Comment: We need to stop viewing manufacturing as simply a commoditised function

Posted on 23 Apr 2019 by The Manufacturer

Having worked in several industries, from FMCG to Defence, award-winning British entrepreneur George Edwards has always been fascinated by how manufacturing is perceived in the wider organisation.

Manufacturing Automation - Industrial Automation - Beverages Factory - Stock - image courtesy of Depositphotos.
There’s an assumption that improvement in the manufacturing base can only deliver cost savings – image courtesy of Depositphotos.

Despite often representing the largest population of workers and cost to the business, many view manufacturing as nothing more than a necessary expense related to delivering their product or service.

The traditional view of manufacturing as simply a commoditised function is in sharp contrast with say New Product Development, Sales or Marketing, which depending on the industry seem to have reputations as the lifeblood of an organisation.

As such, when organisations are looking at growth strategies, innovation and investment are typically driven into these areas of the business. Whereas when there is a drive for cost efficiencies, investment is channelled into the supply chain.

The assumption that improvement in the manufacturing base can only deliver cost savings, I believe, is best demonstrated in the business cases behind the widespread off-shoring of production we’ve witnessed over the past 50 years.

Off-shoring (or outsourcing) is a very clear demonstration that an organisation sees manufacturing as a commoditised function. In this mindset, if there is a seemingly cheaper option that doesn’t risk a company’s IP, then it will take it.

I have seen both FMCG and food and drink companies that when introducing new products will pit their internal factories against external contract manufacturers and select the lowest price bid accordingly.

This is a slightly bleak perspective on the role of manufacturing and I am not offering a representative view of all manufacturers; however, this does highlight what I see as one of the most fundamental impacts of the digital manufacturing revolution and a shift I think our industry will see over the coming decade.

Consumers are becoming increasingly more demanding and this is driving an unprecedented level of competition and dynamism in B2C industries which is flowing back into their partners and suppliers.

Additionally, the internet has matured to a level that it’s now easier than ever to start a business, with market research, product development, sales, marketing, web development, digital infrastructure, payment processing and distribution being easily accessible to anyone at commoditised prices. This is driving credible disruption in almost all industries, from Fintech to Space.

Business people working meeting fintech finance financial services - image courtesy of Depositphotos.
– image courtesy of Depositphotos.

Disruption in the Financial Services Industry: A few years ago, banking had all the hallmarks of a stable industry – high barriers to entry, highly regulated, very strong mature brands, high customer loyalty.

However, Monzo, the pink bank card touting champion of the millennial fintech movement, now has 800,000 monthly active customers.

Furthermore, 15% of new UK bank accounts are reportedly now opened with Monzo and the business is making a gross profit on every account. Six months ago, Monzo were valued at a £1bn. Today, they are valued at £2bn.

All of this change in business has meant that innovation in sale/marketing/ product development is no longer enough. Two good examples of this are:

1. Dollar Shave Club is a B2C subscription service for razor blades and other grooming products which offers significantly better pricing by cutting out complex distribution and retail networks, and allows buyers to customise the contents and frequency of their deliveries. In 2016, little more than four years after starting, Unilever bought the American-based company for a reported $1bn in cash.

2. Jali, the Kent-based furniture manufacturer has created an entire business around one of the most digitally integrated enterprise systems I have come across. Users log onto a website and select a furniture design, which they then customise with their own elements and measurements.

The customer-facing website then automatically adds this order to Jali’s MES system which – without human intervention – creates and runs jobs on CNC machines in the factory which are then loaded into custom-cut packaging and shipped.

The only manual intervention is required for certain products that require spray painting. Jali has created a niche in the hugely competitive furniture space by offering bespoke products at mass-produced, flat-pack prices. A product and service truly underpinned by manufacturing capability.

That other trend that I see as fundamentally changing the position manufacturing holds in a wider enterprise is the increasing role that ‘value systems’ have in how organisations are seen by their customers, current/prospective employees and partners.

UK Plastic Pact is bringing together business with governments to tackle the scourge of plastic pollution - image courtesy of Depositphotos.
Reducing single-use plastic has become a headline, boardroom agenda item – image courtesy of Depositphotos.

For me, this is best illustrated by the recent trend to reduce single-use plastic. It feels like over the past two years, this has become a headline, boardroom agenda item and the companies who were able to respond in an agile way reaped significant rewards.

Carlsberg, for example, was the first brewer to remove plastic rings from their multi-pack cans, reducing plastic usage by 76%, receiving widespread publicity and putting their competitors on the back foot.

All of these trends demonstrate that as all industries develop and become ever more competitive, manufacturing is positioned to move significantly higher up the corporate agenda and become a critical strategic enabler for growth and success.

This, I believe, will drive a significant shift in the ways manufacturing sites are invested in, the skills they require, the operating model of how they integrate and interact with the wider organisation and the culture of the workforce.

I see a period of unprecedented digitally enabled change, which will undoubtedly include all of the change management challenges that you might expect, but if manufacturing rises to the challenge then it has an enormous opportunity to lead the future of business. I cannot think of a more exciting time to work in this industry.