Mark Eaton, winner of the UK's prestigious Viscount Nuffield Medal for his contribution to Britain's manufacturing sector, will deliver the keynote presentation at this year's PEIE Smart Manufacturing Conference, November 3-4 at the Muscat Inter-Continental Hotel. Eaton talks to OER about defining manufacturing, its future, BRIC economies and In-shoring
You believe part of the problem in answering this question is how manufacturing is defined. Perhaps you can start by clarifying it for our readers?
I agree, the first step to understanding the future of manufacturing is to be clear about what manufacturing really is. A lot of people confuse manufacturing with 'production' and associated assembly activities. A couple of years ago a definition of manufacturing was picked up by the UK Government that I believe puts manufacturing in the correct context. The definition reads:
"The modern definition of manufacturing is broad and includes the full cycle of activities from research, design and development, production, logistics, and service provision to end of life management. This definition makes a strong distinction between production (the physical processes of making, bending, etc) and manufacturing (the over-arching process of getting raw materials to goods and their associated services)."
When we put manufacturing in this context, it immediately shows that when we talk about the future of manufacturing we are considering a lot more than just where physical production facilities will be located and the associated production costs.
This definition of manufacturing makes it appear to be a much bigger problem to define what the future holds for the global manufacturing sector, doesn't it?
Well, it does create a problem because of the additional complexity but it also points to some of the issues that will face manufacturing companies in the future, namely that it is not possible to have a completely successful stand-alone manufacturing plant unless you consider the 'upstream' (as in supply side) and 'downstream' (as in distribution and sales) activities.
With the trend in many countries for manufacturers to specialise and to reduce the capabilities they hold 'in house' (as a way of minimising business overheads) it means that many organisations will need to find and work with more partners if they are to be successful. We will see the development of new skills of multiorganisational collaboration and this will mean that the role of the Supply Chain Director will become even more important, but it will also place pressure on organisations to work more effectively with their downstream partners (such as logistics companies and even customers). Some of these skills have been attained already through the process of outsourcing but many companies who have outsourced have found a reduction in flexibility and the need for tighter controls, which flies in the face of the need for a more flexible approach to delivering products to customers.
What sort of flexibility are you talking of?
With product life cycles reducing in many sectors, particularly in technologically complex sectors, a new kind of pressure has been placed on companies to develop new products that meet the needs of the market and are delivered both quickly and cost effectively. Indeed, with changing consumer demands in much of the developed and developing world companies need to be flexible about what they offer and how they make it available to their customers.
So is the future just about collaboration?
Unfortunately not. Whilst there is a need for companies to be able to collaborate with specialist organisations, something that is facilitated by the technological and information revolution we are in the midst of, the future of manufacturing does not just rely on the ability to collaborate as we cannot ignore the realities of global economics.
What impact will global economics have on manufacturing?
To answer that question, I need to discount the current impact of the credit crunch as its long term impact is still being analysed. However, what is obvious is that the (then) low cost, low technology countries who welcomed outsourced production and assembly activities from the developed world in the 1980s and 90s such as China and India have now progressed to being low cost, high/medium technology countries.
To expand on this, the growth in the four countries referred to as the BRIC nations (Brazil, Russia, India and China) has been phenomenal in the last 10 years and has led to the rapid decline of 'low value add' manufacturing sectors in many countries where they could not compete on cost, but also, as these countries have invested in innovation, technology and capital building projects they are now competing head-to-head with high value add manufacturing companies and this will be a continuing source of both pressure and opportunities into the foreseeable future.
The impact of this ongoing competition will lead to the need to shorten development times and improve flexibility as previously mentioned but also to start competing more effectively in areas such as brand perception, accessibility (i.e. how easy it is for customers to get access to the product) and other areas traditionally grouped under the heading of 'differentiation'.
How will differentiation impact on manufacturers in the future?
Again, with the technological revolution, successful manufacturing companies will be making use of new technologies and the opportunities it provides for networking and brand development. For example, using www.twitter.com to develop a following from people interested in the organisation's activities and brand values through to using the Internet to demonstrate the organisation's 'Green' credentials (if this is important to that market's customers). Allied to the need for differentiation is the careful consideration of whether In-Shoring (the opposite of outsourcing in that organisations source their raw materials locally or even bring production back in house) can provide them with improvements in flexibility and responsiveness that would counteract any possible increases in cost this might incur.
So, having a clear understanding of who the ultimate customer is and their real needs will be important in the future?
Being honest, it has always been important and will definitely continue to be so when organisations are visible to millions (if not billions) of people, and in a crowded market it will be necessary for companies to both engage in continuous improvement in their processes and products as well as continuous engagement with their customer base.
Would continuous engagement with customer not be an expensive cost to manufacturing companies who are better skilled in producing world beating products?
By continuous engagement I am not proposing the need to constantly spam customers with unwanted information and offers, more the process of being 'close' and accessible to your client base which of course requires you to be very clear about who they are, making it easy for them to find you when they need you and making it clear why you are the person to deal with rather than any number of competitors who offer similar products.
One final question, what role will governments play in supporting their manufacturing base?
Apart from the need to invest in education so that there are people with the right skills available for companies to employ, there is a need to consider economic policies relevant to their economy, for example, if you want to encourage people to take risks you have to create an environment where they can reduce that risk as far as possible through favourable taxation regimes or even the encouragement of loans at preferential rates.
© Oman Economic Review 2008
