In a world of mobile access to ubiquitous e-commerce sites and free overnight shipping, consumers have come to expect practically unlimited product choice and nearly instant gratification. Anything less is unacceptable.
And manufacturers are learning that the same expectations are leaking over into the business-to-business world. Whether they’re buying electronic components, medical devices, or automation equipment, customers are expecting faster innovation, more product options, and shorter lead times. Some are calling this “The Amazon Effect.”
Last week, members of the Manufacturing Leadership Council gathered in Milpitas, CA, to tour the campus of electronics manufacturing services company Flex (formerly Flextronics) and to learn from each other how to accelerate innovation and speed up their supply chains in order to meet rising customer expectations.
The tour of Flex’s sprawling campus, co-hosted by Flex’s President of Global Operations and Components, Francois Barbier, gave Council members a chance to learn about the $26 billion manufacturer’s efforts to speed groundbreaking new products and technologies to market by accelerating collaborative innovation with everyone from start-ups to customers, academics, and partners.
Battling in a highly competitive market with paper-thin margins–Barbier said the company’s net margins are in the 3% range–Flex is being forced to place bets on emerging technologies that the company believes will be important and to work with a wider range of customers and potential customers to integrate those technologies into new products that should, for a while, be more profitable.
For that reason, Flex has increased the number of engineers on its payroll to 2,500 and invested in developing a wide range of emerging technologies—including wearable technologies, battery technologies, sensors for automobiles, and new human-machine interface designs—that it believes will enable a new generation of innovative products.
“We are getting much more aggressive about participating in innovation,” Barbier told ML Council Members. “I believe we have crossed the chasm to collaborative innovation.”
Within its Milpitas campus, Flex has invested in a series of secure labs aimed at allowing Flex to quickly cultivate new product ideas, develop them, identify markets for them, and commercialize them. One such space, Lab IX, is an innovation accelerator into which Flex invites early-stage start-ups and provides them with innovation workspaces, prototyping tools, engineering and design-for-manufacturability services, supply chain optimization training, and access to partner firms that are able to share relevant technologies. While start-ups pay for some of these services, the obvious hope is that they will achieve volume production quickly and continue to partner with Flex as they grow.
Flex has set up similar innovation centers in Israel and Boston.
While Flex’s slim margins mean the company can’t afford too may wrong bets, its focus on emerging technologies and early-stage potential customers inevitably means that Flex is accepting greater risk. Flex Vice President for Market Strategy and Innovation, Paul Yarka, told Council members that, not long ago the company applied a highly rigorous, scientific method to 100% of its innovation investments. Today, he explained, that scientific method is applied to only about half of the investments. The rest he now describes as “bets.”
In the roundtable discussion that followed the plant tour and subsequent remarks by Flex executives, many Council members said their companies also are attempting to accelerate innovation through collaboration. Executives with manufacturers that have previously never looked outside their four walls for new product innovation said their companies are now engaging with outside firms on open innovation.
Others said they are attempting to increase internal engagement and innovation by linking recognition and reward systems to collaboration and innovation.
And several Council members said their companies are accelerating innovation and product differentiation by increasing investments in developing and enhancing the software content in their products.
Rising customer expectations are also forcing Flex, and members of the ML Council, to innovate new supply chain processes and strategies. With customers pushing for shorter lead times and greater product variety, Flex is investing in real time visibility and monitoring tools to help it cope with complexity and better manage its 14,000 suppliers.
Flex, for example, created a dedicated organization to develop platforms and applications that can be used to track, in real time, external events such as labor strikes and natural disasters that might disrupt its supply base. Flex has also developed applications that monitor key inventory trends and alert responsible individuals when levels go out of whack. Another application monitors customers’ social media comments about Flex products, helping the company to refine its own, and its customers’, demand forecasts.
Flex’s next step, said Barbier, is to segment its supply base, identifying the 670 suppliers whose products are most critical to Flex’s future. To each of those suppliers the company is assigning supply chain experts who will share real time insights and work to avoid disruptions and improve forecasts.
In the roundtable discussion, many ML Council members concurred that they are also working to improve real time supply chain visibility while also developing product postponement, staging, and inventory management strategies aimed at allowing them to sense and respond rapidly to shifts in demand, rather than forecasting them.
“We’ve come to the conclusion that we can’t forecast,” said one Council member. “We’ve got to build flexibility into the system through various hedging and staging strategies that allow us to respond quickly.”
Council members also said they are working with customers at the design phase to build more standard parts and subassemblies into products with the hope of reducing supply chain complexity. They said they are also endeavoring to provide suppliers with better and more current demand visibility and to develop closer, more collaborative relationships with suppliers.
“We need to do a better job selecting suppliers and working with them long term, versus just driving down price,” said one Council member.
Council members added that they are pushing to automate as much of the supply chain as possible by, for example, integrating order management and fulfillment systems and using customer relationship management system data to drive more accurate forecasts. But increasing such automation, Council members noted, requires a high degree of data quality and accuracy, something that does not always exist today.
Ultimately, Council members concluded, improving supply chain visibility and automation will require manufacturers to continue to eliminate internal functional organizational barriers and improve collaboration.
“The silos have to come down, and we need a lot more cross-functional communication,” said one Council member.
The Manufacturing Leadership Council’s next plant tour will take place on October 7 at the Procter & Gamble plant in Iowa City, IA. The theme for the tour and the roundtable discussion that follows will be “Achieving Higher Levels of Operational Excellence.”