The digital economy is upending processes and rearranging markets. Fully 86% of companies say the pace of technology will increase “rapidly” or “at an unprecedented rate” in the next three years, Accenture reports. One-third of the top 20 companies in key industries will be disrupted by new competitors in the next five years, IDC predicts.
Manufacturers in particular are being revolutionized by digital technologies. Here are four key ways digitalization is transforming production:
1. End consumers are more empowered
Whether you’re in a business-to-consumer (B2C) or a business-to-business (B2B) market, the end consumer has far more power than in the past. Customers increasingly demand high quality, low cost, fast delivery, and the ability to order fully individualized products.
And just as companies are leveraging digital technologies to achieve global reach, customers are using mobile and social platforms to wield global influence. If they’re not satisfied with your products and services, they can easily turn to your competitors, regardless of location.
Today, every aspect of that model is being transformed. You need to design the product to be highly customizable and test a variety of configurations. You must appeal to highly segmented markets around the world. You have to source a much broader range of raw materials. Instead of a small number of large shipments, you need to manage a large number of small shipments. In fact, because of those logistics, it might make more sense to manufacture closer to the consumer.
2. Transparency is rewriting how OEMs work with suppliers
In the past, you managed your own operations, and your suppliers simply provided you with materials, parts, or components. You may have worked closely with certain partners, but as long as they delivered on time and with the right quality, you didn’t need to fully understand their processes.
But with today’s demands for customization and rapid delivery, your suppliers are integral to your manufacturing strategy. They need real-time visibility into orders for individualized products so they can deliver the right configurations at the right time. And you need real-time visibility into their operations so you can respond proactively to problems before they derail production of each specific order. That requires a whole new level of integration and resource exchange as part of a sharing economy.
3. Business models are growing more flexible
Product individualization isn’t new. But the level of customization, and the speed and low price at which it must be achieved, is dramatically different.
Let’s continue with the footwear example. For years now, makers of athletic shoes have allowed consumers to personalize their products. But that personalization has been largely limited to selecting colors for shoe components. And customers have had to pay a premium for this privilege, while waiting for delivery.
Today, companies like Nike, Adidas, and New Balance are experimenting with 3D printing technology that will soon enable consumers to customize every aspect of their products – from design to fit to materials. They might eventually achieve this much faster and at a lower price point than today’s mass-produced shoes.
That could transform business models. Not only would footwear companies design, produce, and market their products differently. They might also partner with logistics companies like UPS, FedEx, and DHL to print shoes close to the consumer. The shoe brands would slash distribution costs, and the logistics companies would essentially become manufacturers.
4. Business processes are becoming more customer-centric
Mass customization affects R&D, procurement, warehousing, and delivery. But the impact on production is especially profound. You need to design and configure your equipment to handle individualized products. You must establish flexible production lines and processes that can respond to each customer’s order. Your equipment and your people need to be increasingly interconnected and responsive. And you need to produce with much greater speed and flexibility.
In the past, you may have built components in various locations and then brought them together for final assembly. Today, you may need to more fully centralize production so that every aspect of manufacturing is synchronized to accommodate custom orders. Or, you may need to go in the other direction and rely more heavily on partner organizations, while maintaining end-to-end visibility.
Ultimately, you’re designing processes not to suit the way your company operates today, but to anticipate what your customers want tomorrow. Essentially, you’re joining a customer-driven business world. For many manufacturers, that could require a rethinking of their business from top to bottom. But for the companies that do it right, that could mean more loyal customers and a lasting competitive advantage.
For more on how the digital economy is changing how we develop new products, read my last blog post, in which I looked at how digitalization is transforming R&D.