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Jan 31 2012

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Manufacturing as a Strategic Advantage

At first blush, this concept might or might not resonate with you. The age of manufacturing as a strategic competitive advantage appears to have diminished. Activities such as the orchestration of a supply chain, product innovation, legendary service or rapid implementation of new business models are all very important strategic differentiators, so have achieved a lot of attention and focus lately. But let’s not focus on these items to the detriment of manufacturing.

I believe the largest industries in the world still view manufacturing as very strategic. And, over the coming decade, I anticipate manufacturing will have even greater strategic importance, so will be better recognized as a clear competitive advantage in the years to come.

Reversing the Trend
To start, I wouldn’t contest the idea that manufacturing in the US has been declining in strategic importance over the past several decades. Countries such as Germany, however, have taken an alternative perspective, and, perhaps as a result, their economy has performed better.

One thing is for certain: manufacturing and supply chain complexity has only increased over the past few years. At the same time, customer expectations have never been higher. This “dual edged” sword cuts both ways for an organization if they can’t effectively manage their operations. The question is whether or not these trends are significant enough to warrant changes in behavior and perspective, to consider manufacturing as strategic.

The answer might lie within some of the mega trends in demographics, economics and intellectual property. The bulk of global consumer purchases are now shifting towards emerging BRIC nations; this shift is driving a change in product requirements. A manufacturing transformation of building to an order of one through a demand driven value network has further complicated these societal changes.

Demand is Globalizing
It is no secret that over the coming decade we will see an emergence of a large consumer (middle) class in China, India, Brazil and more. But what does this mean in concrete and easily understandable terms? If we look at some of the industries that heavily rely on manufacturing, it means:

  • The growth rate of new automobile sales in China, India, and Brazil will likely be over 50% year over year (that is a lot of growth)
  • There will be over 3 billion new consumers of cosmetics world-wide over the next decade (think about all the product variations)
  • As a specific company example, China has the potential to become the largest market for Apple, where iPhones retail for $800 US

Design and Innovation is no Longer a US Monopoly
In this case, it might still be a secret – the US no longer holds a monopoly on design and innovation. China, India and many other countries have invested heavily in science, technology and engineering. These markets now have the internal resources to persuade investment from global firms in not just manufacturing but also research and development. Many large, global companies have invested billions in China to develop local products for local manufacturing and consumption.

The Impact on Manufacturing
To succeed in the new economy and compete in industries like aerospace, automotive, electronics, or consumer goods, it will be necessary for companies to develop, manufacture and deliver products to a highly diverse global customer base. This will require an incredible ramp up of manufacturing capacity in technically complex industries on a global scale.

Manufacturing a jet engine in Malaysia is not the same as building toys or fabricating textiles. Quality cannot be sacrificed as manufacturing globalizes in these industries. The bottom line is that the systems enabling manufacturing in these new factories must work from day one. Executing upon these strategic actions coupled with successful new product introductions on a global scale will separate tomorrow’s winners from the losers. Those that do it best will be our new industry leaders of tomorrow, which after all, is the point of finding a good strategic advantage and following it.

Permanent link to this article: http://www.apriso.com/blog/2012/01/manufacturing-as-a-strategic-advantage/

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