Manufacturing Trends towards 2050

Well it is a new year and in many of us we look ahead, last year I looked at 2020 from an operational landscape, this year let us take a little bit further look out for looking at manufacturing. These are long term trends that will evolve and impact architectures, and I believe the whole landscape of operational systems. It relates to the discussion I brought up late last year on the trend from globalization to continentalision, due to speed of demand, and cost relative to energy etc.

Some interesting charts that show another set of trends I found in reading from ARC:

The top chart shows an interesting but fully expected trend towards more local, often small businesses, this aligns with continentalision, where time and agility to deliver is key, combined with another trend which is the move to customization of the end product. (note this is the opposite to what we see in the industrial software/ commercial software market where customization is giving way to “good enough” applications.) People will shift from brand to local product that aligns with the way they live , environment etc, this means more than language it means the culture of the consuming product. To achieve this combined with optimization even multi national companies will shift to local manufacturing sites for final productisation.  Example is in tobacco manufacturing where primary manufacturing is trending to centralize, and the packaging is local, enabling supply chain optimization, while agility to serve local markets.

But the bigger trend this move to “local/ smaller manufacturing facilities” suggests is the shift to “collaborative manufacturing” across an ecosystem of smaller more agile manufacturing facilities often run and owned locally. The opportunity for this comes through shift in technology to the “cloud” and “managed services” which enable a multi site manufacturing chain to managed in a series manufacturing facilities across the “product value chain” even if they are not the same company, but now a “collaborative manufacturing value chain” for that product. Managed services also provide the ability for these smaller companies to adopt mature operational/ MES applications as “managed services” providing them with operational control and alignment which has not been affordable before.

The chart below also supports the big trends by functions:

The key trends of shifting to renewable s, the impact of energy costs as the end of the “second industry revolution (oil based) “ declines, the “bottom of the pyramid” which refers to lowest 4 Billion income earners how we raise their standard of living. This is much more holistic view of the world than the 20^th century, except for the mass customization demand of my local product.

My feelings that this time to deliver, and satisfy the market the old “shelf space” will rule, with immediate satisfaction and freshness driving buying habits, combined with costs as transport and logistic costs and risk rise.

The final chart to reflect on shows the growing factors that effect manufacturing and operational decisions and therefore systems. 

This diagram does not look into the future but shows how in the last 20 years the major factors that influence manufacturing have expanded significantly, and they continue to grow. I would add the big one which is the shortage of skilled people, or operational empowerment in a dynamic workforce. Where now we have plants coming on line faster, or being acquired either into a global supply chain, or being added into a “collaborative manufacturing value chain” relative to a product. Combine this with the dynamic workforce that will be rotating roles, locations at less than 2 years in a role, while the ability to deliver more customized products drives the complexity of the production process, and value chain.

All good food for thought, as we look at significant operational transformation.

Globalization vs Continentalization, the world is shifting to Continentalization

Listening to a discussion on supply chain logistics panel, then follow the debate with some leading logistic thinkers and companies, and then stepping back you start to see a change to focusing from Global outlook to a Continental outlook, and networks of supply chain. When you listen to logistics thinkers, the cost of fuel, and changing climate conditions with increased storms, and the increased requirement for speed and reliability of delivery to end users is driving change in thinking to how to build efficient continental value networks.

Brand loyalty is decreasing, while convenience of consumption increases in buying behavior. The fact that I need to consume a product now and the ease buying, plus price will lead me to alternative products. In the 2000’s, we had a change to Globalization this is still happening in companies acquiring other companies and will increase, as people change to consume, buy online, but now comes the challenge of fulfillment in a timely and cost effective manner. Sourcing in low cost countries is becoming risky and costly due to transport costs, and distance, and since 2006 we continued to see a rise in transport costs, and environmental responsibility that adds to cost.

To address this, we seeing a move gradually to a continental value chain reducing distance some reducing time and uncertainly/ risk of delivery.  Also reducing cost through short distances, and fewer segment changes. These Value supply chains do cross borders.

