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Changing manufacturing landscape

Changing manufacturing landscape
In October 2012, Barrie Knitwear in Hawick, in Scotland, were going into receivership. They were going bust and for over 25 years, they’d been supplying knitwear to Chanel. Chanel stepped in and they bought their factory and they underpinned those jobs. Is that a localised supply chain or is that a global supply chain? In essence, Chanel is now sourcing all of its cashmere jumpers, for all of its customers around the world, from Hawick in Scotland. They’ve put Scotland at the heart of the Chanel global supply chain.
We might argue that it’s a localised supply chain because it’s in the UK, but, really, this begins to highlight one of the big issues we face in supply chain, that what’s localised to one country is actually, potentially, a global solution for the world. So the changing landscape of localised manufacturing for many is seen as a technological thing, something that’s driven by technologies, such as 3D printing. And I actually think we need to take a fundamental step back and look what’s changing in our business environments. And there’s three things that’s changing. The first thing that’s changing, really, is what I would call ‘right-shoring’.
Right-shoring is about making sure that we put our supply chain assets - that’s really our factories, our warehouses - in the right places around the world. People have called this ‘offshoring’, they’ve called it ‘reshoring’ and they talk about moving things either from a more localised source, say from the UK to China, or when they talk about reshoring, moving it back from China to the UK. But actually, I’d argue that it’s not about offshoring or reshoring, it’s actually about right-shoring and putting things in the right place. And that is driving a trend back towards localisation.
Now, sometimes that doesn’t mean to say that we localise all the way back to an individual country, sometimes it may mean that we move more towards regional manufacturing. So Flextronics, they’ve totally redesigned their global supply chain looking at the total landed cost. That’s the cost that it takes to manufacture, to move, to pay tax, and other tariffs when you actually produce a product. And what they found was that the mobile phones, and printers, and other electrical devices that they made in China could be made for comparable prices - if not cheaper, actually - for Europe in countries such as Ukraine or Hungary.
However, when you then looked at their reduction in inventory holding costs they were typically 60% less, and that massively reduced their supply chain risk. So it made a lot of sense for them to shift their manufacturing away from China, closer to where it’s going to be supplied for in the European markets, to Hungary and to the Ukraine. But they weren’t necessarily making say, for instance, mobile phones in the UK for the UK. The second key trend is what I would say is mass personalisation. And this perhaps is the one that people really hook into when they’re talking about the technology. 3D printing enables mass personalisation.
It enables us to design something on CAD at home to potentially download it through the internet to a range of different printers, whether they be in our own home, or whether it be somewhere within my local vicinity, or whether it be somewhere hundreds of miles away that can be then be shipped back to us. But when we talk about mass personalisation it doesn’t just have to be printed - 3D printed - it could be made by a number of different manufacturing processes.
But this shift toward personalisation means that we actually need greater responsiveness and actually it’s very, very difficult to want to personalise product, send that image to China thousands of miles away, and then wait six weeks for it to be delivered. It’s possible, but actually, we probably want delivery within one or two days. Particularly, if we want that part for a present, or it’s a spare part to mend something that’s been broken, or just generally, these days consumers are much more impatient and will want things a lot quicker. And this sort of technology - not just 3D printing, but actually making things more locally - can enable us in the future to have mass personalised products at mass customised prices.
And then the third trend really is the whole issue around supply chain risk resilience and the idea that we might need some structural flexibility. And what do I mean by all of this? Supply chains, if most people think about them and if they read the newspaper, they tend to see supply chains being associated with bad things happening. People think about things like the Ramada Plaza incident in Bangladesh where the factory collapsed and killed thousands of people. And is that really the price that we want to pay for the low-cost manufacture of our clothes?
People might also think about things like the tsunami in Japan and what that did to Fukushima and the electricity supply in Japan, but then the knock-on effect that that had for things like the automotive industry. Or the floods in Thailand that wiped out 60% of the world’s hard drive production in a matter of minutes. These sorts of risks, we call them ‘network risks’ and they account for over 70% of supply chain glitches or supply chain failures. One of the ways to mitigate against those risks is to make our supply chains more structurally flexible, meaning that we can shift the centre of gravity of the supply chain if one of these incidents happens.
One of the ways that we can do that most effectively is to consider more localised solutions rather than globalised solutions.

Right shoring, mass-personalisation and structural flexibility are driving change in the manufacturing landscape.

In the post war era as countries have continued to industrialise we have seen the manufacturing landscape change. A shift from smaller more distributed factories, closer to the point of consumption to a smaller number of large factories (often based in China and other low labour cost countries) driven by economies of scale. This has led to a shift from distributed – localised manufacture to centralised – global manufacture. Working with a FTSE 100 Consumer Packaged Goods company in 2004, I witnessed the change of their factory footprint from network of over 150 factories that had a 1-1 relationship with the markets they served to a more regional structure with only 50 factories. Further factory footprint reduction was not possible due to trade and tariff barriers, without which perhaps they would have considered a handful of global factories.

As the video you have just watched has explained we are now beginning to see this trend to globalisation begin to reverse. For the pendulum to swing back the other way. Care needs to be taken, to find the right balance. To ensure that we have a future fit manufacturing landscape that has the right supply chain assets (factories and warehouse) in the right place to serve their customer. That manufacturing is not off-shored or re-shored but right-shored.

I should also have taken more care (particularly given my Scottish heritage) in the pronunciation of Hawick in the video. It is great to see that the global cashmere supply chain for Chanel is based in Hawick, but unforgivable that I didn’t pronounce it as ‘Hoy-ik’. My apologies!

More localised production makes sense when greater responsiveness is required, often as a result of a high degree of customisation or short lead times. We also need to be more dynamic in the way that we configure our supply chains, so that they can flex and respond to events (positive and negative) to maintain supply.

Talking point

  • How have you seen the manufacturing landscape changing?
  • What products do you think benefit from being manufacturer closer to customers?
  • Can you think of any examples where being more ‘structurally flexible’ has given a company competitive advantage?
If you are interested in hearing more from me on the changing manufacturing landscape, please watch my full presentation to the WMG Supply Chains in Practice event on YouTube: Changing manufacturing landscape (15:03)
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