Today’s global value chains and the end-to-end processes that underpin them, from raw material extraction and processing through to consumer fulfilment and end-of-life disposal, reuse or recycling, have been built on a paradigm of localised production nodes and globalised flows.
But what will happen to the role of production when the Fourth Industrial Revolution and other trends restructure the paradigm on which global value chains have been built?
Nigel Pekenc, director – manufacturing centre of excellence at A.T. Kearney, took to the main stage at Manufacturing Leaders’ Summit 2019 to propose a new framework; one which helps all key stakeholders think through the implications of the ongoing transformations of global value chains (GVCs) for their industrial development and investment strategies.
— Manufacturing NI (@ManufacturingNI) November 13, 2019
“Three global mega-trends are driving a paradigm shift in the shape of GVCs, from raw material extraction to final distribution,” noted Pekenc.
Emerging technologies are enhancing the flow of information and transparency through value chains, enabling rapid process optimisation and reconfiguring production economics.
Environmental sustainability – widespread environmental degradation is affecting resource availability and supply risks while calls for political actions is increasing externalities borne by today’s GVCs.
Globalisation reconfigured – the global consensus towards free trade is at risk, with changes in trade policy and uncertainties arising from trade tensions leading to realigned trade flows and shorter value chains.
“These trends will shift where value is created across the value chain, how trade will be distributed across geographies, and what the relative importance of structural factors will be,” Pekenc noted.
“Which calls for the need to: assess how the mega-trends may impact any existing GVC, explore local, national and global implications specific to GVCs, and facilitate discussions and help business leaders develop strategies to strategise to maximise value in a new architecture of global value creation.”
In response to these impending disruptions, A.T. Kearney has partnered with the World Economic Forum (WEF) and the United Nations Development Programme (UNDP) to co-developed a scenario-based Strategic Value Framework
Companies can use this online tool to assess the impact of these mega-trends on specific GVCs and maximise value in a new architecture of global value creation.
Across all scenarios and use cases, three imperatives were derived to ensure success in future global value chains:
It is difficult to predict what will change, when and how, Pekenc continued, which is why global value chain agility is key.
An interactive widget (found here) illustrates three of the most impacted GVCs, that of a cotton T-shirt, a smartphone and an automobile.
The dashboard has the flexibility to indicate a GVC in its current state and in a customisable, potential future ‘scenario’ setting. The centre of each slider bar coincides with the neutral position, implying ‘no change’ compared to today’s situation.
Toggling the slider bar to the highest and lowest positions enables the user to see the maximum conceivable effects of the mega-trends over a three-year time frame.
[The information found on the dashboard is based on sampled data and best view projections and is intended to facilitate the development of a better understanding of Global Value Chains (GVCs)]
One of method of making your global value chain more agile is to build supply chains that are able to sense and pivot to events, leveraging technology solutions such as big data analytics, cloud computing and artificial intelligence.
A.T. Kearney’s Pivoting Supply Chain Framework:
To reach ‘the pivoting stage’, various capabilities need to be put in place:
- sensing and analytics-based forecasting
- frictionless work
- continuous sales and operations planning (S&OP)
- strategy and enablement
- future factory
- ‘sensible’ digitalisation
Seamless omni-channel distribution:
- end-to-end visibiltiy
- vertical integration
- future warehouse
Towerless operating model:
- towerless organisation
- three-part skillset and mindset
- data science and smart analytics backbone
Another way to respond could be to develop more advanced technology and industrial digital capabilities that enable a higher level of agility in manufacturing.
A.T. Kearney i4.0 Capability Framework:
Customer oriented flexibility:
- automated order management
- automated demand/supply management
- value chain transparency
- adaptive logitsics
- flexible manufacturing technologies
- digital twin / PLM
- automated, real-time production management and process control
- automated testing
- analytics and predictive maintenance
- advanced robotics and process automation
- digital workforce productivity enhancement
- automated modelling and simulation
- synchronised design fit for production and production for design
Environment, health and safety:
- health, ergonomics and safety enhancement
- resource and energy management
- i4.0 qualified leadership
- i4.0 qualified workforce
- digital skill management
- digital culture and mindset