ManufacturingJuly 25, 2019

Sustaining Manufacturing Excellence

This blog is written by Bob Parker, Senior Vice President, Enterprise Applications,…
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This blog is written by Bob Parker, Senior Vice President, Enterprise Applications, Data Intelligence, Services, and Industry Research at IDC

Haier is a model of global manufacturing excellence.  The Chinese white goods manufacturer has made a fascinating journey from a relatively small producer of cheap and less than reliable products to the world leader in consumer appliances in terms of both market share and product quality.  Haier provides us with an example of how a manufacturing firm can develop into a highly successful company that can sustain growth, profitability, and social responsibility.

Zhang Ruimin, chairman of Haier, has brought the company through a series of multi-years plans that have incrementally built the company into its current favorable position.  The plan currently being executed can be described as the platform plan and Mr. Ruimin says that in the future a company will either own a platform or be owned by a platform.  Haier wants its connected products to be experience platforms that deliver the best possible outcomes for consumers.  As part of this effort, the company is looking to create a sustainable competitive advantage through three key areas:

  • Operations – promising a better experience is easy, delivering on that promise profitably is the challenge. Haier calibrates its operations to the customer requirements rather than focusing solely on improving productivity.  Operations are optimized to serve the customer.
  • Ecosystem coordination – it is important to Haier that suppliers and distribution partners are part of their long-term plan. The whole value network is orchestrated for shared success.
  • Workforce empowerment – Haier employs over 70,000 people. As part of their plan, they have sought to remove management layers, not to save on salary costs, but to push decision making to the front lines where corrections can be made more quickly.  A key element to this tactic is to make sure that information and analytic tools are readily available.

The Haier story is a great example of what IDC calls the Future Enterprise which brings together customer experience, operations, and workforce to deliver economies of intelligence that will define sustainable competitive advantage in the digital economy.  We have seen advantage in past economic periods come from economies of scale or scope or learning.  Economies of Intelligence build on these and we define it as:

As enterprises scale their use of modern technologies for complete instrumentation, integration, and insight, they can expand their scope by offering a wider variety of experiences that demonstrate increasing profitability as the organization learns what is most desirable and efficient.

Economies of Intelligence are defined by the dimensions of “the value of information” and “number of tailored experiences”.  As a company iterates experiences, it builds its knowledge and captures expertise (or know how) yielding an exponential increase in the value it derives from information.  Haier is certainly on this path.

Operational Resiliency

To drill into operations a bit more, IDC observes that companies are trying to create resiliency in the operations – to be able to calibrate to customer needs rather than just productivity.  Resiliency is an academic discipline, usually focused on ecological systems but the principles can be easily applied to operations.  The definition of resiliency is – the ability to adapt to changing circumstances while maintaining a central purpose.

The ability to adapt is what we might call agility, but when we continuously optimize to our purpose to deliver better customer experiences, it becomes resiliency.  Resiliency also has several characteristics that would be familiar to the operations executive:

  • Simple at the core and diverse at the edges. Resilient systems tend to push decision making to edge where the most information and expertise resides.
  • Closed loop decision making. Operational control depends on an ability to not just identify the root cause of a problem, but to take corrective action.
  • An ability to “swarm”. Resilient systems can move resources to where they are needed and exhibit a high level of alignment that allow it to make progress – like a swarm of bees or flock of geese.

When these principles are connected to product design, extend to the whole value network, and empower the workforce, resiliency is achieved.  And the sustained value of information is realized.

Building the Digital House of Productivity

Haier is not a typical Chinese manufacturer, but it provides a stellar example of what can be achieved.  Economies of Intelligence provide the justification, the ‘why’, for investing in a platform and striving for sustainable manufacturing.  Initiatives like Industrie 4.0 and China 2025 give us the ‘what’ for achieving operational resiliency.  What remains is the ‘how’ to get it done.

Those reading this blog that have been in manufacturing for a while are probably familiar with the concept of the “house of quality” which aligns performance to customer requirements.  Building on that idea, IDC has developed the notion of the “Digital House of Productivity” (see figure).

The intent of the graphic is to show how past approaches to operational excellence have evolved to address the unique needs of the digital economy.  The pillars of the house are made up of the 5 “c’s”:

  • Create – companies must go from engineering rigid processes to designing processes that can deliver the requisite customer experience.
  • Calibrate – lean thinking is useful but the rate of change that operations must deal with requires the adoption of artificial intelligence techniques like machine learning to optimize resources to market needs.
  • Control – similarly, six sigma techniques are valid but must be automated in the direct instrumentation of the processes that will create resiliency
  • Compute – the approach must move from discrete applications to a digital platform that allows for maximum adaptability
  • Compete – as discussed previously, competitive advantage will come from achieving Economies of Intelligence.

Taking all of this on may seem formidable, but it will be necessary for manufacturers who wish to be successful.  This is particularly true for Chinese manufacturers who must make the transition from low cost exporters to innovative organizations serving both domestic and foreign demand.  And, unburdened by the heavy legacy investments seen in the west, there is real opportunity to move quickly.

I am looking forward to sharing more of our research at the Manufacturing in the Age of Experience 2019 event in Shanghai on September 18th and 19th.  I hope you can join us.

Robert Parker

Senior Vice President, Enterprise Applications, Data Intelligence, Services, and Industry Research, IDC

Bob Parker is a Senior Vice President responsible for several areas of research at IDC.  Bob leads the global industry research teams which includes coverage of healthcare, government, retail, energy, manufacturing, and financial services as well as a cross industry group looking at emerging topics such as blockchain and robotics.  Additionally, Bob leads our teams in the enterprise applications space, services, and the IDC coverage of data intelligence which includes coverage of artificial intelligence.

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