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

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"!

GSK Brings some manufacturing into Scotland from India

Some good news for the UK Pharma industry this week, with GSK announcing that it is bringing back some Manufacturing from India and putting it into their Montrose Site in Scotland. Click on the title to see an article about it on Fierce Pharma.

Useful guidelines when off-shoring

For this blog we are grateful to Paul Gagg, a Global Operations Manager, based in the UK but with extensive experience in this field for his business.

"The continuing shift of manufacturing activities away from Developed to Low Cost Countries (LCC’s) shows no sign of abating. Despite well documented stories of organisations “near shoring” or repatriating manufacture, the flow remains overwhelming toward LCC’s. Much of the shift has been driven by the pursuit of cheaper Costs of Goods (COGS) and, in the majority of cases, LCC’s ex works COGS have proven to be considerably cheaper. However, there an increasing awareness of the need to take a holistic view, assessing the true cost to serve and deliver products to the end customer; a realisation that the perceived benefits of moving to LCC’s are less dramatic than initially projected.

Aside from the obvious costs associated with manufacturing further away from the historic centre such as logistics, tariffs and higher inventories, there are other costs to consider. Travel costs (both time and financial) to undertake audits and supplier meetings and the increased risk of loosing brand equity due to IP and trademark infringement are more difficult to capture, but should not be underestimated.

Whilst LCC governments, particularly China, have made concerted efforts over recent years to bring legislation in line with Developed economies, there remains significant scope for improvement in the control and regulation of manufacturing businesses and their interpretation of “legal” business practices. Compliance to World Trade Organisation regulations is at best patchy in countries such as China and it is important to ensure that robust procurement practices are put in place.

Organisations wishing to transfer activities to LCC’s need to ensure that infringement of IP, Know How and Trademarks are mitigated and the impact on COG’s and brand equity minimised. The following should act as useful guidelines throughout the off-shoring process and should help to reduce potential issues surrounding IP and Trademark infringement:

1) Ensure signed Confidentiality/ Non Disclosure Agreements are in place before any detailed information is transferred.
2) Extensive due diligence needs to take place. Visiting facilities is imperative. Developing personal relationships, however difficult given cultural and language barriers, must be done.
3) Employ a local team who can act as the in-country liaison. Managing suppliers in this manner continues to build on the relationship and ensures that policing of the LCC supplier can be carried out regularly.
4) Take a balanced approach to your portfolio. Undertake full cost to serve modelling to ensure that “Material” benefits exist by moving to LCC’s. Once complete weigh against the perceived risk of IP and trademark infringement inherent within the product that you intend to offshore.
5) Ensure commercial contracts are in place. Create separate Trademark and Patent agreements in both English and Chinese and ensure that the Chinese version is registered with the Chinese IP authorities.
6) Do not underestimate the speed with which designs can be transferred into sellable copies and undermine your market share.

Whilst the above list is not exhaustive, it should give some insight into the actions that should be put in place to mitigate the inherent risks in LCC sourcing. Transferring manufacturing to LCC’s clearly has many benefits."

Off-shoring revisited

In a continuation of the debate about off shoring, you may be interested to read the latest report from McKinsey (link: http://www.mckinseyquarterly.com/Operations/Supply_Chain_Logistics/Time_to_rethink_offshoring_2190_abstract), that looks at recent data and trends from the US point of view. In essence it looks again at the impact of oil prices, wage inflation and currency movements.

In a future Blogging we will also have an article that introduces you to a 2008 MSc. research thesis of why some businesses may choose to remain in the UK.

Remember to keep your Supply Chain balanced around your business aims!