A difficult time to make manufacturing resource commitments

hauf-leeAn interview with our keynote speaker Prof. Hau Lee, Stanford Business School and SCM World.

What are the current business challenges for manufacturers?
The dynamics of the business environment have created major challenges to manufacturers. For the last few years, the topic that dominated the agenda of conversations or discussions have been the increasing frequencies of disasters (Japan earthquake, Thailand flood), the increasing vulnerabilities of supply chain risks (social and environmental concerns in developing economies), and some of the regional political pressures faced by manufacturers (like US government pressing companies such as Cisco and Apple to do more reshoring). The rise of wages in China and the associated tightening of labor and environmental laws there have also accelerated the thoughts of manufacturing thinking about migrating manufacturing out of China (I think the label for reshoring is not sufficient to sharpen the focus on this issue – probably better phrase it as „outshoring from China“). But this year, there are more immediate concerns – the sudden devaluation of RMB has slowed down the cost of manufacturing in China. When the most recent news about Chinese manufacturing sector cooling off came out, the buzz is that maybe we should not leave China for manufacturing so soon. The potential passage of TPP, on the other hand, has increased the attractiveness of other alternatives like Vietnam and Malaysia. In short, the whole manufacturing strategy discussion has become wide open. This is a difficult time to make manufacturing resource commitments.

How should industry respond to these challenges?
Investing in fixed assets at the current time is risky, due to the highly uncertain state of business and the volatility of the market. As a result, I think manufacturers must retain a high degree of flexibility. Such flexibility can be accomplished through increasing leverage of partners – suppliers, outsourced manufacturers, logistics service providers, and customers. But the increase use of the extended network requires sound coordination, and digitized supply chain is the key to have such coordination well executed. Digitized supply chain management refers to the use of advanced information technologies to coordinate the supply chain. It often includes the use of new technologies such as sensor networks and additive manufacturing or 3-D printing, both of which increase flexibilities to the manufacturer. The other way to increase flexibility is by leveraging capacities that can come from non-dedicated sources. This is what shared economy or peer-to-peer commerce are about. Such sharing now includes not just physical resources, but even in the idea and design space.

What role do startups play in changing the industry landscape?
Just as in the past, new innovations often came not from incumbents but from new players in business. So I do believe that startups and new entrepreneurs will be the engines for creativity and disruptive concepts. However, the big impacts that revolutionized the business landscape could come from incumbent, more established companies who saw the potential and could either come up with their own version of the innovation or simply acquired the new startup. For existing, well established manufacturers, it is therefore very important that they always have new ideas and opportunities in their radar screen.