Increasingly the complexity and value of the return of Global value delivers less value, vs a tighter and more agile continental value chain. New product integration can fit the market; changes in that market are absorbed and adjusted to faster. So information networks, and operational landscapes that enable transparent view and action across the continental chain, awareness of situation and state, the ability interact faster and adjust is key. Already in the smart grid discussions you starting to see the ASEAN Grid a distributed / collaborative grid for the nations of ASEAN.  In the food / CPG industries, primary production will happen centrally in one or few places in the continent, with packaging and final end product manufacturing happening locally servicing the language vs country. The Business System, Product Life Cycle Management, Asset management, and value chain planning and scheduling done across multi value sites in a logically ONE production landscape.

From an industrial / manufacturing system point of view this shift still a holistic view, where a set of value generating assets and their systems, assets and people will be interlinked across set of interconnected service buses to satisfy the needs within a continent. The uniqueness of each site, will be maintained, but the alignment will now exist through this “loosely coupled but aligned approach”, with operational management cross the borders and taking this continental view. The scope of the projects should be more contained than a global view. Combine this with the creation of dynamic operational community with cultural boundaries within the continent, the education requirement reducing “time to experience/ performance of staff can scope to the continent, which will reduce time zone miss alignment, as well.

“The Future is Here, It is just Unevenly Distributed!”

This statement caught my eye when reading and listening to feedback from this year’s ARC Conference 2 weeks ago. It came from a presentation by John Carey, Vice President of the Aviation, Industrial, Marine, and Energy Business at BP Castrol. Who followed up with another statement that got my interest, and is so true in what I am seeing:

"What keeps me awake at night is that everything that has made my organization successful today will block our success tomorrow."

What a true statement! I just wonder how many people understand it. At a dinner conversation this week I was in a debate on the changing world, and it was clear to all of us that this is not just a technology changing time, but there are three factors all playing at one:

·    Technology is evolving in leaps and bounds, but the role of the internet has had some impact on the industrial world, but nothing compared to what it will have in the next 10 years, where it will change the whole nature of industrial architectures. This is not due to the internet, it is actually due to increased bandwidth of infrastructure and high availability that enables the internet to now leveraged as natural member of the industrial architecture, instead of traditionally for an offline access for information, and basic email, notification capability. The whole ability to share, reliably put systems in the “cloud” and depend on them will enable the designs to accommodate the changing behaviors in the modern business. Mobility plays into this, with the explosion in devices and access, we can now naturally work and act while in a roaming world.

·    Globalization of Business ( “Flat World”): You may say that is old, yes it has been a concept around for a few years, but it is still taking hold but is accelerating at a rapid rate. Chaning the behavior in searching for products, how we buy, how we live our lives, we no longer restrained buy county of regional boundaries, we travel at whim, we communicate, and buy across the world. We all behave in business in a global virtual world. There is not a day goes by when I would not be on at least one meeting where we minimum of 3 continents in the meeting virtually, this is why we don’t work a 9 to 5 day anymore. If businesses are to stay competitive the “holistic” global approach to value supply chain and making it flexible and agile is key, and this drives core behavioral changes.

·    Cultural Shift to Digital Native: enables culture and thinking, driving shorter times in roles, average of 6 careers in a working life, (not counting jobs). The ability multi task, search and filter collaborate with people in more active community vs the traditional day in the life of workers 10 to 15 years ago. This is not a technology change it is a fundamental behavioral/ approach and cultural change form the “baby boomer and 1^st half Gen x” to those who were born past 1970 who execute a day totally differently.

Not often in history do you get 3 significant currents of change happen at once with each of the three effecting and enabling the successful passage of change in the other, which will complete the significant transformation in the way operate in the business and industrial worlds by 2020 and 2025.

