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?

Drawing the Map from Right to Left

Starting the Value Investment Stream Map

So, lets start with the customers. Take a large piece of paper. A3 is the minimum you should start with, you will always need it bigger than this but that comes with more understanding.

And let’s remember now that understanding is the key here. The Map will help you understand where and how to get better.

On the right hand side place the real end user about a third of the way down the paper. Name them and draw a left hand looking eye, to remind us that we should always be looking at this map from their viewpoint, through the lens of the investments that they make. Just in front of that eye list out the investments that you identified for them in a vertical line, highest importance at the top, lowest at the bottom. If some were negligible then cull that and just add a footnote somewhere near the bottom of the paper in tiny writing.

When you have done that draw another eye to the left of the Investments you have listed, and below them, for the customer further “up” the stream and name them. So for instance that could be the retailer after you have already done the end user for a consumer item. Now list their investments, high to low as before.

Keep moving down and left with your “closer customers” and their investment needs.

If you have another set of customer type add them in back on the right hand side.

In the picture you’ll see I’ve added commercial cleaning companies on the bottom of the map looking at washing powder and the description above has been marked as steps 1 though 4 in red.

Last step in today’s blog is the golden thread. Highlight the Investments that are most important in yellow or gold. We will endeavor to make a “golden thread” of those activities and processes/movements that lead to those highlighted in particular.

Next we'll list out your enterprise's suppliers... on the left hand side, in the next blog.

Investment Stream Mapping

Value Investment Steam Mapping

If you'd prefer to listen to this then click here for the Audio boo.

Value Steam Mapping (VSM) easily slips into the “map is the deliverable”, instead of being a record of where we are and an aid to where we are off to. In this and the following pieces, lets re-visit the approach.

First of all lets consider the term Value and throw it out. When you start to map the stream that delivers to a customer, you must properly understand what your end product/service means to that customer. To use that term one last time before we replace it, what do they value?

Your customer, in giving you money for your efforts (let’s stick to that rather than considering non-monetary transactions for now), have also invested:

• Time and effort, travel, in finding and buying your product.
• Association with your brand/image/product: an emotional investment. Their friends will know they have bought you.
• Bought into your method of delivering the product to their use.
• Bought into your way of paying for it.
• Accepted your warranty/service support/upgrade policy.
• Purchased directly or indirectly your packaging methods.

These investments of thought, trust, time and emotion are in addition to the money they pay out for the explicit functions of your product.

So what does this mean? It means that the first step in Value Investment Steam Mapping (ISM) is to properly understand from your customer’s point of view what they are about to invest in you. When you understand what they invest in you, and which investments are the most important to them, you can begin the mapping.

What is the advantage of such an approach? It means that as you consider waste reduction/efficiency improvements you always do it through the lens of that understanding, rather than just cost.

For example, decisions on where and who does a manufacturing step (low cost child labour?) can impact on their moral investment in your brand (“I won’t buy that because of how it’s made”). Mis-read that and however much value you deliver, if you miss the importance of that investment you are mis-designing your business.

In the next item we consider the complexity of multiple customers.