Stepping stones to Advanced Services or a walk up the garden path?

• Analyse your Business Model
• Develop new customer value propositions
• Create basic, intermediate or advanced services
• Test, modify and select
• Modify your Business structure
• Implement.....
• ....

These are all sensible steps to take as you move into Advanced Services, but they can seem a little like walking into an unknown garden. Having worked with dozens of SMEs and several large companies the Advanced Services Group, a spin out from the well established Centre for Servitization Research and Practice can guide you faster and further than any other.

Before you lose your way contact us here.

UK Manufacturing Statistics. Part 2: What does it say about Servitization?

In the first of these two pieces we saw how employment in manufacturing has had a re-visit. That post and this draws on the new report Measuring Manufacturing: Manufacturing Metrics Review Report, just published by the Department for Business, Innovation and Skills.

The report also looks at how servitization is changing the shape of UK Manufacturing:

• In 2011, 39% of UK manufacturers with more than 100 employees derived value from services related to their products, compared with 24% in 2007.  That is a leap of 60% from that initial baseline in 2007. If that year doesn't seem significant to you, remember that the first iPhone went on sale that year. How many apps and support services do you have on your smart phone right now?

• The number of UK businesses recognized as Service Plus (i.e. with Manufacturing SIC codes and revenues from services >50%) has increased from 2008 to 2013 by either 85% or 212%, depending on the analysis approach. The wide difference in those two percentages are because it is early days in how to measure companies that accrue large revenues indirectly from their manufactured goods. The raw numbers suggest that there were approaching 20,000 such companies in 2013, nearly 3 years ago.

Before I finish consider how GE is re-positioning itself as a digital company, advertising on the TV and Youtube and to learn more about Servitization see the Advanced Services Group video here

So, I ask you is your business part of the servitization revolution? Join us at our Global Forum on 26th April to begin.

UK Manufacturing Jobs double from 2.6M to 5.1M: Part 1 Is it True?

Now that is a real headline, and puts Brexit discussions into the shade, but is it true?
Measuring Manufacturing: Manufacturing Metrics Review Report, just published by the Department for Business, Innovation and Skills https://www.gov.uk/government/publications/manufacturing-metrics-review has re-visited how manufacturing is interpreted in the national statistics and the chair Professor Sir Mike Gregory states in his summary:

"In summary, the group found that, while manufacturing as currently defined in national and international statistics is being effectively and reliably reported, there are substantial opportunities to capture and reflect the influence of manufacturing activities within the economy more comprehensively.

and that a new Value chain approach "suggests that jobs associated with manufacturing might number 5.1 million compared with the 2.6 million directly classified to manufacturing using conventional interpretations."

The graphic below taken from that report, reproduced here courtesy of Open Government Licence v3.0, shows the detail:

The report goes on to state:  "it is worth noting that UK manufacturing has delivered a productivity revolution showing a 125% increase in labour productivity since 1985" 

Feeling a little better now? Part 2 of this blog looks at what the report has to say about Servitization.

Running in New York for the Alzheimer’s Society

I have been lucky in obtaining an entry to the New York Marathon on the 1^st November in the public lottery. For the first time in years I am going to use this event to raise money for charity and I have chosen the Alzheimer’s Society. Alzheimer's Society is the leading UK care and research charity for people with Alzheimer's disease and other dementias, their families and carers.

Dementia is a collection of brain diseases, over 200 separate diseases in fact, that affect over 850,000 people in the UK today. To me that feels like Cancer did 40 years ago and I hope that if we raise money for research and support we can tackle this problem and stop it becoming such a burden, especially to the elderly and their carers.

I have set myself a target of raising £4,000. I know from the Society that just £50 can provide the chemicals and consumables to allow a PhD researcher to research the causes of dementia for a day.  £350 can pay for someone with dementia to attend a Dementia Café for an entire year, where they can meet others with dementia and gain knowledge that can help them cope better in their daily life. And £650 can pay for a brain scan in studies looking to improve diagnosis.

If you would like to learn more about dementia, there are one-hour dementia friend courses run all round the country. I went to a course in Leicester. It's fun and you'll learn a little more about how to live and care for those affected. Just put "dementia friends" into Google to find the right page about it. Or Click here.