Mr. Carey discussed both current megatrends and specific technology trends that are already shaping the future of manufacturing. Megatrends include:

• Changing demographics and lifestyles

• Emerging networks of trust

• Hyper-personalization

• Digital everywhere

• Sustainability

According to Mr. Carey, today's technology trends in communications, transport, processes, energy, and materials are increasing both in terms of their globalization and complexity. “To succeed in this type of environment, manufacturers must innovate, but rather than actually being innovative in everything we do, we often talk about innovation as a separate department. Manufacturers also tend to manage their businesses from the inside out. The real issues are the discontinuities. How can you get your hands around them if you focus internally? Suppliers and customers must work together in strategic relationships. This requires deep trust."  "Today, the customer is king,” said Carey. "This disrupts everything: manufacturing, distribution, and supply chain." In the 20th Century, manufacturers simply designed, manufactured, and marketed their products using the “fire hose” approach. In the 21st Century, however, product design, manufacture, and distribution is increasingly being driven by the customer and his/her individual preferences and requirements.”

 

Stepping back this is not a shock we have seen this in the car manufacturing, but of interest is the rapid transition from managing the process to manufacture goods to “managing the product and that intern manages the processes”. By focusing on the product and value to the customer including quality, satisfaction and timely deliver of value to customer, the competitive position grows. So is born the requirement of “Flexible Operations”.  This is not a “nice to have” it will be a requirement to be competitive in this global market. This can be achieved through an aligned business from business strategy, through operations to process control. Aligned operational teams that span the value chain that enable realtime decisions.

A comment in the ARC conference in Orlando in Feb 2013 was:

"To meet 21st Century demands for mass customization, factories will have to become more intelligent and flexible. "In China, they are not just building more efficient factories, they're building flexible factories," Carey warned." For many leading executives, they feel they have reasonable control over their fixed capital assets not surprising as this mature, but what keeps them awake is the “operational team” the human asset alignment, combined with the agility required surviving in a global “flat “world.

In the mega trends, Carey talked about “sustainability” this is about sustaining the planet, with discussion at ARC conference supported the impact and importance of this moral trend. Yes, a moral trend that driven by customers and market beyond government regulation that consumer (which is the primary focus) has a growing desire to choose a service or product based upon capability and the one that is doing the most on the moral issue of sustainability. This means zero waste and zero emissions both in the manufacturing process and across the total lifecycle of finished products.

As we have discussed a lot in the last year and will no doubt continue, this is not just a technology evolution, it more of a behavioral, cultural evolution that will force a significant change in the way design operational and industrial systems.

Looking out at the industrial landscape, the future has arrived in some parts of the world relative to generation Y and rotating worker (e.g.| China, South Africa, India etc), for some industries many technologies are already here in techniques and materials etc, but not in their industry, yes people have a look outside their industry to see how to achieve the future. Example is the transport industry which leads the dynamic operational centers vs the mining industry that is just starting on that journey. Also in many cases the global business landscape of the future is here and is accelerating in adoption.  

Many companies are well down this evolutionary path changing the operational systems to align with the new business and cultural behavior, but others are approaching the challengers in the traditional automation thinking. It was encouraging to see these topics come to the surface at the ARC Conference in Orlando and be debated, it shows what I am seeing the growing recognition by executives of the extend of the wave change we going to have ride, over the next 10 years.

“It’s not raining; it’s pouring”, the rate of change social, workforce, market combined with built up industrial effects, will make 2013/14 exciting!!!!

As we all come to end of 2012, we have time to reflect and look towards 2013, (even bigger things if you are on the Mayan calendar who start their new complete calendar). I find the time over the holidays a time to step back and think, absorb, read, reflect and strategise without the daily routine. As I flew back home, low over the northern coast of New South Wales, Australia I read a number of articles and one from Deloittes on “Tracking the Trends 2012”  which lead with “It’s not raining; it’s pouring” was straight to point and not just for mining, but all industries. Combine this with an improved positive outlook from China and fewer significant potential changes in government next year, 2013 provides the opportunity to build momentum with companies starting the journey to take on solid challengers of unified solutions to achieve “Operational Excellence”. The challenge will be the constraint of bridging the gap between “time and urgency of getting to full production, vs the green light to proceed forward, vs the challenge of the existing install base of “islands of industrial systems”’.

So in the final blog of the year I would like review some of the points raised in this paper, and just expand and enabling further reflection.

