In his recent blog post, my colleague Geraint John indicated that globalization is under attack but is not in retreat. In reviewing fresh results from the SCM World Globalization survey, John pointed out that despite political interest for protectionism, companies still want to have a global footprint because they don’t want to miss the advantage of accessing world markets.
At the same time, however, companies want to have local reach too, for a multitude of reasons including shorter lead times, better customer experience and lower logistic costs. The driving factor is responding to demands from today’s e-commerce and mobile-enabled marketplace.
Balancing local reach with global footprint requires redesigning supply chain structures. Over the last few years, organizations have steadily reduced the size and number of centralized distribution centers in favor of smaller and more local ones. And the number of companies looking to re-shore manufacturing capability closer to markets is more than double those who desire to move production to lower cost countries.
When it comes to re-shoring warehouse and production facilities closer to markets, smart manufacturing plays a key role by not only offsetting labor cost disadvantages, but by enabling new levels of supply agility.
Smart manufacturing is about creating an environment where all available information – from the plant floor and across the supply chain – is captured in real time, made visible and turned into actionable insights. The journey begins with manufacturers connecting the factory, machines and other assets, but the ultimate objective is to orchestrate the supply chain.
Emerging from our latest Future of Supply Chain 2017 survey is a trend that see organizations running along the smart manufacturing maturity model very quickly, with nearly 40% of organizations willing to create an end-to-end, real-time orchestration of their production network within five years.
Among the leading companies rapidly moving along the smart manufacturing maturity model:
- Adidas has developed a shoe production process that is fully driven by intelligent robotics. In its first highly-automated “Speed Factory” in Germany (and in the twin factory expected to open in US in 2018), it takes only five hours to make a pair of trainers, as opposed to the several weeks necessary in Adidas’s existing supply chain in Asia, where shoes are mostly made by hand. The company in planning to ramp up production up to a million pairs annually within the next three to five years. On the longer term, Adidas is expected to progressively reduce its low cost country sourcing model in Asia, where it currently manufactures around 300 million shoes yearly.
- Crayola’s manufacturing footprint strategies is based on an elaborate Total Cost of Ownership (TCO) model that considers all of the factors required to land a product in a specific market. TCO has led Crayola to a regional supply chain model, whereby the company produces closer to markets. This strategy represents a competitive differentiation as it enables responsiveness to meet changing market demand. With 83% of customers located in North America, the company makes the vast majority of its crayons – over three billion pieces yearly – in the U.S. Automation is the key enabler and a big investment area for the company, which keeps on adding better machinery to continue making crayons profitably and efficiently.
- Stanley Back & Decker considers innovation and digital transformation as the core drivers of its business strategy. Translated into manufacturing, the company has a strong commitment to embrace Industry 4.0 that incorporates the latest in robotics, manufacturing execution systems (MES), new machines, 3-D printing, innovation labs and maker spaces. The company has a significant manufacturing footprint in the U.S., with nearly 30 factories to serve local and global markets. It recently launched a $29 million investment to make significant upgrades to its Jackson, TN facility, which will become the company’s first “Lighthouse” factory, a showcase and model for new advanced manufacturing techniques, systems and processes.
As discussed in our “Becoming a Smarter Manufacturer” report, agility and responsiveness are expected to become the undisputed metrics used to measure business success going forward – much more so than the ability to keep operational costs down.
Organizations embracing smart manufacturing are expected to increase OEE (original equipment effectiveness) to 85.5%, improve quality and unplanned downtime by nearly 50%, increase inventory turns by nearly 35%, reduce new product introduction cycle times by over 23% and reduce energy costs by 17.5%.
Be global, increase local reach and become smart!