If you do go to a course you will learn that dementia is not just a part of growing old and that it’s not just about losing your memory. You’ll also learn a little about how you can help people to have an active and happy life with the disease.

If you would like to donate having read this blog I would be delighted. It is easy to donate online through my justgiving page here.

Thank you for reading, please share if you know others might be interested.

Three (and a half) rules: Book review

First published in 2013 and out now in Paperback, "The three rules- how exceptional companies think" by Michael Raynor and Mumtaz Ahmed from Deloitte is well worth a read.

To contrast with quite heavy statistical analysis are several graphs that support some surprisingly simple conclusions. The authors set out to find the few rules that identify exceptional companies in the US. Rather than use the case study route or select well known exemplars, they have crunched years and years of financial data and subjected it to analysis, looking for significant, statistically significant, differences.

And the results? Well exceptional companies should follow these rules when having to make decisions on resourcing, strategy, structure:

1 Better before cheaper. So don't compete on price, compete on value.
2 Revenue before cost. Drive profitability with higher revenue, not lower cost.

Their analysis supports these rules, and in searching for further rules, they could not find any others that withstood a rigorous analysis, and hence the last rule is:

3 There are no other rules. Change anything and everything to stay aligned with the first two rules.

Now although there are only three rules, looking simple, following them isn't. In particular that phrase "change anything and everything to stay aligned", means just that. Everything is up for grabs, nothing is sacrosanct. Divisions can be bought or sold, markets conquered or exited.

Intuitively the rules mean that exceptional companies must deliver products or product/services of high value, bought for their high value, and at a higher price point. And when you have done that, driving for more revenue through price or volume should come before cost cutting to improve returns.

The final twist that the authors have identified in the last few years and is explained fully in the Deloitte Review Issue 16 asks the question of how companies reach the level of exceptional in the first place. Reviewing the data and tabulating the results they conclude that when a company is performing poorly and certainly sits in the lower half of the competitive landscape, they should cut "other costs", costs that don't impact on gross margin.

As they rise towards excellence and strive for a return on assets ratio that makes economists salivate they should turn their attention to gross margin, by creating high value propositions. So I would propose the rules can be modified to read:

0 If performing in the lower half of your peer group sector, cut non-direct costs. Overheads, SG&A need to be brought into line with sector norms.
1 Better before cheaper. So don't compete on price, compete on value.
2 Revenue before cost. Drive profitability with higher revenue, not lower cost.
3 There are no other rules. Change anything and everything to stay aligned with the first two rules.

Read and enjoy.

Pan for Starter/Finishers not the Completer/Finisher

Completer/finishers are always in demand. As project managers, salesmen (deal closers!), writers, craftsmen etc.

However a much rarer and more valuable group of people are the starter/finishers. Now I know that finishing requires a lot of qualities such as perseverance, attention to detail, focus, but starting requires all that and more.

To start something often requires courage, especially if that something is new. It means raising your head above the parapet of comfort zones and safety. It means putting pen to paper or asking a question or creating an idea or enterprise and probably being wrong. We're all human and we can't be right all of the time, and that is most likely when you are the first.

Seth Godin, a renowned speaker and publisher wrote a book called Poke the Box in which he explores this with enthusiasm and wit. Look there or at his blog for more on that topic.

I'd like to return to the group name again though. Starter/Finishers (S&F) are essential. They get things off of the ground and almost as important they finish what they start. They recognise that starting with something that is good is more important that forever waiting for the perfect moment, design or graphic. In this instance perfection can be the enemy of the good. We have to know when to launch.

And then we have to use judgement about when something needs to be finished. If the starting falls flat on it's face, we will have learnt something, but maybe it isn't worth seeing through to the end. Of course if the starting worked, then finishing is what will make it successful.

So when you recruit, or choose leaders are you panning for rare S&Fs or mining for valuable completer/finishers?

Islands of Lean: Not a new holiday destination

Lean implementations can fall into many well trod and well constructed traps. Sometimes it starts at the top with a Lean VP, pushing down the latest company drive without proper engagement. Sometimes it focuses on the teaching of tools or the number of green belt projects completed.