The Paper “Tracking the Trends 2012, The top 10 trends mining companies may face in the coming year” by Deloitte (www.deloitte.com/mining). Do not get put off by the word “mining” as 80% of the points raised are relevant across most industries. The article starts with an extremely true statement:

“It’s not raining; it’s pouring.”

“It could be argued that the burning issues facing the industry tend to remain largely unchanged over time. While this may be factually correct, it fails to take into account the extent to which shifting social, economic and political trends affect the mining sector. Looked at in isolation, each challenge may seem familiar. Looked at through a macroeconomic and geopolitical lens, however, it becomes clear that the difficulties afflicting the industry are rapidly reaching an unprecedented level of extremity.”

I do not think enough people realise the extremity of these different factors affecting the ability to achieve “operational effectivness” tending to treat them as individual issues vs interactive. In the industrial sector as it has been traditionally an extremely slow moving, conservative and fragmented operational environment, but not anymore. With globalization, the required speed of decisions, agility to market changes, combine these with age of industrial systems, transitioning workforce and social change. Provides a real opportunity for leading companies to “leap frog” by taking a holistic approach to solving these challengers vs a “piece meal” approach.

1. “The cost of doing business What goes up does not always come down”

“With commodity prices surging to all-time highs, but variable (28% change in price of Iron Ore between Sept and October 2012), accelerated production has become the mantra of most mining companies.”

The result is as onerous as it is predictable: costs are going up across the board.

This applies across all industries, but it is not just the costs going up it is also the volititiy in costs, that change at much more frequent rate, and these costs must be absorbed into the manufacturing costs in order to maintain margin. Energy is an excellent example this going up, and changing, effecting all the costs of materials, and transport costs as well as operating costs. Regulation is another hidden cost that is taxing on manufacturing; from regulations to fit markets, government driven regulation and the growing environmental commitment.

2. “Commodity price chaos  No price stability without greater transparency”

Have commodity prices been reset at a higher level or are we at the top of a bubble that’s about to burst? The answer to that question dictates whether or not current mining projects will be profitable. Unfortunately, indisputable indicators are sorely lacking. Project life times are getting shorter and time to full productin is the key metric, so how do you absorb this dynamic climate? The ability to have approved capex spend, and project designs ready to go at a “minutes notice” with teams executing fast is key. Projects need to sub divided into logical value steps that are achievable and build off each other instead of single huge projects, allowing agility to tune, achieve and adjust through the journey to Operational Excellence. This is as much a culutural change in project running to be journey, as much as an execution.  

3. “The battle to keep profits Government taxes target the mining sector”

“Resource sector profits have long been tempting to governments around the world. This is particularly true at a time when so many nations continue to struggle to repay record levels of debt.”

This statement while centered on mining is true across the world. Governments are looking to change GST, VAT, (sales taxes) or profit taxes in order to access the company profits and compensate for increase costs, and solving their long term debt crisis. This will also continue to increase the complexity in a supply chain that extends across the world, with increased need to be in control of the business, track products, materials and taxes in each to manage the tax costs.

4. “Labour pains  Bridging the precarious talent gap”

“Behind all the tonnes of articles, statistics and reports written about the talent and skills shortages facing the mining industry lies one stark fact: there simply are not enough people to power projected mining company growth.”

All through this year I talked about the workforce transition challenge, as the year progressed the reality set in that this is not a transition it is a total workflorce reset. There are fewer skilled people in the engineering and industrial space, they are less inclined to go to remote locations, and people are rotating jobs significantly. In Another article on Operational Practices in 2020 (which I will expand on in January) they predict 42% of the workforce will be made up Gen Y, and the average time in a role, job will be 2.4 years. This requires a different thinking in Operational System Design to absorb this type of change, and maintain continous production. As I interviewed many people in the latter part of the year, realization of this workforce challenge is starting to sink in, it will make the next 5 years an interesting time!

5. “Capital project quandaries  Project risk rises as the supply/demand gap widens”

“As countries around the world continue their push towards massive industrialization and infrastructure renewal, the number of capital projects across the globe is mounting. At the same time, declining assets across the sector and lower ore grades mandate investment in new development and exploration projects, particularly in light of the escalating safety risks associated with aging mines.”

