Consultant Ian Machan shows us how a lean transformation, servitisation and reshoring creates competitiveness and asks readers to help him explore the ideas of this new phenomena in manufacturing.
Reshoring of production out of low labour cost sites to a range of western countries has become a hot topic issue in manufacturing as countries like China see wages begin to catch up with the developed world. This effect will introduce the servitisation of manufacturing companies to deliver advanced services, but this is only one form of servitisation.
The reshoring is seen as a way to competitively address customer’s needs beyond product purchase and to support business growth. Using lean tools to deliver both changes together is a challenging concept. Hopes are that the ideas raised can be researched and extended by asking for volunteers to share their experiences and also to offer help and a community support to those looking to make such a transformation.
What is servitisation and its link to lean?
An excellent definition of servitisation is provided by Baines and Lightfoot of Aston University in their book Made to Serve;
“Servitisation 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.”
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, such as Haigh Engineering Ltd, Assistive Control and Goodflo have used it as a way to differentiate themselves from their competition.
We see servitisation 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. 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 is being reversed. The motivations for such a phenomenon are many.
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 US is believed to be seeing some returns to homeland because of the lower cost of energy, courtesy of native shale gas production.
The decision making process to bring back a manufacturing process may in some ways be more complex and challenging than sending it out there. The new process does not need to match the existing. The phrase botshoring has entered the language, recognising that the return of a process can be combined with automation or robotics to minimise the labour cost element, which is why the organisation went east in the first place.
The transformation 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? 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 minimise 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.
So, reshore and servitise?
Combining the two potential transformations described above brings the possibility of bringing back 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 servitisation 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:
- The longer the process to be transferred back, the longer each transfer step will be. Look to standardise 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) are an obvious tool. 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.
- By changing to an advanced service business model the organisation structures and span of control of a business can change.
Servitisation and re-shoring need supply chain operations
Servitisation 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 servitisation are not only to the supply chain (demand fulfillment side) but also to where the demand is created in the first place.
Dr Benny TJahjono from Cranfield University observes “successful companies who have adopted servitisation exhibit a clear link between their supply chain strategy and marketing/sales strategy to lock customers into a contractual provision of product and the associated services. We believe that this demand-driven supply chain, or ‘demand chain’, goes hand-in-hand with the servitisation and re-shoring strategies that naturally are customer-intimacy centric. The Rolls-Royce’s Total Care is an example of the demand chain, driven by the desire of the customers to buy the capabilities of an aero engine rather than the engine itself.
In supporting the servitisation strategy, we need an operational model that is based strongly on lean thinking principles, that are ultimately about increasing the value of offerings to customers, rather than simply cost reduction exercises. The model also needs to emphasise on delivering the added value to customers.
The demand chain management extends the traditional view and scope of the supply chain operational model of make, source, deliver to cover not only contractual arrangements upfront, but also throughout the typically long life-cycle of the contract. In Roll-Royce, this integration is looked after by a customer business director who leads a cross functional team of commercial sales and customer service people.”
The Cranfield School of Management, research and conduct projects to help industries design and improve the operation of their servitised supply chain.
To support this they extend the functionalities of value stream maps through modelling and simulation (M&S). M&S extends VSMs by allowing a better visibility and prediction of performance of supply chains impacted by process time variability. The latest techniques in simulation thus allow a better assessment of servitisation. Service delivery can be modelled together with the product delivery, and hybrid models allow intangible parameters, (e.g. customer needs) to be included into the model. More importantly, outsourcing and re-shoring decisions can now be appraised in conjunction with servitised decisions.
In my experience almost any business faced with decisions about re-shoring, changing to business models such as servitisation 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 and where do we go from here?
I’m working in association with Professor Tim Baines from the Servitisation Centre at Aston University and Dr. Benny Tjahjono at the Cranfield School of Management to compile what we understand 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:
- Looking to do this, and looking for help/involvement in this project
- Or preparing their structure/organisation for the change
- Or have been there and would like to share their learnings
Then please contact us via the website below to join us in building the knowledge base and finding solutions to common problems. In particular, we are targeting four countries for this research:
- USA: what benefit is lower energy costs having on reshoring, or is there another dynamic in play?
- Ireland: after economic success and financial crash, how is this country taking advantage of the opportunity?
- France: we’re looking for an organisation based in continental Europe.
To indicate your interest with this research please visit our website listed below.