Island to archipelago

A sadder trap though is when lean has been successfully implemented in "pockets". A focused improvement or Kaizen event takes a problem area to a new height of efficiency, reduced waste or customer response. Submerged like it is in an ocean of non lean systems and ways of working however the benefits don't drop to the bottom line, practitioners lose heart and the pocket becomes an island, maybe with others visible in the archipelago.

Crossing the ocean to create commerce

Taking the analogy further, the bigger body of water to cross is frequently the divide between supplier and customer. Here we have the meeting between two or more firms, trying to give valuable products or services in exchange for money. And of course we don't want it to happen for just the one transaction, it needs to be a continuing business: Commerce. Commerce is about setting up the systems and understanding that underpins long term trade, or in this case a business.

Servitization takes Lean into commerce

Servitization is not new, it was coined back in the '80's, but deals with the development of complex interactions between suppliers and customers. It often takes the form of providing advanced services in addition or in parallel to product transactions. For me the key focus of servitization is a business relationship in which customer value is transferred with the least waste possible. Lean therefore can see itself as a tool that reaches out towards the customer, blurring the divide and crossing the ocean. It can involve financing, maintenance, through life support and much more.

This and other developments of servitization will be the subject of the Aston Spring Servitization Conference 2015. Come along or contact me for further information.

Numbers, statistics and Innumeracy

Innumeracy written by John Allen Paulos is an excellent book on the lack of number use in modern society. I recommend it.

More or Less is an excellent Radio program and podcast about statistics, again top of the list.

The updated Machan Consulting website, well it has even more and updated numbers and I think you might like that.

What do these three things have in common?

Not all problems or opportunities can be measured in numbers (accountants, please take a breath). But a lot of problems and discussions can be better informed and resolved more quickly with good numbers, well researched and founded. The book and radio program explain this well and with humour.

For the last few years the Machan website has been designed with graphics and numbers in a number of fields. For 2015 they have had a refresh. We look at:

• Medical Devices
• Nuclear Power
• Medicines
• Food

While you may not win all of your arguments by referring to our numbers, it may provide context or a significant leg up, either at work or in the bar.

For example did you know that in 2013 the top critical/major defect area in UK GMP Inspections was the investigation of anomalies, at 6.5% with Quality Management second at 5.5%. Investigation of anomalies-CAPA was third with 4.7%. And that the Investigation of anomalies was the top area for the fifth year in a row.

So if you were dropped blind into a new medicines site and wanted to audit, re-organise, challenge, or improve it where would you start?

Or, that Nuclear sites may experience unplanned events that can described as anomalies (level 1 on the International Nuclear Events Scale), incidents (levels 2 & 3 on the INES) or accidents (levels 4 to 7) depending on their severity and that there was only one event in the third quarter of 2014, which was classified at level 1 on the Scale.

In the Pub banter, work or planning your strategy, numbers give you context and direction. With some work they are almost always available. So for starters... what was the food linked to the most cases of UK food poisoning, with an estimated 244,000 cases every year? This one is easy, just click on Machan Consulting. 

Junk filled Platitudes

Do you wade through your work reading (emails, reports, briefing papers) with a nagging guilt that you aren't keeping up to date with the latest thinking, research trends and hence may be missing something important?

I was reminded of Sturgeon's law recently that "90% of everything is crud" see Wiki here for more, and linking the thoughts together I tried to ease my nagging guilt. But how do you catch the 10%? Not easily is the answer. The tendency to have short blogs and even 140 character limit tweets searchable through Google does provide a medium that encourages a succinct description of concepts, ideas and research.

Still though, how many books have you picked up off of the bookshelf that is really a single concept spun out to 300 pages to feed the publishing house machines?

The many extensive, global research studies published and their executive summaries are an attempt to spread a net wide over a topic and then serve up for digestion the significant catches. Great, a means to short circuit the search for meaningful new ideas. Or so I thought.

Last week a pre-eminent body with hundreds of researchers, published key findings after an extensive global effort. Two of them were:

More companies are going to increase co-ordination of strategy and planning between their engineering and service organisations. 

Now who I ask you, would argue that it is better to reduce co-ordination?

Smart products will see a significant growth over the next three years led by high tech firms.

