Accenture 2013 Global Manufacturing Study Full Report

8/13/2019 Accenture 2013 Global Manufacturing Study Full Report

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ACCENTURE 2013 GLOBAL MANUFACTURING STUDY

How Leading Manufacturers Thrive in a

World of Ongoing Volatility and Uncertainty


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As part of our ongoing commitmentto helping organizations achieve highperformance, Accenture regularlyconducts substantive researchto shed light on key challengesour clients are facing and providethoughtful guidance clients canconsider in addressing thosechallenges. An important part ofAccentures broader research effortsis our study of manufacturing.

When we conducted the previous

edition of our manufacturing studyin 2011, we wanted to understandhow manufacturers in United Stateshad fared in the two years sincethe official end of the recessionin June 2009 and where they sawtheir business and most importantmarkets headed in the near future.We also wanted to get a sense ofhow companies were preparing forthe future as they tried to reconcile

their manufacturing operations toaccommodate intensified, multi-faceted volatility. What we found wasmanufacturers had seen an uptick inrevenue during that time and wereworking to prepare their operationsonce again for growth.

In 2013, we expanded the scopeof our research to a global base ofmanufacturers in North America,

South America, Asia and Europe thathad global operations. Our goals forthis most recent effort were largelythe same as beforeto understand

how companies were performingand how they were aligning theiroperations with market challengesand opportunities. As youll read onthe following pages, our researchuncovered some very intriguingfindings. From those findings, wegleaned four high-level insights.

One, more than ever manufacturersneed to align their investments tofoster greater operational flexibility.Volatility is the new normal, and

companies that are unable to quicklyshift gears when the market changesare on the fast track to obsolescence.

Two, globally consistent, repeatableoperating models and reliable,predictable production facilities arefundamental to enabling the flexibilityrequired in todays market.

Three, digital technologies are

becoming increasingly important inmanufacturers efforts to improvetheir performance across theenterprise by streamlining processes,enabling faster and better decisions,and creating stronger relationshipswith customers.

And four, manufacturers must excelon multiple fronts to be successful.The ability to balance critical factors

such as cost, risk, flexibility, quality iscritically important to competitivenessand growth.

One group of companies in this yearsresearch stood out in this regard.This cadre of manufacturing leadersare growing much more stronglyand profitably than others in largepart because they recognize theimportance of operational flexibility tohigh performance and are committedto investing in the capabilities thatwill foster it. We believe there is muchthat other manufacturers can learnfrom how these leaders approach theirbusiness, as well as from our research

findings overall.

On behalf of Accenture, Id like tothank those manufacturing executiveswho gave their valuable time toparticipate in our study. I hope youfind the results informative and usefuas you consider how best to organizeand equip your operations to executeyour growth strategies in the comingyear and beyond.

Russell Rasmus

Managing Director for ManufacturingAccenture


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INTRODUCTION 3

KEY RESEARCH FINDINGS 7

Perspectives on Growth 7

Capturing Growth 9

Driving Consistency and Flexibility Through 11Production Systems

Avoiding the Pitfalls of Facility Relocation or Startup 15

Getting the Most From Contract Manufacturing 18

Solving the Manufacturers Skills Dilemma 22

A Formal, Collaborative Approach to Asset Reliability 25

Manufacturing Leaders 28

The Benefits of Becoming a Digital Business 29

How a Control Tower Can Help Manufacturers 33Make Better Production Network Decisions

The Sustainability Journey: From Compliance 39Assurance to Performance Assurance

CONCLUSION 41

APPENDIX 42

Methodology and Demographics 42

CONTENTS


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So which is it? Is the global economy a futuretrain wreck, as one publication described

it, heading for a fresh round of slowdowns,layoffs and cash crunchesor worse?Or has it turned the corner and are betterdays ahead?

Unfortunately for manufacturers, itsboth. The fact is, todays economyremains as volatile and unpredictableas ever, with pockets of strong growthcounterbalanced by sluggish demand andpositive trends neutralized by negativeones. Thats causing headaches for allcompanies, but especially manufacturers,which face the formidable challenge ofensuring its asset-intensive, highly complexoperations are capable of continuallyswitching gears to accommodate the globaleconomys ongoing stops and starts.

To shed light on the factors shapingmanufacturing in todays environment, aswell as how manufacturers are refining theirmanufacturing strategy and operations toremain successful, Accenture embarked ona comprehensive research study of majormanufacturers around the world. The studyincluded a survey of 250 senior manufacturing

executives in large companies headquarteredin North America, Europe, South America andAsia. These companies have global operationsand represent six main industry sectors(automotive, consumer products, industrialequipment, electronics and high tech, oil andgas, and chemicals and natural resources).

At a high level, our survey revealed thatwhile manufacturers overall are growing andremain optimistic about their prospects in thenear future, economic and market volatilityand shortcomings in critical areas of theiroperations could pose a threat to their growthagenda. More specifically, the followingkey findings emerged from our research:

Manufacturers have experiencedsteadily improving businessperformance since 2011.

Production levels, revenues, and marginsall have increased during that time for thevast majority of participating companies,and most manufacturing executives areoptimistic about continued growth inthe future. In fact, executives believetheir most important markets still offerplenty of growth opportunities.

Penetration into emergingeconomies will shift the source

of manufacturers revenues.The market in which a manufacturer is basedis likely to be among the companys threelargest markets in terms of current revenue.Today, the United States, followed by China,are among the top three markets for thelargest percentage of manufacturerswhichis not surprising given those are the worldsbiggest markets. However, executivesanticipate that within a few years, China andBrazil will become much more importantsources of revenue.

Manufacturers are locating productionfacilities closer to sources of demand.

Since 2011, a surprising four in 10manufacturers surveyed reported havingrelocated production facilities to newlocations and, even more surprising, five in10 said they started new production facilitiesduring that timelargely to support entryinto new markets and reduce operating costsConsistent with their growing importance asrevenue-generating markets as noted above,China and Brazil are the favorites for both

relocated and new production facilities.

The headlines in the media todayoffer a glimpse of the challengesmanufacturers confront on adaily basis:

Patchy world economy

weighs on quarterly profits

yet Upbeat forecasts

adds to optimism over

economic recovery.

Asian economies

encounter stiff winds but

Consumer confidence

high in southeast Asia.

Europe continues to weaken

world economies although

European shares jump amid

economic optimism.

IMF issues dreary report cardon future of world economy

however Businesses pick

up hiring on increased

economic optimism.

Asian stocks advance on

China growth yet Global

economy shifts as China

falters, Japan, U.S. Rebound.

Introduction

INTRODUCTION


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4Introduction


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Economic and market volatility is theoverriding threat to manufacturersgrowth agenda.

While manufacturers performance in thepast few years has been encouragingand optimism runs highpossible stormclouds remain on the horizon. Executivesparticipating in our study cited a varietyof volatility-related factors as potential

impediments to their ability to growincluding global currency instability,unpredictable commodities costs, uncertaintyabout customer demand, political orsocial unrest in key markets, and potentialchanges in government regulations.

Flexible and dynamic operations arevital to manufacturers growth.

Eight in 10 executives overall agreed orstrongly agreed that the ability to flexiblyand dynamically move production from oneexisting facility to another, or to change theproduct mix at an existing facility to matchdemand, is critical to achieving their growthgoals. Yet many manufacturers are notconfident in areas that are key to flexible anddynamic operationssuch as market-sensingcapabilities, modular and consistent businessprocesses and policies, and visibility into thefull networks operations.

Manufacturers are focused onimproving their operating modelto be more flexible.

To contend with an increasingly volatile andunpredictable global economy, manufacturersare striving to build a more flexible anddynamic operating model that enablesthem to quickly respond to changes indemand. In fact, seven in 10 said improvingtheir companys operating model to moreeffectively support such flexibility is apriority in the next 12 months. One key toaccommodating such flexibility is a highdegree of consistency and standardizationacross all dimensions of the operatingmodel, which helps enable manufacturers to

seamlessly shift production from one facilityto another.

Contract manufacturingis on the rise.

Three-fourths of manufacturers in our studysaid they will augment their productionfacility network in the next 12 monthsthrough a moderate or extensive useof contract manufacturing. However,manufacturers diverge on how they viewcontract manufacturing as it relates to

their own business: A majority see it mainlyas a way to relieve short-term capacityconstraints, while the remainder considerit a part of their long-term strategy.

Digitization of manufacturing iscreating challenges in attractingand retaining the right talent.

Overall, manufacturers in our survey appearto be confident they have a talent strategythat enables them to hire, develop and retainthe skills they need to compete effectively,and more than three-quarters have increasedtheir manufacturing workforce in the pastfew years. Yet many manufacturers stillhave several skills gaps primarily becausethey are unable to find or unwilling topay the going rate for the more advancedskills needed in the digital environment.

Manufacturers are striving to strike abalance between investments in newand existing assets.

Participating companies continue to makecapital investments in new plants and

manufacturing equipment and technologies,as well as investments in initiatives toincrease the efficiency and productivity ofindividual manufacturing facilities, and ininformation technology solutions. However,a large majority of manufacturers also saidthey are focused on extending the life andcontributions of existing assets throughinitiatives such as applying lean principles toreduce waste, total productive maintenance,automation technology, and analytics.

In addition to the preceding, our researchalso enabled us to identify some of theadvanced practices that correlate stronglywith superior business performance. A smallgroup of companies in our surveyabout8 percentreported having increasedtheir production levels, profitability andlabor efficiency by more than 10 percentsince 2011. This group, which we deemed

manufacturing leaders, were far morelikely than other companies in our study toalso report having grown revenue by morethan 10 percent since 2011 and to anticipategrowth of more than 10 percent in 2013.

Helping to drive such compelling businessresults are some underlying approachesand practices that leaders employandthat are less evident among the rest of

our survey sample. For example, leaderspossess a strong belief that the ability toflexibly and dynamically alter productionto match demand is critical to achievingtheir growth goalsand consequently havebuilt an operating model that effectivelyaccommodates the dynamic shifting ofresources and activities both to differentphysical locations in their manufacturingnetwork and within a specific facility inresponse to market developments or changesin demand.

To support flexibility, leaders continuallymake adjustments to their production facilitynetwork to help them meet demand andcontrol operating costs. For instance, leadersare twice as likely than other manufacturersto have relocated manufacturing operationssince 2011, to have started new operationsduring that time, and to be consideringrelocating manufacturing operations in2013 and 2014. Leaders also are muchmore likely to be planning to increase theuse of contract manufacturing and seecontract manufacturing in a more strategiclight. While non-leaders view contract

manufacturing as merely a way to relieveshort-term capacity constraints, leaderssee it as part of their long-term strategyand an important component of theirbroader production facility network.

Leaders also appear to be more advancedthan others in key capabilities that are criticato operating more flexibly and dynamically.They are likely to have a good understandingof the local cultural differences and needsin its most important revenue markets; behighly adept at accurately sensing marketchanges or opportunities before competitorsdo; have full visibility into its networksoperations that enables them to effectivelymanage the network and make appropriatedecisions to balance demand and capacity;and extensively use modular and consistentbusiness processes and policies that enablethem to quickly and dynamically allocate

Introduction


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manufacturing capacity across the facilitynetwork (including contract manufacturers)

in response to changes in its markets.

When it comes to people, leaders have atalent strategy that enables them to acquireor build the skills they need to competeeffectively, are voracious acquirers of talent,focus their hiring on people in countrieswhere demand is strongest or who haveskills that are strategically important tothe company, and tend to build a diverseworkforce that includes full- and part-timeemployees, contractors and consultants.

Finally, leaders increasingly are looking tomake their current operations more reliableand responsive, which in turn boosts laborefficiency and supports a more flexible anddynamic facility network that can enablethem to more easily adapt to changingmarket conditions. For instance, leadersare twice as likely as others to be focusedon extending the life and contribution of

existing assetsparticularly through totalproductive maintenance and the use of

operations analytics to help improve theefficiency and productivity of individualmanufacturing facilities.

Theres no doubt that these remainchallenging times for manufacturers, eventhose that are optimistic about growth. Butas the manufacturing leaders in our studysuggest, those that are able to infuse a highdegree of flexibility in their operations,squeeze more capacity and productivityout of the assets and infrastructure theyalready have, and get the right peoplein place where they are most neededare best positioned to grow and thrivein todays volatile global economy.

Introduction


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KEY RESEARCH FINDINGS

In embarking on this research effort,Accenture sought to understand

manufacturers views on several key issues:

Recent and future growth and the sourcesof that growth

Challenges that might affect their ability toachieve their growth goals

How well suited their operating model is tosupporting their growth agenda

Where they are locating productionfacilitiesand why

Their ability to attract and develop theskills they need to grow

Which investments do they consider criticalto driving growth

Our survey of 250 executives at globalmanufacturers (see Appendix for moredetails on research methodology andparticipant demographics) provided ampleevidence that although manufacturersbusiness performance has improved sincethe recession, executives remain wary ofmarketplace and economic volatility and aretaking steps to infuse greater flexibility intotheir operations in response.

This is especially true of manufacturers thathave performed most strongly in the pastfew years. Their responses suggest that moreflexible and dynamic operations have helpedthem substantially increase revenues andmargins, boost production levels, and improvelabor efficiency, and that they expect tocontinue generating such positive results inthe future.

Perspectives on Growth

While some countries economies continueto experience the lingering effects of theGreat Recession, manufacturers overall haverebounded. An overwhelming majority ofmanufacturers in our survey have experiencedstrengthening business performance in thepast few years and most anticipate thattrend to continue in the near future.

Ninety-three percent of executives surveyedsaid their companies have posted overallrevenue growth since 2011 (Figure 1) andvirtually all manufacturers anticipate somegrowth in 2013 (with 63 percent anticipating

at least six percent). For 60 percent ofmanufacturers, growth is expected to bemostly or entirely organic, compared with21 percent, which believe growth will beprimarily or entirely through inorganic meanssuch as M&A, joint ventures, and alliances.

Manufacturers output has increased aswell, with 94 percent reporting theircompanys total production level hasincreased (Figure 1). Driving that output hasbeen an increase in capacity: More thantwo-thirds of manufacturers overall said they

increased capacity since 2011, with nearlythree in 10 indicating the increase was morethan 20 percent.

Perhaps most important is that margins areup. Ninety percent of manufacturers haveincreased their overall profitability since2011, and 22 percent have boosted profits bymore than 10 percent (Figure 1).

What is the source of manufacturers growth?The United States was cited by the largestpercentage of manufacturing executivesas the country from which their company

currently derives most of its revenue,followed by China.

Furthermore, confidence in these marketsremains strong. Regardless of which specific

markets executives cited as their top three,44 percent said they are highly optimisticthese economies will grow in the next12 months. Forty-one percent indicatedmoderate optimism, while just 15 percent saidthey were pessimistic about growth in theirtop markets.

Beyond next year, executives see changesafoot as emerging markets appeared poised tomake gains at the top of the list, with Chinaand Brazil expected to grow in importance.

However, while manufacturers remain

optimistic about their business and theirmarkets, the current environment is notwithout its challenges. One of the biggestchallenges manufacturers face is theeconomic and market volatility that prevailsin many markets and remains a majorconcern among manufacturing executivesin all regions, especially those in maturemarkets. Executives participating in ourstudy cited a variety of volatility-relatedfactors as potential threats to their growthagenda, including global currency instability,unpredictable commodities costs, uncertainty

about customer demand, political or socialunrest in key markets, and potential changesin government regulations (Figure 2).

Given these challenges, it is not surprisingthat 82 percent of executives overallagreed or strongly agreed that theability to flexibly and dynamically moveproduction from one existing facility toanother, or to change the product mix atan existing facility to match demand, iscritical to achieving their growth goals.



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Figure 1: Total revenue growth, production level and profitability since 2011.

4% 4%

36%35%

20%

2%4%

34%36%

24%

3%

7%

36%

31%

22%

0%

5%

10%

15%

20%

25%

30%

35%

0%

Declined /Decreased 1%

to 10%

Flat Grew /Increased1% to 5%

Grew /Increased6% to 10%

Grew /Increased

> 10%

Total Revenue Growth Total Production Total Profitability

Figure 2: Issues manufacturers indicated could impact their ability to grow in 2013-14.

Global currency instability

Unpredictable commodities cost

Stronger competitors

Pressure to reduce operational costs

Uncertainty about customer demand

Political/social unrest in key markets

Potential changes in federal government regulations

Applying innovation to stay ahead of the competition

Weaker pricing power for finished goods/services

Aging workforce/shortage of talent

Extreme weather/natural disasters

Shortage of commodities

43%

36%

33%

32%

29%

27%

25%

24%

22%

15%

15%

14%



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Capturing GrowthAs they pursue growth, manufacturers willrely on a number of levers to maintain orimprove profitability. The most popular leverby far is improving operational efficiency,followed by improving quality, reducinglabor costs, reducing inventory levels,and reducing material costs (Figure 3).

Manufacturers also recognize that robust,sustainable growth is dependent on a solidbase of operationsa base that includes theright production facility network, talent, andoperating model that can help support theoperational flexibility executives see as criticalto driving growth. According to executivesparticipating in our survey, manufacturershave made solid progress in these areas,but shortcomings in key aspects of theiroperations remain that could make it difficultfor them to achieve their growth goals.

Operating model: More work neededto support flexible and dynamicshifting of resources to accommodatechanges in demand

Recognizing the highly volatile businessenvironment in which they operate,manufacturers are adapting key aspectsof their operating model to make theiroperations (both network-wide and at thespecific facility level) more flexible anddynamic and, thus, help improve overalloperational and financial performance.However, most manufacturers have

experienced uneven progress in creating moreflexible and dynamic operations and considerimproving their capabilities in this regard tobe an important priority in the short term.

Nearly 60 percent of all manufacturersindicated various aspects of their operatingmodel accommodate to some degreethe dynamic shifting of resources andactivities to different physical locations intheir manufacturing network in responseto market developments or changes

in demand. However, in no case was aspecific dimension described by more than27 percent of respondents as providingvery effective support (Figure 4).

The scenario is slightly better when itcomes to supporting flexibility inside asingle location. Nearly two-thirds saidvarious aspects of their operating modelaccommodate to some degree the dynamic

shifting of resources and activities withina specific facility (for example, switchingover to producing a different product mix)in response to market developments orchanges in demand. But again, no dimensionwas named by more 28 percent as providingvery effective support (Figure 5).

More specifically, executives feedbackindicated shortcomings in key capabilitiesthat can be critical to operating moreflexibly and dynamically. For instance:

Only 24 percent of executives strongly

agreed their company is highly adept ataccurately sensing market changes oropportunities before competitors do.

Just 26 percent strongly agreed theircompany extensively employs modular andconsistent business processes and policiesthat enable it to quickly and dynamicallyallocate product design and manufacturingcapacity across the facility network(including contract manufacturers) inresponse to changes in its markets.

Only 29 percent of executives stronglyagreed that their company has full visibilityinto its networks operations, enablingthem to effectively manage the networkand make appropriate decisions to balancedemand and capacity.

Forty percent strongly agreed theircompany has a good understanding of thelocal cultural differences and needs in itsmost important revenue markets.

Capturing Growth


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Figure 3: Most common levers manufacturers will use to maintain or improve profitability.

Improving operational efficiency

Improving quality

Reducing labor costs

Reducing inventory levels

Reducing material cost

Improving throughput in current facility

57%

35%

33%

31%

30%

12%

Figure 4: How effectively manufacturers operating model accommodates flexibly and dynamic shifting of production

across different physical locations.

Organization structure and incentives system

Information technology infrastructure

Production facility network

Business processes, policies, and capabilities

Information technology applications

Talent/skills base

3% 6% 30% 33% 27%

3% 11% 26% 39% 20%

4% 9% 29% 41% 17%

30% 26%5% 12% 28%

3% 29%12% 32% 23%

3% 20%32%10% 35%

5 - Very effectively4321 - Very ineffectively

Note: Due to rounding, totals may not equal 100%

Figure 5: How effectively manufacturers operating model accommodates flexibly and dynamic shifting of production

within a single location.




Talent/skills base



26%4% 10% 35% 25%

6%4% 28%25% 37%

3% 26%8% 24% 38%

27%11% 39% 21%2%

3% 9% 29% 40% 19%

6% 27%8% 24%34%

5 - Very effectively4321 - Very ineffectively


Capturing Growth


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DRIVING CONSISTENCY AND FLEXIBILITY

THROUGH PRODUCTION SYSTEMSBy Saurabh Bhatnagar, Managing Director, Accenture Management Consulting

Our study revealed that manufacturingleaders are twice as likely as othercompanies to extensively use modularand consistent capabilities that enablethem to quickly and dynamically allocatemanufacturing capabilities across thefacility network in response to changesin its markets. One of the key approachesto drive modular and globally consistentcapabilities is through the instantiationof a manufacturing production system.

In todays volatile global economy, production

systems have become increasingly criticalto enabling manufacturers to operate moreconsistently and efficiently. But while theterm production system is well known, itstrue meaning often is not. Thus, its importantto clear up some misconceptions aboutproduction systems.

At its most basic level, a production system isan integrated and value-driven managementsystem that can enable consistency,continuous improvement and elimination ofwaste in manufacturing environmentswhich,in turn, drives flexibility and agility across

the business. Additionally, more organizationsare utilizing their production systems andtheir supporting resources as the platform fortransformational change.

A production system is not an informationtechnology system, project management officeor system, or a replacement of all existingmethodologies, content, and structures.It is not a centralized standardizationsystem or performance reporting tool, or amanufacturing or supply chain operationsoptimization system. And it is not a

replacement or alternative to a functionalmanagement structure or simply a leancontinuous improvement methodology.

There are six critical elements to buildinga comprehensive production system.

Strategy and Guiding Principles acomprehensive framework to align businessstrategy and value targeting with expectedsustainable results

Capability Management the enablement ofmanufacturing resources (people process,technology and policy) toward businessstrategy and coordinated value generation

Change Management the establishmentof a culture of continuous improvementand change through alignment of culture,organization, skills, talent acquisition,metrics, and rewards

Technical Management the coordinationof critical information technology to enablemanufacturing capabilities to meet value-

targeting expectations

Lean Principles a foundational elementthat drives customer focus, processstandardization and waste eliminationacross the operation.

Governance a process and frameworkfor managing value realization and thecontinuous improvement lifecycle.

Perhaps one of the most-overlooked ofthe preceding six elements is changemanagement. Change management isvital to implementing and sustaining

a new mindset and way of workingacross the enterprise. Indeed, changing acompanys culture is extremely difficult,and a production system requires a majorculture change. Thus, companies adoptinga production system must take advantageof the entire change management toolsetincluding leadership and organizationalalignment, training and performancesupport, and stakeholder engagement andcommunicationand continuously takethe pulse of the organization to helpensure that the changes are taking root.

A leading-practice production system canbe a major asset for todays manufacturer.There are myriad ways it can help a companyachieve its objectives.

One example is the experience of a largedrug company, which refined its productionsystem to dramatically improve the companysperformance. Executives at the companywanted to get more out of their factories, but

believed it wasnt possible because of a hostof reasons they thought were beyond theircontrolhistorical performance, regulatoryconstraints, the complexity of the productsbeing made, the age of the machines, workerskill availability, and the design of the facilitiesHowever, a deeper analysis revealed that theplants actually were running at only 50 percento 60 percent of capacityand that many ofthe factors impeding plant performance werenot beyond their control, but rather, werelosses the company could address. By adoptinga new production system, the drug company is

now able to match and lay out a plant to allowit to flexibly adapt to product run type; gatherdata on the performance of key process steps;and do production leveling. Furthermore, aspart of the production system implementationthe company conducted training for shop-floor employees on basic problem-solvingtechniques. As a result of this effort, the drugcompany ultimately was able to boost thecapacity of its existing network by more than10 percent.

Importantly, to sustain those results overtime, the company took major strides toembed a continuous improvement mindsetand culture across the company. Now,instead of seeing themselves as responsibleonly for running manufacturing lines, thecompanys plant employees see themselvesas problem solvers who have an opportunityon a daily basis to improve the way the linesoperate. That shift, in turn, is helping thecompany overall to be more proactive inidentifying inefficiencies and other issuesthat can impede a plants performance. Amajor side benefit is that plant work is nowmore challenging and rewarding, and plant

employees are happier in their jobs.

Because it can enable manufacturers tobe more flexible and dynamic and, in turn,respond more effectively to the volatilityof the marketplace, a robust productionsystem is fast becoming a must havefor growth-oriented manufacturers.

Capturing Growth


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Figure 7: Aspects of the operating model in which manufacturers plan to invest in 2013-14.

Talent/skills base






None

56%

47%

38%

34%

34%

23%

4%

The good news is that executives recognizetheir companies could do better and plan totake action. Seven in 10 said improving theircompanys operating model is a priority inthe next 12 months (Figure 6). More thanhalf said their companies are planning toinvest in strengthening their talent and skillsbase in the next 12 months and nearly halfindicated they are doing the same for theirbusiness processes, policies and capabilities.

And about one-third said they anticipateinvesting in their organization structureand incentive systems, as well as in theirIT infrastructure and IT applications (whichare critical to manufacturers efforts tobecome a more digital business (Figure 7).

As they make such investments,manufacturers should be mindful of theimportant role that consistency can playin fostering flexibility in their operatingmodel. Without a high degree of globalconsistency and standardization acrosstheir business processes, policies, skillsand other capabilities, manufacturersmay find it difficult to easily moveproduction within or across facilities

when market developments demand it.

Production facility network:Plants are being relocated orbuilt to support new market entryand reduce costs

As the pattern of demand continues tochange, manufacturers face the ongoingneed to evaluate where and how they maketheir products to improve responsiveness tocustomers while reducing overall operationalcosts. Such assessments can often result

in the decision to relocate productionfacilities from one country to another orstart up a new facility in a new market.

Since 2011, about four in 10 manufacturerssurveyed reported having relocatedproduction facilities to new locationsprimarily to enter a new market, reducetransportation costs, or reduce labor costs(Figure 8). The relocation of facilities, at aglobal level, is indicative of a greater focusby manufacturers on emerging, growingmarkets. For instance, of those relocatingoperations, the largest percentage said the

facility they shut down to make the move

was located in the United States (26 percent)followed by Germany (19 percent). Converselythe biggest beneficiaries of manufacturersmoves were China (34 percent) and Brazil(23 percent), although the United States alsowas a popular landing spot for relocatedfacilities for 13 percent of respondents.

The relocation trend looks to continuein the next 12 months, with 37 percent

of executives surveyed also saying theircompanies are considering relocatingoperations during that timemostly to reducelabor costs and enter a new market. Reducingtransportation costs appears to be less of adriving factor for future relocations than theywere with previous initiatives

In addition to moving existing facilities,nearly half of the manufacturers in ourstudy said they started new productionfacilities since 2011with the overwhelmingfavorite site being China (45 percent),followed by Brazil (30 percent), the UnitedStates (25 percent), and Africa (16 percent).Again, the most prevalent reasons forstarting a new facility were entering a newmarketwhich, perhaps, helps explain theincreased popularity of Africa in this yearsstudyreducing labor costs, and reducingtransportation costs (Figure 9).

Figure 6: Percentage of manufacturers

believing it is a priority to improve their

operating model.

Very significant

Significant

Neither significant

nor insignificant

Insignificant

Very insignificant1%

2%

44%

24%

29%

2013 Global

Capturing Growth


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Figure 8: Relocation of manufacturing facilities.

2013 Global

4%

54%

42%

Not sure

No

Yes

Have you relocated manufacturing operations tonew locations since 2011?

Which three factors are most important when selecting the locations of your manufacturing operations?Select one

Entering a new market

Reducing transportation costs


Increasing responsiveness / reducing lead time

to customersCapitalizing on currency or tax advantages

Desiring more favorable government regulations

Gaining access to needed workforce skills

Taking advantage of needed skills in that location

Capitalizing on government incentives

Reducing the impact of volatile or rising oil prices

Desiring to improve quality

Developing a new product that needed specialized

operationsMinimizing intellectual property theft

Other

30%

29%

29%

25%

24%

23%

21%

19%

16%

12%

11%

10%

9%

1%

Figure 9: Starting new manufacturing operations.

2013 Global

2%

49%

49%

Have you started new manufacturing operationssince 2011?

Which three factors were the most important in your decision to start operations there?

Entering a new market

Reducing transportation costs


Increasing responsiveness / reducing lead timeto customers

Capitalizing on currency or tax advantages

Desiring more favorable government regulations

Gaining access to needed workforce skills

Taking advantage of needed skills in that location

Capitalizing on government incentives

Reducing the impact of volatile or rising oil prices

Desiring to improve quality

Developing a new product that needed specializedoperations

Minimizing intellectual property theft

33%

30%

26%

25%

23%

17%

17%

16%

16%

14%

12%

11%

9%

Not sure

No

Yes

Capturing Growth


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As we noted elsewhere in our report,manufacturers continue to make changesto their global production network inresponse to a variety of factorssuchas the need to support entry into a newmarket, consolidate facilities after a mergeror acquisition, increase responsivenessto customers, reduce costs, or improveoverall operational efficiency. Since 2011about four in 10 manufacturers surveyedreported having relocated productionfacilities to new locations and nearly halfstarted new ones. Furthermore, about

40 percent said they are planning torelocate facilities in the next 12 months.

Such moves, while beneficial if done right,can be extremely challenging and fraughtwith riskespecially if they involve facilitiesin countries where the company has little tono experience or if the company lacks thecapabilities needed to effectively execute thechanges. Indeed, companies looking to relocateor open new facilities often face a number ofmajor issues that can lead to project delays,major cost overruns, or plants that ultimatelyfail to meet the production and cost targetsinitially set for them.

For example, companies typically strugglewith managing project complexityespecially coordinating the myriadwork streams involved throughout thephases of a factory development projectand integrating the new facility withthe companys existing infrastructure,processes and local environment.

Many organizations lack experience in facilitydevelopment, which can lead them to spend

too much time defining the project structure(including the project approach, teamcomposition, reports, and key metrics), fail toaccurately identify critical project risks, andnot fully recognize the major factors that canmake or break the project.

Manufacturers also can have a shortageof key internal competencies. Developingone or more new facilities can require skillsthat are materially different from thoseneeded to effectively operate a plantincluding competencies in large-scaleproject management and specific technicalcompetences (for example, in equipmentcapability and capacity modeling)as wellas some critical internal competencies thatmay not be fully available throughout theproject (including global operating modeldevelopment, lean factory layout design,

factory design and construction management,local region/country sourcing and localrecruiting, hiring and training experience).

Furthermore, a lack of knowledge of localmarkets can have serious implications for aproject. Manufacturers often find it difficultto navigate through the maze of unfamiliargovernment regulations, legal practices,customs and habits when setting up shop in anew country.

In our experience, companies can moreeffectively manage their facility relocation

or startup project by carefully addressingthree dimensions of the initiative. Doing socan help manufacturers avoid overlookingcritical-path requirements and identifypotential capability shortcomings that couldderail the effort.

The business operations dimension isassociated with the process and functionalsupport the new facility will require. Thisincludes spelling out the new factorysdesign (and how the design aligns with thecompanys overall supplier and manufacturing

network strategy), the operational processesand back-office support (such as HR andfinance) required to run the facility, and theproduction start-up activities needed tolaunch the facility.

The technology operations dimensioninvolves the technology required to supportthe facilitys operational processes; guidesthe build-out of the requisite technologyinfrastructure and network, systemsconfiguration and data clean-up andconversion activities; and facilitates theimplementation of the necessary physical andcorporate support services.

The change operations dimension targetsthe people aspects of the initiative. Thisincludes driving the overall change program

and communication strategy associatedwith the facilitys launch, as well as thesubsequent staffing of the facility (includingidentifying the talent needed, developing arecruiting, hiring, training and competencymanagement program, and overseeingongoing skills development and workforcemanagement initiatives).

As they make significant changes to theirproduction footprint to support their growthagenda, manufacturers will undoubtedlyencounter their share of challenges. Byconsidering at the outset of any project

these three dimensionsand how they playout across the design, build and operatelifecycle of a facilitymanufacturerscan better position a relocated or newfacility to live up to its promise.

AVOIDING THE PITFALLS OF FACILITY

RELOCATION OR STARTUPBy Michael Heilala, Senior Principal, Accenture Management Consulting

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As part of their production network,manufacturers also are planning to increasetheir use of contract manufacturing. Three-fourths of those in our study said they willincrease moderately or extensively their useof contract manufacturing in the next 12months, with 54 percent doing so to relieveshort-term capacity constraints and 46percent considering contract manufacturinga part of their long-term strategy (Figure 10).

Of course, determining where to locateproduction facilities can be a complexendeavor, especially when openingplants in new markets. Executives in oursurvey indicated they could make moreeffective location decisions by improvingseveral key capabilities within theirorganizationsespecially their abilityto conduct total cost analyses of thelocation options when considering whereto move or startup a facilitywhich is

significant given that cost is the primarydriver of location decisions among a largemajority of manufacturers (Figure 11).

Talent: Manufacturers continue tohire and improve labor efficiency, butmany face major talent gaps in keyworkforces

Its a given that people are the key to acompanys success. Companies that excelin getting the right talent on board anddeveloping critical skills in the workforcetypically are better positioned forsustained high performance over time.

Overall, manufacturers in our survey appearto be confident they have what it takes tobuild the right workforce for their business.Eighty-three percent of executives surveyedagreed their companys talent strategy

enables them to hire, develop and retainthe skills they need to compete effectivelyin a todays economic environment.

Manufacturers also have been active inbringing new people aboard. Since 2011,more than three-quarters of companiessurveyed have increased their manufacturingworkforce (Figure 12). Of those,manufacturers were most commonly addingskills that are strategically important and

in countries where demand was strongest.Workers hired were more likely to be full-or part-time salaried workers as opposedto hourly workers or contractors. Amongthe small minority of manufacturers thatactually decreased their workforce since2011, reductions tended to be centeredin countries where demand was weakest,and those eliminated were most likelyto be full- or part-time contractors.

Figure 10: Use of contract manufacturing.

50%

24%

26%

2013 Global 2013 Global

No

Yes, moderately

Yes, extensively

Do you anticipate increasing your use of

contract manufacturing in 2013-14?

Why are you increasing the use of contract

manufacturing?

It will help us relieve short-term

capacity constraints

Use of contract manufacturing is

part of our long-term strategy

54%

46%

Figure 11: Capabilities manufacturers could strengthen to improve facility location decisions.

Total cost analysis of options

Skills and knowledge of staff

Improved understanding of local market capabilities

A comprehensive manufacturing location strategy

Changing internal mindset to a longer-term,

total value view

55%

48%

46%

40%

21%

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18

GETTING THE MOST FROM

CONTRACT MANUFACTURINGBy David Douthit, Senior Manager, Accenture Management Consulting

According to our survey, a large majority ofmanufacturers are planning to increase theiruse of contract manufacturing in the comingyear. Of those, more than half said theyare doing so to relieve short-term capacityconstraints. However, in our experience,contract manufacturing should be seen asnot simply a capacity lever, but rather, as anintegral part of a companys long-term globalmanufacturing strategy and an importantcomponent of its broader production facilitynetworkwhich is how the vast majority of themanufacturing leaders in our survey view it.

By approaching contract manufacturingmore strategically, companies cansignificantly enhance the flexibility of theiroperations while avoiding the substantialcosts associated with building or buyingnew facilities and investing in newequipment and personnel.

A strategic approach involvesfour basic actions

The first is to carefully consider what thecompany should outsource and what it

should keep in houseand under whatconditions. For example, production involvingitems that are highly differentiating for thecompanythose that make it unique in themarketplaceshould remain in house. Less-core items, as well as those that can be moreeffectively made by a third party, are goodcandidates for outsourcing to a contractmanufacturer.

Contract manufacturers also can be goodoptions when entering a new market, wheredemand is difficult to predict and building

new facilities, acquiring equipment, andsecuring trained resources with local marketknowledge can be time consuming andexpensive. A trusted third party can help acompany quickly establish a presence, and

do so with a variable-cost operating model(people, plant and equipment) tied to demand.And in some cases, a contract manufacturercan be used at the end of the manufacturingprocess to add features or functions to astandard product that make the productmore relevant to local market needs.

Next, a company should decide which kindof relationships it wants to have with apartnera highly strategic, collaborativeone in which the partner may bring newcapabilities to the table or even co-invest

in a product, or a more transactional onein which the partner is solely focused onsupplying standard goods at the lowest costof ownership.

Then a company needs to determine thelevel of control it wants to exert on thoserelationships. For example, a companymay want to be intimately involved inall aspects of the relationship and havedeep visibility into where things standat any given point in the supply chain. Itmay prefer the oppositea hands-offapproach in which the company assumes

the parts or materials will be availablewhen it needs them. Or it might becomfortable somewhere in the middle.

Finally, an enterprise should implementthe tools and capabilities that can enableit to effectively manage its contractmanufacturing network. It is critical for acompany to have the right people, processesand tools in place to ensure partners aredelivering what they have committedto deliver, and that potential issues areidentified and addressed well before they

become problems.

Contract manufacturing can be a powerfulway for companies to extend their capacityand add important flexibility to theirproduction networksomething that canbe critical in todays highly volatile businessenvironment. But companies may not realizethe true benefits of contract manufacturingunless they make it part of their overallmanufacturing strategy and manage as akey element of its production network.

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Figure 12: Manufacturers changes to their workforce since 2011.

We added workers whose skills were determined

to be strategically important to the company

2013 Global

Our increases tended to be centered in countries

where demand was strongest

We tended to eliminate workers in the lowest

tier of performance

Workers added were more likely to be full- or

part-time salaried employees

Workers added were more likely to be full- or

part-time hourly employees

Workers added were more likely to be temporary

or full-time contractors

We increased it substantially

We increased it moderately

We increased it slightly

It remained the same

We decreased it slightly

We decreased it moderately

We decreased it substantially

Strongly

agree

Somewhat

agree

Neither agree

nor disagree

Somewhat

disagree

Strongly

disagree

1%2%

Please indicate how each of the following describes your approach to increasing your manufacturing workforce.

How have you changed your manufacturing workforce since 2011?

6%

5%

5%

7%

8%

8%

9%

11%

16%

16%

13%

15%

15%17%

21%

16%

29% 29%

29%

21%

19%

29%

23%

34%

34%

38%

38%

27%

32%

30%

14%

14%

28%

35%

8%

Figure 13: Plans for change in use of various types of workers in 2013-14.

Full-time employees

15%

34%

51%

Contractors

19%

42%

39%

Part-time employees

12%

55%

33%

Consultants

24%

47%

29%

Decrease

No change

Increase


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20

This hiring trend appears poised to continuein the near future, with two-thirds ofexecutives saying their companies planto increase their overall manufacturingworkforce by at least 5 percent between2013 and 2014. The increase will largelybe driven by boosts in the number ofpredominantly full-time employees and, toa lesser extent, contractors (Figure 13).

Despite their vigorous hiring, however,many manufacturers still have several skillsgaps, mostly in the blue-collar workforce(Figure 14) where they struggle to attract

the needed skills because they cannot paywhat the talent demands. Nearly four in10 respondents said their company has asizable skills gap in their skilled trades laborworkforce, and 35 percent said the sameabout their general labor workforce. Thesmallest gaps across all companies were seenat the top of the management hierarchysupervisors and executives.

Regardless of where the gaps are, mostmanufacturers rely on a few key levers toclose them and improve overall workforceperformance (Figure15): performance

rewards tied to both individual successand enterprise profitability, competitivesalaries and benefits, encouragementfrom leadership to pursue innovationand share ideas, training to keep theworkforce current, and formal competencymodels that define required skills, careerlevels and appropriate curriculum.

Figure 14: Skills gaps in various manufacturing workforces.

Skilled Trades Labor

General Labor

Maintenance

Operations Management

Supervisors

Executives

8% 21% 33% 24% 14%

23% 35%7% 22% 13%

28% 28% 23% 8%13%

23% 8%24%36%9%

11% 19% 40% 18% 12%

20% 11%19%25% 25%

5 - Extensive skills gap4321 - Minimal skills gap

Figure 15: Levers manufacturers use to close skills gaps and improve workforce performance.

Performance rewards tie to both individual successand enterprise profitability

Competitive salaries and benefits are offered

Leadership encourages innovation and providesemployees with opportunities to share ideas

Training is used to keep the workforce current andre-training is used rather than hiring/firing

Formal competency models are in place definingrequired skills, career levels and appropriate curriculum

Individuals are encouraged to proactively seektraining on new topics and technologies

Career advancement includes rotations through variousroles and assignments to different countries or facilities

Well-defined talent sourcing and selection strategyis in place

Employee satisfaction surveys are conducted regularlyand results are shared

Global and local communities of practices, effectiveat sharing knowledge

Full participation in coaching and mentoring activities

Real-time critical feedback is provided and is anembedded part of the company's culture

12%

19%

22%

28%

28%

29%

32%

37%

39%

40%

45%

46%

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21 Capturing Growth


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22

SOLVING THE MANUFACTURERS

SKILLS DILEMMABy David C. Shaw, Managing Director, Accenture Management Consulting

Although manufacturers in our studycontinue to hire workers and are confidentin their talent strategy, many face majortalent gaps in key workforces that couldconstrain their growth and make it difficultfor them to keep pace with market demands.

For instance, since 2011, more than three-quarters of companies surveyed haveincreased their manufacturing workforce,focusing primarily on bringing in full- orpart-time salaried workers with skillsthat are strategically important and incountries where demand was strongest.A large majority of executives surveyedagreed their companys talent strategyenables them to hire, develop and retainthe skills they need to compete effectivelyin a todays economic environment.

Yet many manufacturers remain plagued byskills gaps, especially in the trades labor andgeneral labor workforces. Perhaps one reasonis that just 28 percent of manufacturerssaid they had a well-defined talent

sourcing and selection strategy in place.

Given these gaps, and the need to continuebuilding a robust workforce to achievetheir growth goals, what steps shouldmanufacturers take to attract, retain andbuild the skills they need? In our experience,the following have proven very effective.

Revisit job descriptions and roles

Many manufacturers today still relyon outdated job and role descriptionswhen recruiting new talent. Often, those

descriptions dont match the skills acompany truly needs or the essence of thejob its trying to fill. For instance, often thedigitalization of manufacturing roles (evenon the shop floor) have made previous roledescriptions obsolete. Manufacturers shouldlook to update their job and role descriptionsto help better reflect their business and whatkind of talent drives success today. A goodstarting point are the high performers in onesorganization. By studying those individualsand identifying the traits and attributes thatmake them effective, a company can better

understand what it should look for in newrecruits. Formal competency models also canhelp manufacturers define required skills andcareer levels (something that only 37 percentof manufacturers in our survey have in place).

Work with institutions further backin the talent supply chain to build theneeded skills.

Manufacturers in many industries are findingit increasingly difficult to find qualifiedtalent, especially people with the technicalskills that are still critically important to amanufacturers business. To help fill thatvoid, manufacturers should consider howthey can partner with high schools, tradeschools and community colleges to buildcurricula that can expose students to theskills manufacturers need. That way, whenstudents do come on board, they have a headstart on the skills that companies can moldand develop further.

Develop a broader definition

of workforce

Manufacturers in our study are focusedon hiring what could be considered a moretraditional workforce: owned, salariedemployees. However, needed skills can andshould be found in other, less-traditionalworkforces, including contractors, channelpartners, and consultants. Indeed, a majorityof the manufacturing leaders in our studyindicated they capitalize on all types ofworkers, which not only gives them a broaderand deeper pool from which to find desiredskills, but also gives them greater flexibilityto scale labor up and down as businessconditions and skill requirements demand.

Rethink employee incentives

The environment within many manufacturerstoday is much less hierarchical than in dayspast and more collaborative, integratedand cross-functional. Indeed, its commonto encounter work teams comprisingsalaried, contract, and union employeesas well as people representing channelpartners and even customers, all working

together on common initiatives. In suchan environment, new types of rewards andincentives are important to encouragethe desired behaviors outcomes.

Redouble employee learningand development efforts

It was surprising that only 39 percentof manufacturers said they use trainingto keep the workforce current, and thatjust 32 percent encourage individuals to

proactively seek training on new topicsand technologies. To minimize skills gaps,manufacturers should consider investing intraining their employeesespecially those inkey workforcesso employees have accessto the latest approaches to developing theskills they need to be successful in their jobs.For instance, global and local communitiesof practices that encourage the sharingknowledge can burnish employees skills (yetonly 22 percent of manufacturers in our studyhave them in place). Learning academies,as well, have proven highly effective

in identifying and delivering targetedtraining and development for employeesbased on their roles and competencies.

As they continue to look for ways tofill their skills gaps, manufacturersshould keep in mind a simple ruleof thumb

In a typical organization, one-third ofemployees are high performers, one-third areacceptable performers, and one-third performbelow standards and generally are unable or

unwilling to make the transition to one ofthe other groups. How effectively a companyaddresses these three different segmentshas a major impact on an organizationsoverall skills base and, ultimately, on thesuccess of the broader enterprise.

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While these initiatives may have fallen shortin helping manufacturers close their skillsgaps, they appear to have contributed toan increase in overall workforce efficiency.Since 2011, about one-half of manufacturerssaid their labor efficiency has increasedbetween 1 percent and 5 percent, one-fourth said it rose between 6 percent and10 percent, and one-tenth said it improvedby more than 10 percent (Figure 16). Such

gains can help manufacturers increaseexisting assets capacity and are a key driverof broader operational efficiency across amanufacturers facility network.

Investments: Manufacturersare striving to strike a balancebetween investments in new andexisting assets.

To help support their efforts to improvetheir operating model, optimize their facilitynetwork and enhance their workforce,manufacturers are continuing to maketargeted investments in key areas of their

business. These include capital investmentsin new plants and manufacturing equipmentand technologies, as well as investmentsin information technology and efficiencyinitiatives. But many executives also saidspending on new equipment and technologywill be tempered by efforts to get more out ofwhat they already have.

Since 2011, three-quarters of manufacturershave made manufacturing capitalinvestmentsmostly in manufacturingequipment and machines and in existing

manufacturing plant infrastructure (Figure17), and in the next 12 months, capitalinvestment is expected to continue (Figure18). However, 66 percent of manufacturersalso said they will be focused on extendingthe life and contributions of existing assets.In other words, manufacturers are redoublingtheir efforts to clean up their shop andbecome more efficient. In doing so, they arelooking to life-extending initiatives such asapplying lean principles to reduce waste,total productive maintenance, automationtechnology, and analytics (Figure 19).

Finally, information technology also is on theinvestment horizon for a large majority ofmanufacturers, as these companies continuetheir quest to digitalize a wider range of theirbusinesses: Nearly eight in 10 said they areplanning initiatives in the next 12 monthsto strengthen their IT applications. Thelargest percentage indicated those initiativeswould focus on performance managementtools such as dashboards and metrics,

followed by quality assurance, ERP solutions,manufacturing planning and scheduling,manufacturing execution systems, plantoperations analytics, and enterprise assetmanagement solutions (Figure 20).

Of course, as they increase their investmentsin key areas of their business, manufacturersmust feel confident that they have adisciplined approach in place in order to getthe return on those investments. By formallymeasuring and monitoring the value thoseinvestments deliver, manufacturers will be ina better position to justify future investmentsthat can substantially improve operationaland financial performance.

Figure 17: Manufacturers capital investments since 2011.

2013 Global

Have you made manufacturing capitalinvestments since 2011?

What was the nature of the investments that you made?

No

Not sure

Yes

22%

75%

4%

Manufacturing equipment / machine

Existing manufacturing plant infrastructure

Manufacturing technology

New manufacturing plant construction

60%

59%

49%

45%

Figure 16: Change in manufacturers labor

efficiency since 2011.

Increased by more than 10%

Increased by 6% to 10%

Increased by 1% to 5%

Was unchanged

Decreased by more than 10%

Don't track / don't measure

2013 Global

Decreased by 1% to 10%

3%

13%

49%

23%

11%



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24Capturing Growth

Figure 18: Manufacturers capital investments for 2013-14.

Manufacturing technology

Manufacturing equipment/machine

Existing manufacturing plant infrastructure

New manufacturing plant construction

None

59%

50%

44%

30%

4%

Applying lean principles to reduce waste

Applying total productive maintenance (TPM)

Applying automation technology

Applying analytics

67%

49%

48%

21%

Figure 19: Initiatives manufacturers are pursuing to extend the life and contributions of existing assets.

Figure 20: Manufacturers information technology investment plans for the next 12 months.

2013 Global

23%

77%

No

Yes

Are you planning any initiatives in the next 12months to invest in/strengthen your informationtechnology applications?

What type of initiatives are you planning?

Performance Management (Dashboard & Metrics)

Quality Assurance (QA)

ERP Solutions

Manufacturing Planning and Scheduling (MPS)

Manufacturing Execution Systems (MES)

Plant Operations Analytics

Enterprise Asset Management (EAM)

Computerized Maintenance ManagementSystems (CMMS)

Training and Collaboration Software

Lab Information Management Systems (LIMS)

Other

53%

39%

38%

30%

29%

26%

23%

21%

16%

16%

1%


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25 Capturing Growth

A FORMAL, COLLABORATIVE APPROACH

TO ASSET RELIABILITYBy Jeff McKinney, Managing Director, Accenture Management Consulting

Reliability and maintenancethe processes,tools and investments that help complex andexpensive assets continue to run at peakoperating performancehas always beenimportant for manufacturers that operatein asset-intensive environments. Today, itseven more vital for manufacturers, for anumber of reasons.

For starters, assets have become verysophisticated and complex which, whileboosting functionality, also means there ismuch more to go wrong. Second, because ofrecent economic conditions, many companieshave been unable or unwilling to invest innew assets and, instead, have been squeezingeven more out of older assets that are moreprone to problems due to the accumulation ofwear and tear. And third, with sustainabilityassuming greater importance amongmanufacturers, the ability to make assets runmore efficiently and reliably so they consumeless energy is increasingly attractive.

The importance of reliability and maintenance

is evident in our survey: Two-thirds ofmanufacturers said they are focusing onextending the life and contributions ofexisting assets, with about half of thosecompanies indicating they plan to deploycomprehensive preventive maintenanceprograms in support of that pursuit. As theyseek to improve their assets performanceand longevity, manufacturers can learnfrom some of the worlds most successfulmanufacturers, which have adopted leadingreliability and maintenance practices thathelp enable them to avoid the inefficiencies,costly breakdowns and delays thatcan negatively impact balance sheets,reputations and customer relationships.

These successful companies tend to havea highly structured understanding of theircritical assets and whats needed to optimizethose assets performance. For instance, thetypical large production facility has tens of

thousands of production and automationassets, each of which requires differentskills, tools, techniques and supplies tokeep them running. Companies that excelin optimizing these assets are highly adeptat knowing what each asset needs anddetermining which assets are the mostcritical to the companys performance(and, thus, deserve the most attention).

Successful manufacturers also considerreliability a shared responsibility betweenproduction and maintenance. In somemanufacturers, the production team seeskeeping assets running as strictly thepurview of the maintenance function.This can lead to a dangerous situation,in which the production team, seekingto maximize uptime and drive down costper unit, neglects preventive maintenanceschedules and essentially runs the assetuntil it failsat which time they call inthe maintenance staff to repair it. But thetime and cost associated with bringing anasset back online when it reaches this point

can be far greater than what the companywould have incurred had it simply followedits preventive maintenance routines.

The companies with the most productive,efficient and reliable assets typicallyeschew this We run, you fix mentalityin favor of a more collaborative approachthat results in a more globally reliablenetwork. These organizations understandthat maximizing asset uptime is everybodysjob, not just the maintenance functions.

Furthermore, successful manufacturers

are analytically driven. They understandthat a key to keeping assets running isto understand the conditions that causethem to fail and avoid them. Thats whereanalyticsparticularly, predictive analyticscan be extremely valuable. Using predictiveanalytics, successful manufacturers cancreate models that highlight the likelihood of

various events and the impact those eventscould have on an assets performance. Usingsuch insights, the companies can take theappropriate steps to prevent the events fromhappening and, thus, minimize issues thatcould negatively affect asset performance.

Finally, successful manufacturers dontshortcut maintenance during times ofausterity. The maintenance line item in amanufacturing budget is an easy targetwhen a company is faced with cost-cuttingpressures. But saving a little in preventivemaintenance can have a negative effect onproduct cost and quality and ultimately canend up costing a company significantly morewhen the asset fails.

No matter their cost or quality, assets willlikely fail to produce what is expected ofthem if they are not maintained properly. Bydeveloping and using a formal capability toproactively and collaboratively manage assetmaintenance and reliability, manufacturerscan optimize their assets contribution to the

companys overall business performance.


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Manufacturing LeadersWhile most manufacturers in our studyhave made varying degrees of progress instrengthening their operating model, plantlocation network, and core talent andtechnology capabilities, a small group ofmanufacturers have excelled in building trulyflexible and dynamic operations. And as aresult, these companies are better positioned

to manage through volatility and uncertaintyand mitigate operational risk; they havegrown more strongly in the past few years;and they are better positioned to capitalizeon growth opportunities in the future.

As mentioned earlier, 90 percent or more ofcompanies overall indicated their productionlevels and profitability have increasedsince 2011, and 83 percent said their laborefficiency rose during that period. However,a small group of companies, about 8 percentof those participating in our study, reportedthe highest level of performancean increaseof more than 10 percent on all three metrics.We call this elite group of companiesmanufacturing leaders.

Manufacturing leaders, which spanned thespectrum of organization size, were far morelikely than other companies in our studyto report having grown revenue by morethan 10 percent since 2011 (90 percentversus 13 percent), to be highly optimistic

that the economies of their top revenuemarkets will grow in the next year (80percent versus 41 percent), and to anticipaterevenue growth of more than 10 percentin 2013 (95 percent versus 15 percent).

Furthermore, leaders were much more likelyto indicate they plan to grow entirely throughorganic means in 2013 (70 percent versus17 percent), as well as to strongly agree that

the ability to flexibly and dynamically alterproduction to match demand is critical toachieving their growth goals (80 percentversus 30 percent). Given leaders stronggrowth since 2011, it is perhaps not surprisingthat three-fourths of leaders (versus one-fourth of others) increased their capacity byat least 20 percent during that time. Someof that increase can be attributed to leadersopening of new facilities (discussed below).

However, its reasonable to surmise thatleaders significant boost in labor efficiency,combined with greater operational efficiencyresulting from initiatives they are undertakingto improve the reliability and productivityof existing assets, has been responsible forcreating additional capacity in facilitiesalready on line. Interestingly, leaders toprevenue markets did not differ dramaticallyfrom those of other manufacturers,suggesting leaders performance advantageis due not so much from where they get

their sales, but how they operate. In fact, acloser look at our data revealed that leaderstend to differ substantially from othermanufacturers in a number of key areas.

Facility location

According to our analysis, leaders are moreactive in making changes to their productionfacility networkwhether it is in relocating

plants or starting new ones. For instance,leaders are twice as likely (Figure 21) to haverelocated manufacturing operations since2011, and did so for two primary reasons: toenter a new market and to improve quality.Conversely, non-leaders decisions weredriven primarily by cost factorsa desire toreduce transportation and labor costswhichwere far less a concern for leaders.

In the coming year, leaders appear likelyto outpace non-leaders in relocations aswell, with 70 percent of the former versus34 percent of the latter indicating they

are considering relocating manufacturingoperations in 2013 and 2014.

Similarly, leaders were about twice as likely asothers to have started new operations since2011 (Figure 22), with Brazil and China alsothe most popular locations for these newfacilities among leaders. Leaders also favoredNorth America for new operations,

Figure 21: Percentage of companies having relocated manufacturing operations since 2011.

Leaders Others

Yes

No

Not sure

80%

39%

15%

57%

5%

4%

Figure 22: Percentage of companies having started new manufacturing operations since 2011.

Leaders Others

Yes

No

Not sure

85%

46%

10%

52%

5%

2%

Manufacturing Leaders


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29

HOW A CONTROL TOWER CAN HELP

MANUFACTURERS MAKE BETTER

PRODUCTION NETWORK DECISIONSBy Jose Bleda, Managing Director, Accenture Management Consulting

Global manufacturers today face a numberof significant challenges in managing theirsupply chains. One of the biggest is decidinghow to best leverage resources across theirproduction network to help meet changingdemand, increase competitiveness, andsupport the companys growth agenda.

The challenge is especially difficult given

three factors: manufacturers large, complexnetworks that often include many externalentities such as contract manufacturersand logistics services providers; the largeamounts of data manufacturers must sortthrough; and the economic and marketvolatility that require manufacturers to reactmore quickly or even anticipate problemsbefore they occur.

Perhaps the biggest impediment to makingsuch resource-balancing decisions is a lack ofvisibility into the state of the network. As oursurvey found, only 29 percent of executives

strongly agreed that their company has fullvisibility into its networks operations thatenables it to effectively manage the networkand make appropriate decisions to balancedemand and capacity.

Recognizing their challenges, leadingorganizations are embracing the concept of acontrol tower to help them more effectivelyleverage their network and, in turn, reducecosts, improve product availability, optimizeworking capital, and mitigate the risks ofmanufacturing network disruptions.

The concept of a control tower is not new:A number of influential organizations haveimplemented control towers to help improvetransportation and distribution. A majortechnology company, for example, has usedits version of a control tower, called theGlobal Command Center, to coordinate partslogistics and field technicians to respondswiftly to customers requests, while aleading consumer goods manufacturer relies

on a control tower to help it manage logisticsin emerging markets by providing visibilityinto inbound and outbound distribution flows.

By extending the control tower concept tothe entire supply chainand, specifically,manufacturinga company can gainintegrated visibility across all dimensionsof the network, including demand, capacity

(supplier, manufacturing, and distribution),inventory, orders/shipments in transit, andlogistics partners. It also can use the controltower to conduct predictive analytics tomake sense of the data it collects to triggeralerts, detect tipping points, run what ifanalyses of scenarios to model the outcomeof potential decisions and, ultimately, initiateappropriate action.

A control tower can also help enable amanufacturer to monitor the executionof supply chain activities, and alert onepart of the supply chain when it will be

impacted by anotherfor example, predictingraw material shortages and reallocatingproduction and inventory accordingly. And,increasingly control towers are being used tohelp orchestrate the work of shared servicecentersenabling a super back office tooptomize business process, IT investment andexecution skills synergies across businessesand geographies.

Control towers can take different forms(depending, for instance, on functionalfootprint or scope of control). However, all

control towers generally need a few keycommon elements to be successful:

Connection to suppliers and othertrading partners (and their suppliers)to eliminate visibility gaps that createblind spots and can undermine thequality of the insights generated

Built-for-purpose technology thatcomplements, rather than replaces, typicaltransactional systemsi.e., systems ofengagement versus systems of record

High-quality data, which typically requiresan industrialized master data managementcapability to ensure all systems are insynch

An analytical capability to be able toidentify potential issues (predictively)by modeling what if? scenarios andfacilitating decision making.

Sufficient organizational weight to beable to influence execution across bothlong-term and short-term horizons

While many companies have used controltowers in a more focused way, historicallythe barriers to establishing a broadermanufacturing network control towerhave been high and difficult to overcome.

These include a high initial investment forthe necessary technologies and facilities,a complex integration effort to tie intoall relevant systems, long lead times tooperationalize, and the difficulty andhigh cost associated with maintaining thecapability (especially, technology upgradesand attracting and retaining the people torun it). However, that is changing quickly, asadvances in technology (such as cloud andSaaS models) can make integration effortseasier and a growing number of providersdelivering some or all control tower functionsas a service can substantially reduce thetime and cost associated with deploying andmaintaining the capability.

With manufacturers continuing to expandtheir operations around the world andincreasing the complexity of their productionnetworks, the traditional supply chainintegration/optimization approach is notenough. A control tower is fast becomingan indispensible capability in the pursuit ofgrowth in a volatile global economy.



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30Manufacturing Leaders


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31

with 35 percent reporting having openednew facilities in the United States and 24percent in Canada. For non-leaders, China,Brazil and the United States were also the topthree locations for new plants. Entrance into

a new market was also leaders top reasonfor starting a new facility, but the desireto reduce transportation costs was seen asnearly equally important. Non-leaders effortsto start new facilities were largely driven bythe need to reduce labor costs and to supportthe entrance into a new market.

Contract manufacturing also appears set toplay a greater role among leaders than non-leaders. In fact, 70 percent of leaders (andjust 22 percent of non-leaders) said they planto extensively increase their use of contractmanufacturing in 2013 and 2014. Leaders

are more likely than others to view contractmanufacturing as part of their long-termstrategy rather than as a way to relieve short-term capacity constraints (the reason that wascited by a majority of non-leaders).

Operating model

As mentioned earlier, leaders are far morelikely than non-leaders to be convinced ofthe value of flexible operations to achievingtheir growth goals. And it also appears thatleaders operating model is better suited tosupporting such flexibility: Leaders weremore likely than others to say that all sixdimensions of their operating model veryeffectively accommodate the dynamicshifting of production within a facility oracross the facility network in response todemand (Figures 23 and 24). In Accenturesexperience, that means leaders typicallyhave a high degree of consistency andstandardization across their operating model,which can help enable leaders to quickly andeasily move production within and across any

of its plants when necessary.

Leaders also appear to be more advancedthan others in key capabilities that are criticalto operating more flexibly and dynamically(Figure 25). They are about twice as likelyto strongly agree their company has a

good understanding of the local culturaldifferences and needs in its most importantrevenue markets; is highly adept at accuratelysensing market changes or opportunitiesbefore competitors do; has full visibility into

its networks operations that enables it toeffectively manage the network and makeappropriate decisions to balance demandand capacity; and extensively employsmodular and consistent business processesand policies that enable it to quickly anddynamically allocate product design andmanufacturing capacity across the facilitynetwork (including contract manufacturers)in response to changes in its markets.

However, leaders are not complacent. In fact,just the opposite is true: Eighty-five percentof leadersand just 24 percent of non-

leadersconsider improving their operatingmodel a very significant priority. Leaders aremore likely than non-leaders to be investingin improving all six dimensions of theiroperating model in 2013 and 2014, especiallytalent and organization structure.



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Figure 25: Extent to which manufacturers agree with the following statements.

We extensively employ modular and consistent

business processes and policies that enable us to

quickly and dynamically allocate product design and

manufacturing capacity across our facility network

We have full visibility into out networks operations

that enables us to effectively manage the network

and make appropriate decisions to balance demand

and capacity

We are highly adept at accurately sensing market

changes or opportunities before competitors do

55%23%

40%28%

50%22%

We have a good understanding of local cultural

differences and needs in our most important

revenue markets

80%37%

Leaders Others

Figure 23: How effectively manufacturers operating model accommodates the dynamic shifting of production across

the facility network.

Leaders Others





Talent / skills base


25%16%

50%21%

50%17%

50%

35%18%

23%

60%24%

Figure 24: How effectively manufacturers operating model accommodates the dynamic shifting of production within a location.

Leaders Others





Talent / skills base


45%17%

50%22%

50%23%

50%

60%17%

24%

50%26%



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THE BENEFITS OF BECOMING

A DIGITAL BUSINESSBy Mark Pearson, Global Managing Director Operations Management Consulting

As noted elsewhere in this report, our researchfound that the manufacturers we identified asleaders are more likely to be applying analyticsto extend the life of existing assets and toimprove the efficiency and productivity ofindividual manufacturing facilities. We alsofound they are more likely to be planning a widevariety of initiatives in the next 12 months toinvest in or strengthen their IT applications. Andwe discovered lea

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Accenture 2013 Global Manufacturing Study Full Report

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