This is not just mining all industries are seeing this in some form, consider food and beverage where they add new plants, or more than often acquire existing plants with existing aging systems, and practices then require for the alignment. The requirement for increased capital investments to gain alignment, but then the enormous costs of sustaining or evolving these aging assets and systems to be effective in the modern world. Both are putting a strain of project investment and financing and also project execution in a timely fashion due to a shortage of engineering, skilled personal.

6. “The big get bigger Risk multiplies as companies diversify”

In order to stay competitive and in control, larger companies are getting bigger through acquisition to increase the vertical supply chain control and reduce risk, or increase responsitivity. With global expansion, new cultures, establish processes need to melded together and aligned. This expansion is key to stay in the market but in turn increases the risk to companies, and the leading companies are looking for ways, processes and technologies that will smooth out, reduce the risk in merging these new companies into the bigger picture. This can only be done through the roll out of standards and the concept of “federation” vs “rip and replace”. This allows plant cultures and system to be sustained, but the plants/companies to be “plugged” into the bigger value chain, and aligned.  

7. “Volatility is the new stability Planning for the unforeseeable”

“While risk planning requires executives to peer into the future, it traditionally does not demand that they plan for highly-unlikely occurrences. Unfortunately, the stepped-up incidence of implausible events is turning conventional scenario planning on its head. From the widespread effects of the global financial crisis and worldwide political instability to the tsunami in Japan and flooding in Australia, Brazil and South Africa, mining companies find themselves facing the unexpected on a frighteningly regular basis.

Although these so-called “black swan events” are by definition, rare, high-impact and hard to predict, they are finding their way onto corporate agendas, fuelled in part by boards of directors that fear ambush by issues that never appeared on their radar screens. Preparing for these unanticipated surprises – whether they are harbingers of risk or opportunity – may require more of a creative licence than mining companies are accustomed to exercising.

On some level, the process must begin by considering the organization’s vulnerability to extremely unlikely, but potentially catastrophic, incidents – those considered worst-case scenarios. The aim is to challenge existing business assumptions by asking questions that consider myriad sources, from geopolitical movements to volatile weather patterns.”

Continuity Risk Planning is becoming a big common concept in companies as they plan forward, this involves now bringing in these external events, and effect on personal safety, environment etc.

8. “Legislative Olympics Countries compete to become the world’s toughest regulators”

In recent years, however, nations around the world have been loading their regulatory firearms, targeting areas such as bribery, safety, environmental, carbon, financial correctness, etc.

These regulations are coming from governments in the form of new laws, good example the new Carbon Tax in Australia, which will immediately affect the bottom line. Drive from customers and community, example is environmental where companies are starting to be judged based on the moral conduct towards the longevity of the planet. Also, food safety is playing a role in buying habits, this especially seen in China after their scares, so brand integrity is at risk relative to food safety, personal safety and operational safety. All of these bring a new level of risk to board and executive members of companies, as well as the bottom line cost. So naturally in the operational systems capability relative to reducing risk, and the cost is becoming natural a natural train of thought.

The final thoughts in the article sum up the change in the attitude and thinking in the industrial space and how companies are thinking. It is this thinking on a more holistic collaboration with real time coupling and alignment which delivers the most promise for the industry combined with the most risk and challenge.

“From competition to collaboration industrywide-wide issues require an industry-wide response.

It is becoming increasingly incumbent upon mining executives to broaden their purview by fostering improved collaboration – across their own organizations, among industry players and with communities and governments around the world. From an internal perspective, it may help to begin by adopting enterprise-wide processes capable of creating a cohesive culture among disparate international locations. These types of processes can run the gamut – from global labour practices, worker safety programs and supply chains through integrated financial reporting, business intelligence systems and regulatory compliance practices. No matter the adopted solution, the end goal is the same: to ensure consistent practices and communication across the entire global enterprise.”

I wish you all a happy holidays and all the best for the New Year, and I hope this blog through last year has prompted thoughts and thinking, and this article some provoking thoughts.

In the up coming year we have a lot of investment and innovations happening across the industry, and I will continue to explore the directions people are taking on the journey to Operational Excellence.