization on board with the plan. This means unveiling your core initiatives complete with actionable steps that involve the entire organization.

Adding incentives, perks and recognition for key players won’t hurt either. By inviting everyone to join together to succeed and rewarding those who go the extra mile, you may just find yourself back on track in no time at all!

You Aren’t Clear About The End Game

The best way to determine if your green initiative is working is if you set very clear, measurable goals and a set timetable by which you plan to achieve them. Bringing in an oil and gas energy consulting firm like Opportune can help your team gain clarity about the most important and impactful green initiatives, and what is being changed or improved in your factory specifically.

Whether this means converting your facilities to clean energy sources, retiring old fleet vehicles and bringing in more sustainably designed trucks, planting trees in communities where your operations do business, or beginning a water recycling program, knowing by when, how much and how you will achieve these goals can make a huge difference in whether you actually achieve them or not.

You Haven’t Looked beyond Your Factory Walls

Part of establishing an effective green initiative is taking a look at your operations from start to finish, including suppliers, vendors, partners, and contractors. It won’t do much good to “green up” your factory if your brand and reputation is associated with vendors and companies that do not hold those same values.

By setting standards that govern who you do business with, and what you expect from your partners, your green initiative is reinforced from the inside out and the outside in.

Clear vision, careful planning, open communication, attention to detail, recognition and rewards, strategic choice of business partners, and quality control of results can all pave the way for a successful, impactful and longstanding green initiative. When done right, a green initiative success will improve your factory’s output, brand, and reputation.


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Permanent link to this article: http://www.apriso.com/blog/2016/02/why-your-factory-is-failing-in-its-green-initiative/

Jan 28 2016

What is Your Plan to Improve Data Access & Analysis?

manufacturing_data_overloadI read an alarming statistic in a recent Gartner report. It stated that, on average, 70% of factory data goes unused. This was a self-reported metric provided to Gartner from their clients – not an implied or extrapolated number. At first blush, this finding was a bit shocking.

Upon further reflection, my interpretation is that much data is now collected as part of how processes are performed. There may not be much value in this data, so it is simply discarded as part of the process. In this context, the figure of 70% starts to make sense. But, if that much data is being generated and not used, the next question is could it? What better decision support might be possible if just some of that data were better utilized?

The Quest for Better Manufacturing Intelligence

Clearly, the desire to work “smarter” is a popular topic today – and with good reason. New technologies and opportunities now exist to better collect and analyze big data, which can then be presented in an easy-to-understand format that can be acted upon quickly.

This trend helps explain the interest in the Industrial Internet of Things (IIoT). Think of the IIoT as an infrastructure to ease data collection. Investing in this technological transformation is great, but only if you have a complementing strategy to better use that data, once you have it. Here is where the need becomes clear for a data strategy on how to not only increase your ability to store it, but to also access it with greater speed and efficiency.

Those manufacturers that have invested in Enterprise Manufacturing Intelligence (EMI) solutions can recognize a good return on investment. EMI can be used to accomplish this goal provided that the collection mechanisms can work in tandem with the growing needs for intelligence extracted from this source. “Dirty” data or information that must be cleaned, parsed or reconciled before intelligence can be extracted won’t do. Speed of access to support real-time decisions will likely be the differentiating factor in reducing the data that is simply wasted or thrown out vs. that data which becomes useful. Only with this transformation will the 70% figure reported by Gartner decline.

Avoid the Silo Trap

Silos are a trap that has plagued manufacturers for years. Plants operating autonomously without adherence to corporate best practices can hurt overall productivity or continuous improvement programs. Departments that operate in isolation don’t add much value to complementary operations processes. And, in the same way, data silos will also impact your data collection and analysis strategy. Data sitting on “islands” scattered across your organization will not likely be of much help with decision support. It certainly won’t help you to obtain broader visibility into intelligence that enables future predictive analytics.

Given the strategic importance of best capturing and leveraging the right data to improve operational excellence, it would seem that today’s manufacturing organizations should really have a data strategy – one that literally provides the foundation to perform the company’s future growth into new markets or product lines. Yet I don’t hear of too many announcements along these lines … perhaps data strategies are buried in IT initiatives or architecture strategies. Is this the right place? What do you think? I am interested to hear from our readers.


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Permanent link to this article: http://www.apriso.com/blog/2016/01/what-is-your-plan-to-improve-data-access-analysis/

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