- November 3, 2020
- Posted by: prerna
- Category: Feed
The shock brought by the pandemic is liberating firms to make numerous experiments. Some will fail, while others will succeed. This creates a tipping point for a long overdue conversation about new business models in advanced manufacturing and supply chains.
As organizations settle into either a new normal or plan their return to pre-pandemic operations, the question arises as to whether firms will “snap back” to normal or settle on some new equilibrium. We may be on the precipice of “Operational Darwinism”, wherein mere reductions in costs may not be enough to compete against leaders who make manufacturing a rapid and key part of their digital innovation edge.
Manufacturing companies have noticed megatrends – from digitization to the imperative of environmental sustainability and globalization – and have begun investing in projects that exploit data. Some have seen early success. For example, many of the fastest growing parts of industrial firms such as Siemens and John Deere are their software and information services arms. John Deere created a digital services layer to help farmers better utilize seeds and fertilizers as well as to capture data that reduces equipment operating and maintenance expenses. Going beyond the relatively straightforward cost-focused approach to using data are firms that add digital services layers.
Some observers have forecast significant reshoring of manufacturing. Meanwhile, the increased automation of production facilities in developed countries, and technologies such as 3D printing (which can shift the production of goods closer to the people who buy them) have also raised the prospect of a reversal of globalization.
This is resulting in a significant overhaul of the status quo. Indeed, a McKinsey survey of 60 senior supply chain executives found that 93% of them are planning to increase the level of resilience across their supply chains.
In many industries, operating models have built up over many years and include stable relationships among value-chain partners. This allows firms to develop strong partnerships and deep sources of technical capability. During times of disruption, however, those stable relationships may collapse in the face of a loss of demand and/or supply.
Conversely, there may be large increases in demand that can also place significant stress on existing arrangements. In order to effectively respond to disruption, firms may need to rapidly reconfigure their operating models in speed of response, location of activities and identities of supply chain participants.
Traditional value-capture models where organizations take responsibility for large portions of the value chain may find themselves under attack from entrants that rely on different business models, especially market-based models which, by their very nature, are more fluid in the identity of the participants. Hence, it is important for organizations to be clear about their current operating and business models, how they reinforce one another and what might change during times of disruption.
Future decisions, from reshoring to multi-sourcing, must be driven by both operating and business model innovation, with investments in advanced manufacturing technologies as a key enabler.