And that surprises you how?

Hence the title of this blog, they seem to be junk filled platitudes... to rhyme with Duckbill plat.... well you get the idea. Journalists and other professionals pride themselves on getting to the nub of the matter. To quote E.S. Bouton " True wisdom lies in gathering the precious things out of each day as it goes by."

One step beyond... it's madness not to?

One step is to reshore; it's in the news, it's sexy according to the government and brings a host of benefits. But does it give you the competitive edge that will take the business forward?

Thats where the second step comes in: Servitize. Professor Tim Baines at aston-servitization.com has written an excellent book that explains how adding advanced services and similar approaches can bring about a step change as big as lean. We hope to gather views and research as explained in http://lnkd.in/d4RCmh5 .

Come on take that one step beyond..

So, Reshore and Servitize?

This blog and “Bring back, Lean out…” published a couple of weeks ago are a much shortened version of an article published in the September ’14 edition of the LeanManufacturing Journal. 

The article explores the reshoring of production out of low labour cost sites to a range of Western countries and introduces the servitization of manufacturing companies to deliver advanced services, one form of servitization.

Combining the two potential transformations described above brings a manufacturing operation closer to your critical mass of people and closer to your customers. Being closer and how you allocate your resources can be used to maintain the same business model or try and take advantage of a servitization model offering advanced services. Those services might include a life cycle support or Rolls Royce pounds of thrust type solution. Those services might be a game changer in the field, supporting growth that can only be financially supported by an efficient, fast response, low in WIP supply chain. The key will be going back to the Voice of the customers (VOC) to work out what they will buy and how the value can be provided. That will drive the real purpose of the re-shoring, rather than just “bring them back home”.

How Lean helps

With the purpose clear, and the value understood, now we should look to apply the right Lean tools to deliver a new value stream map. Consider:

·      The longer the process to be transferred back the longer each transfer step will be. Look to standardize and transfer in chunks, keeping the work going through your transfer team at a manageable level. Consider moving part-manufactured goods for finishing in the home market. Consider machining parts in the home market and finishing them off shore. Prove each step is capable first.

·      As-is and future Value Stream Maps (VSM)s are an obvious tool. Consider, what steps can be removed with re-design? If products are rented to customers for use then financial transactions will become flows instead of lumpy one-off transactions. Credit control and accounts receivable processes will change in size and type. Similarly by changing to an Advanced Service Business Model the organization structures and span of control of a business can change

Servitization and re-shoring need supply chain operations

Servitization clearly puts 'value creation' and 'value delivery' at the forefront of the competitive strategy.  Value creation is closely related to demand creation and value delivery is closely related to demand fulfillment. Consequently, the implications of servitization are not only to the supply chain (demand fulfillment side) but also to where the demand is created in the first place.

What’s next?

In my experience almost any business faced with decisions about re-shoring, changes to business models such as servitization and lean implementation find themselves stretched. There can be housekeeping activities required to prepare for such large changes and a significant amount of “headspace” required to work out what it all means and how to tackle it effectively and competitively.

So having explored the topic and some ways to tackle it what are the next steps, where do we go from here? Machan Consulting is working in association with Professor Tim Baines from the Servitization Centre at Aston University and Dr. Benny Tjahjono at the Cranfield School of Management  to research who has done what already and what new entrants need to know.

We are looking for businesses to contact us with their experiences and what they are hoping to do. With a good enough response we plan to run a spring 2015 forum at Aston for those volunteer businesses to share, explore and learn from each other. We also anticipate some solid research to publish in late 2015 to help the whole sector.

So if you are a manufacturing business that is:

o   Looking to do this, and looking for help/involvement in this project

o   Or preparing their structure/organisation for the change

o   Or have been there and would like to share their learnings,

  

To indicate your interest with this research and join us go to www.machan.co.uk/reshoreservitize

Lean; design by a local name.

Design thought leader John Maeda has blogged recently about how design is becoming more mainstream. We don't often use the term when talking about supply chains, value streams or manufacturing processes. Design seems limited to the first incarnation of these processes. "Leaning" may receive greater recognition if we call it what it really is: re-design.

