What is current thinking in the holy land of manufacturing and how will this potentially affect the construction industry
When thinking of manufacturing, giant names come to mind such as Apple, Boeing, Nike, Airbus, Mercedes-Benz, Porsche and many more; ranging from consumer goods to advanced manufacturing in aviation and automotive. But what is going on inside the factory walls and what takes up oxygen in discussions across the table in the boardrooms?
The reasons why I have taken this exploratory approach to exactly this question is to better understand the likely trajectories for construction should we continue getting higher proximity to manufacturing.
Since I worked in manufacturing some 15 years age, the leading trend was to integrate horizontally and vertically stretching further in the value chain and being able to simplify the value creation process by reducing systems and autonomy. Companies became bigger and bigger catering for a global audience and each company with ambition to win in their space would have to excel in each part of the Value Chain (Michael Porter).
Revisiting companies I have worked with in the past, discussing with former managers from these companies and former co-workers however paints a different picture, and this centralisation and ownership of all elements of the value chain has in some cases been an impossible battle to win. In reality, this is about building capabilities and resources excelling up and beyond everyone else in each part of this process, basically in convergence with the core business of the manufacturing company. You cannot win without excelling in both value chain optimization and in your ability to innovate and understand which products the customers demand. Thus, tremendous managerial pressure was placed on these companies and their ability to deliver to the market needs that being local or global became increasingly challenging.
However, this challenge has created a new breed of companies who challenge exactly this space and focus on these parts of the value chain as their inherent core business instead of a necessary “evil” in order to deliver the products that are the manufacturing companies' core business. Leading companies such as Audi, Apple and Nike have partnered up with the likes of Flex (formerly Flextronics) to build new strength in their collective capacity and competences. The speed and velocity of meeting customer demand puts even more pressure on the value chain, which is why there are several advantages to this segregation:
A) each company will build and organise their business around their respective core business resulting in synergies
B) allows more flexibility and speed in meeting market demands and increasing innovation
C) reduces risk and cost since both companies can build economy of scale, and
D) with this increased efficiency be less risk adverse and constantly test the boundaries of the core business in proximity to future client demands.
Below a short video with Flex CEO Mike McNamara explaining their take on Manufacturing:
How does this reflect on construction?
Well, in construction we are still focusing on building control and creating value – for the client, our partners and ourselves – in each element of the value chain. Construction companies generally work in a non-integrated process with contracts and waterfall approach to co-working, which basically just pushes liabilities downstream.
This organisation of the value chain is however changing among some of the most forward thinking companies such as DPR, FIRA, MTH, NCC, CMIG and many more.
In Helsinki an innovative builder is completely changing trajectory, from having a traditional workforce and supply chain to being a white collar builder with a keen focus on 5D and adding value to the project, before applying a platform business model inspired by Uber and AirBnB to the actual construction of the build very similarly what Nike, Apple and other companies have done with Flex as supplier.
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