Executive Briefings

Manufacturing Strategy for the Extended Supply Chain

The topic of manufacturing strategy within an extended supply chain is a constant area of interest from the companies with which Gartner speaks. Increases in market demand are leading them to look at this even closer. The U.S. Department of Labor recently reported an increase in factory hiring, with 17,000 jobs added in March, according to The Wall Street Journal. The question for companies now is whether to invest in their own factories or to expand relationships with third-party providers. An effective product supply capability that responds profitably to customer demand requires that this manufacturing network is well-planned and executed.

I recently spent some time discussing this topic with several of my Gartner colleagues, all of which are actively conducting research in this area and have regular discussions with manufacturers on the topic. Here are a few of the areas they highlight for consideration when addressing this evolving manufacturing strategy:

Manufacturing visibility - Visibility to plant capacity and order status is critical to a responsive product supply network. Simon Jacobson is having regular discussions with manufacturers on how to better connect manufacturing to the enterprise and the extended supply chain. The manufacturer's challenge? To establish a common architecture where the enterprise can manage production assets in a common fashion, while local sites are adaptable and competitive in the markets they serve. Simon suggests that companies establish what he calls a "point of sameness": a level of abstraction and interface that lets the enterprise manage assets the same way. The goal is for all production units to look the same, and to accept the same kinds of data and orders. They should also produce the same information results, even though their details may be different. This can be challenging, however, as manufacturers deal not only with technology differences, but also the cultural differences between the organizations responsible for supporting these systems.

Asset management - As product supply expands to satisfy global needs, we see companies looking to improve asset utilization and availability. Although it's an age-old challenge, many companies still have the opportunity to derive more value from their factory assets. Leif Eriksen recently led a quantitative study on asset management. He found that almost one-half of respondents identified early-stage asset management practices, such as preventive maintenance or simply reactive/run to failure, as their primary approach to managing assets. The top barriers to better performance include a lack of visibility into asset condition and performance, internal skills and available resources, and a lack of compliance to processes and procedures.

Outsourced manufacturing - We're seeing strong interest in how to better manage third-party manufacturing partners. Although cost reduction is often a driver, we also see companies looking for additional manufacturing capability as they extend to new global regions. Barry Blake is looking closely at these relationships, particularly at the challenges contract manufacturers face as they seek to improve the services they provide. In a recent Gartner study, he found that planning and managing inventory as well as managing demand were identified as the top-two operational challenges with contract manufacturers. This isn't surprising, since over 40 percent reported that their demand changes daily or weekly. OEMs may see better performance from their contract manufacturers by helping to address these challenges through improved communication and management of their demand.

Talent management - As manufacturing networks expand, they become a more strategic component of the supply chain. For many companies, this means including manufacturing in the definition of their end-to-end supply chains. It also means reassessing employee skills to address this expanded scope. Dana Stiffler leads our research on supply chain talent, and recommends using the Gartner Talent Attribute Model as a framework for detecting and assessing changes in scope and span of control. The model is composed of 11 capabilities that are required to successfully operate this extended supply chain. She also points to the Gartner Talent Development Cycle to recognize and characterize four critical milestones when establishing a sustainable pipeline of skills: prepare the future workforce, attract the best and brightest, retain top talent, and develop executive leadership.

Manufacturing networks are strategic to a supply chain that delivers excellent customer service profitably. Responding to changes in customer demand requires connecting all internal and third-party factories to the extended supply chain. Orchestrating this end-to-end process requires new skills, and ensuring maximum availability demands that these assets are managed effectively. Be certain to explore these points further as you develop your own manufacturing strategy.

Source: Gartner

The topic of manufacturing strategy within an extended supply chain is a constant area of interest from the companies with which Gartner speaks. Increases in market demand are leading them to look at this even closer. The U.S. Department of Labor recently reported an increase in factory hiring, with 17,000 jobs added in March, according to The Wall Street Journal. The question for companies now is whether to invest in their own factories or to expand relationships with third-party providers. An effective product supply capability that responds profitably to customer demand requires that this manufacturing network is well-planned and executed.

I recently spent some time discussing this topic with several of my Gartner colleagues, all of which are actively conducting research in this area and have regular discussions with manufacturers on the topic. Here are a few of the areas they highlight for consideration when addressing this evolving manufacturing strategy:

Manufacturing visibility - Visibility to plant capacity and order status is critical to a responsive product supply network. Simon Jacobson is having regular discussions with manufacturers on how to better connect manufacturing to the enterprise and the extended supply chain. The manufacturer's challenge? To establish a common architecture where the enterprise can manage production assets in a common fashion, while local sites are adaptable and competitive in the markets they serve. Simon suggests that companies establish what he calls a "point of sameness": a level of abstraction and interface that lets the enterprise manage assets the same way. The goal is for all production units to look the same, and to accept the same kinds of data and orders. They should also produce the same information results, even though their details may be different. This can be challenging, however, as manufacturers deal not only with technology differences, but also the cultural differences between the organizations responsible for supporting these systems.

Asset management - As product supply expands to satisfy global needs, we see companies looking to improve asset utilization and availability. Although it's an age-old challenge, many companies still have the opportunity to derive more value from their factory assets. Leif Eriksen recently led a quantitative study on asset management. He found that almost one-half of respondents identified early-stage asset management practices, such as preventive maintenance or simply reactive/run to failure, as their primary approach to managing assets. The top barriers to better performance include a lack of visibility into asset condition and performance, internal skills and available resources, and a lack of compliance to processes and procedures.

Outsourced manufacturing - We're seeing strong interest in how to better manage third-party manufacturing partners. Although cost reduction is often a driver, we also see companies looking for additional manufacturing capability as they extend to new global regions. Barry Blake is looking closely at these relationships, particularly at the challenges contract manufacturers face as they seek to improve the services they provide. In a recent Gartner study, he found that planning and managing inventory as well as managing demand were identified as the top-two operational challenges with contract manufacturers. This isn't surprising, since over 40 percent reported that their demand changes daily or weekly. OEMs may see better performance from their contract manufacturers by helping to address these challenges through improved communication and management of their demand.

Talent management - As manufacturing networks expand, they become a more strategic component of the supply chain. For many companies, this means including manufacturing in the definition of their end-to-end supply chains. It also means reassessing employee skills to address this expanded scope. Dana Stiffler leads our research on supply chain talent, and recommends using the Gartner Talent Attribute Model as a framework for detecting and assessing changes in scope and span of control. The model is composed of 11 capabilities that are required to successfully operate this extended supply chain. She also points to the Gartner Talent Development Cycle to recognize and characterize four critical milestones when establishing a sustainable pipeline of skills: prepare the future workforce, attract the best and brightest, retain top talent, and develop executive leadership.

Manufacturing networks are strategic to a supply chain that delivers excellent customer service profitably. Responding to changes in customer demand requires connecting all internal and third-party factories to the extended supply chain. Orchestrating this end-to-end process requires new skills, and ensuring maximum availability demands that these assets are managed effectively. Be certain to explore these points further as you develop your own manufacturing strategy.

Source: Gartner