Redesigns come in large and small packages. Think about car model launches and mid-life facelifts or iPod/iPhone model changes. Re-designing improves function, reduces waste, makes more out of less. Lean is a descriptor of process design. Servitisation is re-design by extending our scope of work.

Have you got your sketchpad ready?

Bring back, Lean out, and Serve: How a Lean transformation, servitization and reshoring creates competitiveness

This blog and it’s sequel are a much shortened version of an article published in the September ’14 edition of the Lean Manufacturing Journal. 

The article explores the reshoring of production out of low labour cost sites to a range of Western countries and introduces the servitization of manufacturing companies to deliver advanced services, one form of servitization.  It is seen as a way to competitively address customer’s needs beyond product purchase and so support business growth. It also explains how we can use lean tools to deliver both changes.

What is Servitization and its link to Lean?

An excellent definition of servitization is provided by Baines and Lightfoot of Aston University in their book Made to Serve “Servitization is a term given to a transformation. It is about manufacturers increasingly offering services integrated with their products. Of these, some manufacturers choose to servitize by offering an extensive portfolio of relatively conventional services, while others move to deliver advanced services.” (ref Made to Serve,  Baines and Lightfoot, Wiley 2013)

The large players that have embraced this in recent years and grabbed the headlines include Rolls Royce, Caterpillar and Alstom. However a number of SMEs have used it as a way to differentiate themselves from their competition.

I see Servitization as requiring a client to really understand their customers needs and maybe even their customers’ customers’ needs and finding the best way to meet them. This is Value Steam Mapping to a level of depth that goes far beyond delivering products and information, further even than providing spares and repairs. (Refer to Investment Stream Mapping in previous blog posts). Starting from that point and deciding how best to deliver what products and services can lead a client to a true transformation. The aims of that transformation are to provide a competitive offering, reduce wasted resources over the cycle of use, and promote growth.

Reshoring the lean way

Reshoring or onshoring is the process of bringing back production to your “home” country, the opposite of offshoring. The drive to move manufacturing to the Far East, China and India in particular, it is argued by some, being reversed in some cases. The motivations for such a phenomenon are many. Let’s look at a few.

First there is the undeniable stretch in the length of the supply chain from production to customers, with all the issues we know that entails. De-bugging product introduction and new technology has often proven to be costly across time zones and adding to the known risks of sharing sensitive Intellectual property.

Second the increase in off shore labour rates and the cost of transporting goods across the oceans and the pressure of green miles have made these remote sites less competitive.

The decision making process to bring back a manufacturing process may in some ways be more complex and challenging than sending it out there.

That new process does not need to match the existing. The phrase “botshoring” has entered the language, recognizing that the return of a process can be combined with automation or robotics to minimize the labour cost element, which is probably why it went east in the first place!

The transformation, there’s that word again, therefore of your manufacturing and supply chain is therefore a set of decisions about not just where you will produce but also how. How might you invest in what type of capital equipment, how will you treat the reduction of supply chain inventory, what might you do with the reduction in headcount required by the new process, and what might you do with the technical and support staff that were liaising with the off shore plants?

That set of decisions, and the process of delivering them should be an ideal workspace for a lean approach, reducing waste, focusing on right first time, reducing packages of work to minimize lead-times of the transfer all come to mind. These will all be relevant whether a company is a Tier 1 or Tier n supplier, Business to Business or Business to consumer.

Next Blogpost: So, Reshore and Servitize?

Local Business Groups and clusters

The idea of business clusters creating a unique critical mass is not new. Silicon Valley in the US, Machine Tool companies in Italy and high spec/high toolmaker's skills on pressings around the Clitheroe area come to mind from my own experiences.

Keyworth is a small village some 6 miles south of Nottingham. The Keyworth Business Group, an informal gathering of business people from that village have been meeting socially for a few years now. They have just launched a new website called Keyworth4Business in association with the Village Academy. The aim is to promote the profile of companies and individuals working out of the village both locally and more broadly. The Rushcliffe Business Partnership had a hand in it along with some key individuals from the Group such as Paul, Graham and Antonia.

All power to a new cluster of excellence; what critical mass might it bring to the Midlands, and could it help growth even without a High Speed Train Link to the Capital?

