What the Age of the Consumer Means to Industrial Manufacturing: A Conversation with Simon Ellis, Part II

There is no question that consumer demand is now driving the consumer goods and retail industries. But how does it impact industrial manufacturing? To get some Expert Insights on this topic, Supply Chain Nation spoke with Simon Ellis, practice director, supply chain strategies, for IDC Manufacturing Insights. In Part I of this series, Ellis discussed how consumer demand and what IDC calls the third computing platform are impacting industrial manufacturers. We will continue here with what manufacturers should do about this.

SCN: What should industrial manufacturers be doing now to leverage the third platform of computing and consumer-driven demand?

Ellis: I think it is a couple of things. First of all, I think it is like my favorite business book, The Innovator’s Dilemma, whose main argument was that companies that have grown up in a certain business climate and have become dominant in a certain business area or a certain area of technology will struggle to innovate past that. They tend to get stuck in the paradigm and will never find their way out of it. I think that has been true, but whether that will continue to be true in the long run remains to be seen. Still, I think that is the challenge for these manufacturers—to think a different way about their businesses. Are they going to able to continue to sell these big expensive assets or are they going to have to think about renting capacity or providing services, or in the case of the automobile manufacturers, thinking differently about the dealer network? Maybe the dealer network is not about selling vehicles; maybe it’s about delivering and servicing the vehicles. And in many big dealerships that is what it’s all about—it’s more about the logistics of delivery and service than it is about the sales.

The future will be about stepping outside of the paradigm and thinking differently about your business and what that means for how you interact with the consumer. Maybe that means road-testing or piloting things. For example, when I was back at Unilever and we were doing RFID, we were thinking about how RFID could transform the supply chain. Ultimately, the conclusion was, for any number of reasons, that the technology wasn’t ready for prime-time. But it was an opportunity to step outside of the business and think differently about how we could do things.

I think that is the challenge for business leaders—how do they step outside of the current paradigm and think about what might they do differently if they could connect every consumer on every mobile device, or what would they do if they could have a dialogue with the consumer in that one-to-one way. Then you start to appreciate what the potential changes to your business might be.

And then there is data and analytics. We have been talking for years about how consumer manufacturers and industrial manufacturers are all in the same boat; they are getting massive amounts of data, and more and more data every year. It’s Moore’s Law on steroids—maybe it’s not 18 months now, maybe it’s 9 months or 12 months where the amount of data is doubling. And certainly companies are not adding commensurate numbers of people to analyze the data, so how do you get insights from it? I think that is where some of this technology starts to make a lot of sense in terms of sifting through mountains of data to surface things that look like they might have value for the analysts to evaluate.

SCN: What other market forces will impact industrial manufacturing over the next 12-24 months?

Ellis: For me it goes back to the 2014 supply chain predictions we published in December. One of the challenges we see is supply chain resiliency and risk management. I think most manufacturers would agree that the world is more unpredictable than ever. I talk about the three Ws—weather, war and workers. These are the things that can impact my business. Either I’m going to have labor problems somewhere in the world, or there’s going to be some kind of natural disaster, or there’s going to be political or social instability. So if my supply chain is global, I have to manage all of these things.

What we are increasingly seeing from companies is they are thinking about their networks in the context of risk management and risk mitigation and resiliency. How do I respond quickly if something that I can’t really predict happens, such as the earthquake and tsunami in Japan? I mean, you can sit back and say there’s going to be an earthquake in California and you’d be right. The question is—when? To say with certainty you are going to have an earthquake, but you don’t know when or how bad it’s going to be doesn’t really help you very much. So resiliency isn’t just about having contingencies in place, it’s also about being able to respond quickly, and having flexibility and some slack in the supply chain.

I think that is one of the things that we will see over the course of the next 24 months is companies starting to think about supply chain resiliency in a very operational way and then operationalizing that resiliency. I think that will have some interesting implications. We still hear pretty regularly from manufacturers that they’re relooking at their supply networks. There are still a lot of U.S. manufacturers doing much of their production in China. But a lot of them are starting to rethink that, taking a broader view and thinking about bringing manufacturing and assembly closer to demand so they don’t have really long lead times and have more flexibility and operational resiliency. Things like that are the minds of industrial manufacturers today.

SCN: Thanks, Simon. To read Part I of our discussions with Mr. Ellis, click here.

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