In recent years, manufacturing has been impacted by a relentless series of seemingly unrelated world events. However, is there a single reason for the severity of the impact these events are having and, more importantly, is there a solution? John Robinson of Kearney explains.
Since the turn of the century, we have seen an exponential growth in technological advancements. The rapid, mass adoption of these technologies in society has completely changed established models across the spectrum. When we consider a simple PEST analysis, it is clear to see how much technology has driven change in the other three areas of politics, economics and society. Most of us are now part of a single, global, real-time network. This all-pervasive, technology-enabled network is a complex system that has broken down traditional silos and linear flows in all areas including, but not limited to, information, goods and people. Manufacturing, however, has been a little slower to adopt these technologies.
The issue for the manufacturing sector is that it has not adopted these new technologies at the same rate as wider society and a technology gap has emerged. In addition to the technology gap, manufacturing has also not adapted its business processes to cope with the system complexity of the new world.
The result is that manufacturing and the rest of the world are operating in two different systems. These systems function in different ways and at different speeds and the harsh reality is that manufacturing cannot keep up.
Industry 4.0
The technologies that have driven this global change are both applicable and available to manufacturing. The impact they were predicted to have was heralded as the Fourth Industrial Revolution. But despite significant hype and investment over the past decade, numerous studies have shown that the benefits of Industry 4.0 have simply not materialised. Furthermore, a recent report on IT/OT Convergence conducted by The Manufacturer* suggests that the Third Industrial Revolution is still a long way from maturity. One key finding in the report that illustrates this point is that ‘just 23% of manufacturers have achieved more than a basic level of IT and OT convergence’. IT/OT convergence has been on the agenda for over 20 years and yet is still an aspiration for most.
So, if we accept that the rate of technology adoption and process change in manufacturing is slower than society, the next question is why?
Operating models
I believe the answer is because the high level strategic operating model of manufacturers has not fundamentally changed in decades. Many manufacturers are still organised and managed in the same functional silos they have been throughout the modern era. e.g., marketing, sales, R&D, planning, procurement, IT, manufacturing, logistics etc. KPIs within these functional silos create an element of internal competition, self-interest and self-preservation. In addition, information and material flows are still mainly vertical and horizontal e.g., divisions, reporting lines, production lines and supply chains.
In particular, a manufacturers relationship with its main technology vendors is an area that has not really changed. At present the normal relationship between a manufacturer and technology supplier is peer-to-peer and too competitive. In addition, the collaboration between the technology suppliers to a manufacturer is also very limited.
These characteristics are very different to the more collaborative, self-deterministic way society now functions. Not long ago manufacturing was operating a supply chain and route to market that sold to large demographic groups. We are now talking about personalisation, omni-channel and a batch size of one. If the operating model is the problem, then what should the new operating model look like?
Collaborative networks
It has been my long-held belief that the future operating model of successful manufacturing has to be built on collaboration. Furthermore, this principle of collaboration must be applied both internally and externally.
The changes I am proposing would be aimed at moving from competition, silos and linear flows to a collaborative network of empowered real-time decision makers at all levels.
I called my vision for this collaborative operating model The Quorum Principe and have written and presented on this topic extensively over the past two years.
Possibly the single biggest change The Quorum Principle brings is with respect to the collaboration between the manufacturer and its primary suppliers. Instead of the current model, a new more collaborative model would be created where the manufacturer and its five most strategic partners form a ‘Quorum’.
The Quorum would have a common goal and objective and would bring together skills in the areas of strategy, IT, OT and operational excellence. I believe that the combined value of this operating model would far outweigh the value of any individual contributor. The Quorum Principle has several workstreams and each is critical to success. In addition to some well-established best practices, it also incorporates some important new ways of thinking such as system complexity, system design and life centred design.
Adopting The Quorum Principle would represent a transformational change for an individual manufacturer and as such, it must be a management led initiative. If adopted by a significant number of manufacturers, The Quorum Principle would bring about a paradigm shift in the supplier ecosystem and the manufacturing sector globally.
I believe that the changes I am proposing will release the value of people, technology and organisations. The combined value this collaboration would bring will positively impact many of the key challenges we face with respect to both business and the environment.
Technology has brought about enormous changes to the way that we operate globally. In my opinion, the manufacturing sector has not adapted quickly enough to these changes and has to act now before the gap grows even bigger.
Download your copy of the IT and OT Convergence Research Report now: info.themanufacturer.com/it-ot-convergenceresearch-report-2022.
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