Ian talks about assumptions in the supply chain

Shovel to Shovel Supply Chain Thinking. Part of a recent presentation in London

Boundaries and Buffett

Boundaries are where it gets complicated. I'm not talking about regional boundaries though recent events in Ukraine (substitute another dispute if reading this after 2014) are consistent with this.

Boundaries, where responsibilities change, hand-offs in processes are where assumptions are enormously important.

Some of the biggest boundaries are between partners in Supply Chains, between shipment and arrival, between forecast and order, audit and auditee.

When I was taught about Finite Element Analysis as a young engineer, the assumptions you made as to how your model would operate and the answers it would give were explicitly linked to the boundary conditions you set (or observed from test).

I'll be talking more about this at the "Supply Chain: Simplifying the Tiers" event in London this month (Supply Chain at the Ambassadors).

And the Buffett part? Warren Buffet is quoted as saying that until you have to write it down you haven't really had to think something through. So I always like to see key assumptions written down and shared. Across boundaries, between Supply Chain partners.

"I've got a good idea, let's restrict travel!"

Third quarter figures are looking a little dicey, analysts will be looking for a result in the guidance EPS (Earnings Per Share) range, and Sales don't just magically appear out of nowhere.

What can we do to bring the results in on course, and send a signal to the troops about how serious we are?

"Let's restrict travel!"

"Only essential travel allowed"

"All travel has to be approved by the General Manager/Senior VP/Deity"

"Corporate Travel ban"

etc....

Supply Chain improvement, good procurement, quality audits, collaborative working with suppliers, troubleshooting, developing better planning and risk management tools, Plans for every part (PFEP), discovering new vendors...

All of those involve a degree of personal interaction, especially in the early stages and hence travel. When a majority of the cost base is dependent on Supply Chain innovation and competitive advantage too, what does a travel ban do for the future of the business?

Next Shoring: Popular, catchy, but old school. Tea and Ketchup history lesson

Next Shoring has entered our Politician's language; it speaks of the return of manufacturing, rebalancing the economy and maybe even more jobs. It appeared in this Blog in 2008 and I can trace it back to at least 2005 in McKinseys thought leadership work.

Next Shoring is defined by McKinsey as "...not about about the shift of manufacturing from one place to another but about adapting to, and preparing for, the changing nature of manufacturing everywhere." Mckinsey next-shoring: a CEOs guide

So CEOs listen up!

But lets put some perspective on this and other revelations about matching local needs & manufacturing opportunities from our own recent history.

Tea was first introduced into India by the British, in an attempt to break the Chinese monopoly on tea. The British used Chinese seeds, plus Chinese planting and cultivating techniques to launch a tea industry by offering land in Assam to any European who agreed to cultivate tea for export.

I used to work for HJ Heinz, and the company history will tell you that from a US beginning in 1869, they exported their new Tomato Ketchup to the UK in 1886, followed by Cream of Tomato Soup in 1910 and Beans and more. A new production site in the UK made thousands of tonnes of product in its first year in the roaring twenties.

Next Shoring, reshoring, offshoring. CEOs think about your business and it's loci, and don't be too in awe of the "very latest thinking"!

Contracts: 3 "large print" points

It shows that I'm not a Lawyer, but I have to admit that as I've aged the importance of Contracts to me has risen. Whether Tom Waits, Amos 'n' Andy or Archbishop Fulton J. Sheen coined the phrase:

"The large print giveth and the small print taketh away"

I have work colleagues who have had reason to thank their small print, or blame it... to the tune of hundreds of thousands of pounds. When things go wrong, it pays to have thought ahead and captured in the contract the correct disposition of the result.

Reviewing contracts, your own and others', requires a crystal clear understanding of your purpose in contracting, and sufficient experience in reading and negotiating contracts of a particular type. That experience may come in-house, or from external legal advice. I say of that "particular type" because I recently reviewed a contract outside of my normal comfort zone, and my lack of established reference points was obvious to me. So my learning points are to make sure that:

• You and anyone advising you is clear on your purpose in contracting
• You have or apply sufficient experience of the type of contract you will be signing
• You and any advisors have thought through what might go wrong and how you would want it dealt with if it does.

Happy signing!