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The future of manufacturing is here – and companies can turn technological innovation into commercial advantage

Smart manufacturing combining technology, data, analytics and dynamically connected factories is being driven by the need to increase productivity. Harley-Davidson has embraced the smart factory and has reported reduced operating costs of $200 million at one plant alone, and a reduction in production time from 21 days to 6 hours.

We have seen a trend over recent years of supply chains being brought closer geographically to reduce lead times, but the advent of Industry 4.0 means that every link in the supply chain will need to be connected. Central to smart manufacturing will be transparency and co-operation.

So what will this mean for the supply chain? It is anticipated that we will see an era of intelligent manufacturing where the entire production chain will be connected. Data will need to be captured and analysed from a number of sources and the supply chain will have to work together to achieve this and respond to demand.

Continuous demand sensing will require a supply chain that is able to respond in real time. Forecasting will become more accurate and there will be the removal of uncertainty over demand. Data flowing back from ultimate end users through the supply chain allows the opportunity to accurately monitor use of products, understand lifespans, provide an insight into improvements, flag when products require replacing and when servicing is needed. So for manufacturers this will create a snapshot of changes in demands and allow real time practices to be implemented to manage its value chain. This will in turn change the way suppliers are engaged as we may see, for example, more flexible contracts to reflect the new understanding of when peaks and troughs in demand will occur.

The connected and demand-led supply chain should also drive efficiency within it. Manufacturers and suppliers can plan around demand in terms of capacity, employees, capital expenditure and raw materials needed. Just in time supply structures will become more typical. This will place a new driver throughout a supply chain for suppliers to be flexible and adaptive, with a need to become responsive to the parties higher up in the chain. Suppliers may be expected to deliver in shorter timeframes and at reduced costs as forecasts will be so much more accurate.

The supply chain will have much changed dynamics culturally and in methods of operating. Organisations will need to embrace new technologies, and this will very much be driven by those at the top of the chain. For suppliers unwilling to embrace new ways of working and technology, they may find themselves pushed out by new players with a more innovative outlook.   

This new way of operating will to a high level depend on information streams and collaboration. There will be a huge cultural shift in the way in which a supply chain works together. Data sharing will be the norm, and there will be more collaborative investment or resource sharing throughout a supply chain. If manufacturers can predict a lull in demand and understand the timeframe for this they could look at innovative ways of operating, such as leasing out equipment or factory space until the next peak in demand. This may also drive manufacturers to look to other sectors or product lines to keep the factory at capacity.

This new connected environment will create legal challenges for supply chain contracts. There will be a much more open environment with the sharing of confidential data and information. Successful data management will be imperative and contracts will need to address this, together with protecting information. This new transparency may also trigger more access to end user personal data throughout the supply chain to monitor product usage. The new data protection regime, GDPR, will require consideration in this context within contracts.

We also anticipate different contracting models. If demand can be accurately forecasted then more flexible agile contracts will be needed to suit the environment. More collaborative arrangements are likely to share resources. Integration of systems will be required across the supply chain, and the risks associated with ensuring successful integration will need to be addressed. This will dictate a more co-operative approach and possibly more longer term arrangements – once integrations are in place across a supply chain it will of course be prudent to actively manage issues rather than trigger termination.  

Contracts will need to reflect just in time delivery or ‘lean manufacturing’ with a drive to reduce costs and more effectively optimise assets. A manufacturer will need to structure its contracts with its supply-chain to support just in time delivery. Contracts will need to provide appropriate remedies – for example, if a supplier in the chain fails to deliver on time. With a focus on just in time supply the knock-on impacts for a business could be huge. There may be a greater degree of risk sharing within contracts, as well as the need for robust governance and intervention rights.

Despite the challenges there is little doubt that penetration of smart manufacturing concepts in supply chains will continue to grow. Organisations needing to increase productivity are looking at new technologies and ways to realign manufacturing value chains and supply chains to embrace the new way of thinking. One of the major challenges the UK manufacturing sector faces is competing on cost, but with the onset of smart manufacturing there is a real opportunity to refocus and drive cost efficiencies and value throughout the supply chain. 

Published: 09 November 2017


Focus on Manufacturing - Edition 6

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