HIGH VALUE MANUFACTURING

Today’s competitive manufacturing environment has led to the adoption of lean manufacturing techniques as a way to reduce overall costs by eliminating waste at all levels, reducing inventories, while at the same time improving productivity.

But as lean practices have become widely adopted, manufacturers have found it increasingly difficult to differentiate themselves from competitors solely by achieving cost efficiencies.

The question is, therefore, what are the alternative strategies manufacturers can focus on to improve their global competitiveness in the long run?

THE LIMITS OF LEAN MANUFACTURING
Although lean manufacturing does produce some benefits, let’s not forget it is a concept that was introduced in the 1970s and 1980s in the context of mass manufacturing. As a result it is sometimes inadequate to meet today’s customer demands in a responsive manner. This is particularly true when the lean option limits your ability to customize products or when your production needs to be postponed until you can more accurately predict demand. Some suppliers may excel at lean manufacturing but require a long window or scheduled forecast, limiting your flexibility in changing to market requirements, especially in an economic context where demand can vary greatly and unexpectedly.

Also some organizations have realized that disruptions can emerge when supply chains become “too lean.” That is the case when lean advocates the elimination of good inventory, such as safety stocks or buffer inventories. For example, natural disasters like the earthquake and tsunami that devastated Japan in March 2011 and the flooding that paralyzed Thailand in October 2011 have created disrupting shortages in the electronics industry because electronic product supplies were highly concentrated in the region and all inventory redundancies in the supply chain had been eliminated.

Some organizations have already managed to be as lean as they will ever be and are desperately looking for other sources of competitive advantage within their supply chain.

ALTERNATIVES TO LEAN IN DELIVERING VALUE
Research projects studying best-in-class manufacturers indicate that they typically owe their success to the application of one or more of the following strategies :

• Partnerships based on information sharing
• Supplementary services
• Faster innovation cycles
• Flexibility
• Local sourcing

Partnerships based on information sharing
Partnerships enable manufacturers to share information with their suppliers, such as demand predictions, stock levels, failure rates, etc. As a result they can manage just-in-time inventory, adapt to unexpected changes in market conditions, reduce customer returns or even prevent breakdowns.

These partnerships can take many forms and often involve the use of information technology such as EDI (Electronic Data Interchange) or ERP (Enterprise Resource Planning) systems with collaborative portals for both clients and suppliers.

However you do not necessarily need to invest in expensive or complex technologies to achieve the same benefits. Many of the activities that affect production line efficiency take place at the design stage. Manufacturers can therefore enlist the collaboration of their suppliers to optimize their products’ design and to minimize the resources needed during manufacturing and assembly. As an added benefit companies that take these steps can also expect to reduce the number of suppliers and/or purchase orders they manage and increase overall productivity along the assembly line.

Supplementary services
Cost and quality are still key selection criteria in the manufacturing world, but manufacturers are increasingly noticing that some customers are willing to pay a premium for value-added services. When that is the case manufacturers should seize the opportunity to tap into the expertise of their suppliers.

So if your customers value products that cause minimal environmental damage, you should consider working with a supplier that can help you apply eco-design principles at the product design or optimization stage. By optimizing product design you can considerably reduce the consumption of energy and raw materials during production. It is a particularly interesting approach if you are using hazardous or nonrenewable materials or if such measures facilitate compliance with industry regulations.

Also if you offer supplementary services, such as maintenance plans, it is in your best interest to reduce breakdowns and perform preventive maintenance. Again, your suppliers can help by suggesting materials with different product attributes that are more appropriate for the intended use of your products and that will improve the level of performance for users.

Faster innovation cycles
In certain industries customers expect new things all the time. Thus, when suppliers/partners are in a position to rapidly change product specifications, they definitely add value, which in some cases can make up for the unit cost savings they would otherwise realize by selecting a low-cost, low-value supplier.

People often have a misconception about innovation, thinking that true innovation has to be disruptive. But the reality is that you don’t need to invent a revolutionary product to be an innovator. In fact research indicates that the most successful companies devote about 70 percent of their innovation assets (time and money) to improve existing products for existing customers, as opposed to inventing things for markets that do not exist yet.

Manufacturers can innovate by simply enhancing existing products to provide a better customer experience. But, while innovation takes many forms, it almost always requires manufacturers to enlist the creativity and collaboration of their parts partners.

In this respect manufacturers may be wise to select parts vendors located near their manufacturing facilities or that offer both product development and manufacturing capabilities, because innovation tends to happen when engineers and production people work together on site.

Flexibility
Flexibility—or the lack thereof—is probably the most common criticism against lean manufacturing. Considering that the application of lean principles centers on the elimination of waste in all forms, manufacturers typically avoid shipping containers that are half full. They prefer to wait until the container is full, but this approach is not always realistic when customers require fast deliveries for small lots of customized products. Not to mention that the late delivery of seasonal products can increase customer returns and lead to potential overstock.

Here again it depends on your industry and customers’ needs, but sometimes flexibility in terms of production schedule, delivery method, location and quantity is what customers value the most.

Local sourcing
As indicated earlier the proximity of your parts supplier is likely to foster closer relationships, which can lead to faster innovation cycles and a better integration of the design and production processes. But there are many other significant benefits, such as greater agility when changes in the market necessitate supply chain adjustments, better predictability of delivery times and faster deliveries.

Local sourcing may also be favored by customers who value minimal environmental damages or who prefer to support their local communities. Similarly in some industries, such as defense and aerospace, prime contractors have to meet local content requirements.

Last but not least, local sourcing provides manufacturers with better control, in that they can visit the facilities more often for quality control purposes. As a result they lower their exposure to risks of disruptions in the global supply chain. Such risks need to be assessed on a case-by-case basis, but typically the costs resulting from a disruption in a local plant are much lower than those caused by a disruption in a factory overseas.

CONCLUSION
Is it the end of lean manufacturing as we know it? Probably not. At a time when manufacturers still face intense competition from overseas as well as the usual domestic competition, there is still a need to reduce costs and improve productivity, without negatively impacting quality.

But as lean methods become more widely adopted, manufacturers need to find other sources of differentiation. Value-added strategies, such as partnerships based on information-sharing or joint product development and manufacturing efforts to foster innovation, can not only lead to the realization of benefits that are at least as valued—if not more—by customers for their cost savings, but that are also not so easily copied by low-cost, low-value competitors.

However, just like lean manufacturing, successfully implementing such strategies requires manufacturers to work collaboratively with their suppliers in the true spirit of partnership. As a result manufacturers who want to increase their competitiveness in the long run should increasingly select their vendors based on their ability to create value in a variety of ways.

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1. De Treville, S. & Trigeorgis, L. 2010, “It May Be Cheaper to Manufacture at Home,” Harvard Business Review, October 2010.

2. Lapide, L. 2010, Change Your Inventory Mindset, viewed June 6, 2014,

3.Jorgensen, B. 2012, The limits of lean, viewed June 6, 2014

4.Chick, S., Huchzermeier, A. & Netessive, S. 2014, “Europe’s Solution Factories,” Harvard Business Review, April 2014.

5.Mohr, S., Somers, K., Swartz, S. & Vanthournout, H. June 2012, Manufacturing resource productivity, viewed June 25, 2014 ,

6.Bluestein, A. 2013, “Debunking the Myth of Innovation,” Inc. Magazine, September 2013.

7.De Treville, S. & Trigeorgis, L. 2010, “It May Be Cheaper to Manufacture at Home,” Harvard Business Review, October 2010.