A new report released recently by Capgemini and the University of Edinburgh examines the changing ways in which manufacturers are doing business as a result of shifting market conditions. The study, "The Global Networked Value Circle: A New Model for Best-in-Class Manufacturing," explores the evolving nature of today's manufacturing value chain and examines the global value chains of some of the world's leading manufacturers*, considered to be 'best-in-class'. The study introduces a new value chain model, known as the "value circle", for manufacturers looking to optimize everything from product design and the manufacturing of goods to sales and supply chain management.

Consumer reaction to the global economic downturn has hit much of the manufacturing industry hard. Reduced consumer demand has led to serious production cuts at factories around the world. The old approach of a simple value chain in which manufacturing firms take new materials, transform them into products and feed them into the distribution system has gone. In the new value circle model, manufacturers are increasingly engaging with their customers and distributors in the very process of innovating, developing and delivering new products with close collaboration for design, supply and customer satisfaction. This is leading to the transformation of the traditional value chain, with inputs at one end and outputs at the other, to a value circle involving interaction at all levels to create a continuous cycle of improvement. As part of this shift towards a value circle, rather than linear value chain, some of the new approaches being taken by manufacturers include:

1. Product design and innovation - a shift from "doing it", to "resourcing it": Adopting new systems to capture and absorb new ideas and innovations from customers, suppliers, collaborators and competitors as well as in-house resources around the world.

2. A shift from manufacturing to manufacturing-management: Where manufacturing is done by others, at any location globally, principally in collaborative-partnership arrangements where both parties gain through mutual learning and innovation.

3. A shift from contracts to partnerships in supply chain management: Developing closer relationships with fewer suppliers, who are closely monitored, giving both parties competitive advantage.

4. Using IT to actively manage the value network: Manufacturing increasingly requires the creation and productive management of highly complex global networks. Achieving this without loss of control, value or margin requires the use of the latest IT approaches such as Radio Frequency Identification (RFID). These approaches are not just supporting the new network management approach by making it feasible, they are driving it.

5. A shift towards active partnerships with customers: Addressing customers' needs and problems by developing closer relationships that enable manufacturers to understand and then deliver what they require. This not only improves customers' lifetime experience with the manufacturer, but also helps drive product development and innovation process, linking the two ends of the value chain to create the new, more circular approach.

In order for companies to broaden their value chain, the study also identifies three key capabilities for manufacturers. They must have the ability to identify their core competencies. From here, they can partner with others to overcome weaknesses in other areas and focus on developing world-class operations. However, this requires the managerial and IT capability to form, develop, deepen and manage complex business relationships. Companies must also have the foresight to identify the relationships that will be key assets.

"As companies face shrinking consumption, slowing production and declining prices, now is the right time to reassess their entire value chain as they look for ways to keep costs low and improve efficiencies while continuing to innovate," says Nick Gill, Global Manufacturing Sector Leader, Capgemini. "By adopting a practice of actively managing globally networked value circles, best-in-class manufacturers will be well-placed to weather the current storm in the market and take advantage of the upturn when it arrives."

This study, jointly conducted by Capgemini and the University of Edinburgh, is based on wide-ranging research into some of the world's leading manufacturers, including a survey of eight companies and extensive documentary analysis of data collected from academic research, industry reports, trade journals, media coverage and press releases. It builds on findings from Capgemini's recent "Manufacturing in 2020" report, which interviewed over 130 executives from the industry.
CapGemini