World economies are more connected than ever before. One only needs to look at the recent Brexit vote and the financial mayhem caused by it across global national stock exchanges to fully understand the extent of globalisation and interdependence between economies and firms today. Globalisation has opened up enterprises to a wide variety of external forces. There is an urgent need to be agile and nimble in the face of such uncertainty but it’s easier said than done.
When we think of agility our minds tend to focus on software and internet giants such as Google, Amazon etc. innovative firms who are known to always stay ahead of the curve. Yes, it is “easier” for IT companies to be agile thanks to the relatively lower proportion of fixed assets and reliance on internal talent and IPs created rather than fixed assets such as heavy machinery and factories. But there is a much sharper contrast between IT’s relative and lack of agility in manufacturing than just that. When global macro-economic conditions, natural disasters and fickle customer demand are not selective in impact then why should some companies be more agile than others?
Digital technologies such as sensors and mobile devices can today, deliver rapid insight to traditionally inert verticals such as automotive, consumer electronics and embedded systems. Insight itself is not enough, however. Customers and managers want the insight from sensors turned into action as companies try and adopt to rapid changes as quickly as their digital peers.
Here are six reasons why companies need that agility to survive
1. Agility to react to market forces
Market conditions change fast, and when they do, it’s important to respond quickly and decisively. While the concept sounds fairly simple, we can see industries struggling to adapt.
During the 2003–2008 energy crisis, rapid rise in the prices of auto fuel discouraged car purchases especially sport utility vehicles (SUVs) and pickup trucks with low fuel economy. This posed a major challenge for the American “Big Three” of General Motors, Ford, and Chrysler who had made them their primary focus, given historical popularity and relatively high profit margins. Their combined US market share declined from 70% in 1999 to 53% in 2008. In comparison the impact of the crisis on big European and Asian manufacturers was much lower given their higher focus on hatchbacks and fuel efficient cars, highlighting the need for firms to quickly redirect resource allocation in response to changing market conditions.
Fairphone has partnered with 3D Hubs, which is now called Hubs (a network of 30,000 3D printing locations) to produce protective cases, on demand, in 200 different locations. This has helped reduce inventory levels to zero, ensuring that the company was not subject to currency fluctuations anymore while also delivering enhanced customer engagement.
Agile production methods make tooling less expensive and machines fungible, and thus enable companies to adapt rapidly to changes in global markets by redirecting resources easily to new tasks.
2. Agility to react to competitive changes
The relentless pressure to improve performance is particularly clear in today’s automotive industry. The value of digital manufacturing technologies in the areas of designing and rapid prototyping is fairly evident. This is why companies such as Ford, BMW and others have all incubated 3D printing technologies in their labs or innovation centres. Digital manufacturing can go beyond that; it can also help firms in end to end production of high precision products at feasible rates to support truly innovative projects.
Case in point being Konigsegg’s inclusion of 3D printed Turbocharger in the “world’s first megacar”, the One:1. The turbocharge delivers fully variable performance at any RPM, giving it a relatively flat torque curve from 4000RPM all the way to its 8250RPM redline. Car companies wishing to compete with that kind of performance explosion have to adopt production technologies that are sufficiently flexible to not constrain engineers.
Another way to provide agility is to crowdsource innovations. Examples abound in the embedded market, where Apple and Google opened their respective mobile OS’ to app developers contributing valuable content. Nokia did so too slowly for its Symbian OS and as a result its market share of the global smartphone industry dropped from a whopping 48% in 2007 to just over 3.5% in 2013. It was sold twice in the last 4 years, and is now a shadow of its former self.
3. Agility to use cheaper inputs/reduce costs
It’s not just tooling prices that can be reduced through more agile operations. Smarter manufacturing operations are allowing companies to adapt to changing raw materials prices. In the embedded industry we see such disruption being brought about by Nano Dimension. Their Dragonfly 3D printers can print multi-layered circuit boards (PCB) enhancing a product designer’s ability to experiment with their projects and cut down development time as well as end consumer costs.
In another example, Jabil Circuit has integrated extensive backend systems through which it is able to coordinate 17,000 suppliers — always picking the cheapest one while maintaining deadlines. By leveraging mobility, advanced analytics and other technologies within this platform, Jabil has been able to reduce inventory by more than $300 million over several years while elevating customer service levels by more than 20 percent.
4. Agility to meet fickle customer demand
The customer is always right. Managing inventory to keep up with quick changes in needs and tastes is a must. Failure to react to consumer demand is not only dangerous, its suicidal. We know what happened to Kodak with its refusal to enter the digital camera industry. Intel too was slow to react to shifting customer demand from desktops to mobile and tablets which has led to it losing ground to the likes of Qualcomm- who chose to focus on the mobile processor segment. Intel has seen rapidly falling chips sales since 2013 signifying the level of impact of missing the mobile bus.
For physical product companies the cost of moving slowly is high. Some are adopting software-like cycles of testing, measuring, and updating to get an edge. Xiaomi, the billion-dollar Chinese consumer electronics tech start-up uses a flash-sale strategy which helps test demand of a product before moving to mass production. This enables Xiaomi to keep very low inventory and have much faster release cycles than competitors. It’s akin to devOps for a physical products company!
5. Agility in the workforce
Who you employ is just as important as what you produce! Traditionally, CEO’s have simply interpreted this to mean a reduction in labour cost or headcount. Car producers in Europe moved production eastwards; Foxconn automated 60,000 jobs in a single factory in China.
However, automation is not everything. Savings from automations are simply re-routed into higher value tasks, as a slow education reaction to technological changes has led to a talent crunch in coding and software related areas. Where the labour comes from and how it’s trained is hence more important than ever.
Many interesting innovations are resulting from this insight. GE Aviation, for example, crowdsourced the redesign of an aircraft bracket, receiving designs from 56 countries and reducing the final weight by 84%. Qualcomm meanwhile increased its collaboration with universities to increase its agility in R&D by not being locked in to a particular skill set of its employees.
6. Agility to react to environmental issues
While companies may spend a decade planning for shifts in the workforce, environmental disasters often dictate significantly more agility — and its absence can cost companies dearly.
When the Tōhoku earthquake and following tsunami wiped out four key Toyota plants and countless suppliers, no contingency plan would hold. Nearly a month later, two thirds of their suppliers from north-eastern Japan were still not functioning. Toyota’s production declined by over 600,000 cars in 2011 and the firm lost its place as largest automaker by volume. The price of a less-than-agile manufacturing operation is staggering.
Western Digital, the largest drive manufacturer in the world, also suffered massive SCM disruption when its hard disk drives manufacturing facilities submerged during the Thailand floods of October 2011. The floods were reported to have cost $199 Mn with operations not returning to pre-flood scale before January 2012.
In both the above cases, a more agile manufacturing operation that allowed production to be re-routed autonomously may have been able to keep more of Toyota and WD’s operations running during the event.
While the benefits of digital manufacturing are clear for everyone to see, most businesses are not aware of the urgency of the situation. This is where service providers come in to spread awareness and help firms expedite their journey towards becoming a more agile enterprise. In order to tap into this opportunity, services firms need to quickly build capabilities and position themselves as a digital manufacturing services provider. We have provided a broad, step-by-step framework to help in doing so: