Forge a New Operating Model to Manage Change

March 10, 2014
Follow six key actions to help create dynamic manufacturing operations for the constantly changing global marketplace.

Industrial equipment (IE) manufacturers around the world are being challenged by a continual onslaught of change that must be managed, whether it is driven by fluctuations in foreign currency, shifting customer demand or commodity prices, or new opportunities in growth markets that must be pursued to remain competitive.

According to a new Accenture study, “How Leading Manufacturers Thrive in a World of Ongoing Volatility and Uncertainty,” 82 percent of the 250 global manufacturers responding, which included 49 IE companies, agree that having operations flexible enough to move production from one facility to another or to change their product mix at a plant will be critical to growing their business. However, only 27 percent at best believe any component of their operating model is very effective at accommodating a shift in resources and activities to alternate locations. Also, just 24 percent think their company is highly adept at sensing market changes or opportunities before their competitors.

As a result, 72 percent plan to improve their operating models this year. The research reveals that to drive more flexibility, investments are being made across operating model components, ranging from talent, business processes, policies and capabilities, to IT infrastructure, organizational structure and production facility networks. But the key to optimizing these investments will lie in the ability of manufacturers to forge these components into dynamic operations that can respond rapidly to change, thereby enabling them to capitalize on market shifts and other changing business dynamics.

There are six actions IE manufacturers can take that will help them create dynamic operations:

1. Reduce the need for investment in new plant assets by improving the reliability of existing assets. By doing this, IE manufacturers will have an opportunity to boost capacity without buying more equipment or building facilities. Additionally, by using this approach, they can scale operations up and down with great efficiency as business requirements change, while also optimizing their productivity.

2. Invest in and integrate digital capabilities into the organization’s operations. The study suggests that companies could be preparing to embrace this strategy, with 77 percent of the respondents planning to invest in information technology.

3. Expand the workforce where needed. An optimistic outlook, despite the challenges of an ever-changing market, has 66 percent of the manufacturers reporting that they will increase their workforce.

4. Close skills gaps. Respondents indicated that this is an issue, with 38 percent reporting a significant gap in their skilled trade labor workforce and 35 percent citing the same issue with their general labor. To close these gaps, manufacturers most frequently said they tie performance rewards to an individual’s success and enterprise profitability (46 percent) and offer competitive salaries and benefits (45 percent).

5. Modify plant networks where appropriate. According to the report, companies are adjusting their networks and placing greater emphasis on new market entry. Since 2011, 42 percent of the manufacturers have relocated operations, with China and Brazil being the top beneficiaries of those moves; and 49 percent established new manufacturing sites, most commonly in China, Brazil and the U.S.

6. Enhance flexibility through contracting. This is an area that three quarters of the respondents want to enhance—76 percent expect to make greater use of contract manufacturing through 2014, which can help them create more flexibility in their operations, while avoiding costs associated with building or buying new facilities, equipment or hiring personnel.

Manufacturers clearly recognize the need for greater flexibility to be prepared for any challenge that may come their way in today’s uncertain and volatile economy. IE manufacturers that can develop an operating model based on dynamic operations will greatly enhance their ability to succeed in a perpetually changing global marketplace.

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