How market changes are reshaping manufacturing, procurement

Arguably at no other time in recent history have the markets changed so dramatically at such a rapid pace as they have over the past decade. A brief recollection of what the consumer product market looked like in 2004 should provide sufficient support for this claim.

Cellphones were nearly ubiquitous, but they were nothing like the smartphones that are currently the top consumer electronics item. Meanwhile, sustainable product sourcing was a concern for a relatively small contingent of individuals, whereas today, demand for local and eco-friendly products is exerting considerable influence on mainstream trends in food, retail and other sectors.

Such changes don't occur in a vacuum. There are myriad cultural influences behind the shifts - but more importantly for manufacturers, these trends also have implications for the way goods need to be produced and sourced. Procurement strategies must keep pace with market developments, and companies are finding that the need to adapt is reshaping their supplier networks and making them take a second look at their products.

Reconsidering the nearshore manufacturing model

For many companies, the benefits of offshore manufacturing have been considerable. The ability to source certain raw materials and goods from overseas partners has helped firms limit production costs and stay agile. But with global markets undergoing considerable changes - not to mention consumers' increasing demands for locally sourced products - the model may no longer work for all companies.

In a column for The Boston Globe, Donald Rosenfield, a senior lecturer at MIT's Sloan School of Management and director of the Leaders for Global Operations Program, suggested that domestic manufacturing may become a more viable option for many firms. He enumerated five key criteria that companies bear in mind when deciding where they'll move production.

  • Location: The site should be close to other suppliers so production timelines can be minimal.
  • Innovation: Manufacturing will ideally be close to hubs for new product development technologies.
  • Consumer access: Production should not be far from the target market.
  • Transportation costs: Movement of goods should be streamlined for minimal expenditure.
  • Direct labor costs: These should be as low as possible.

Increasingly, these criteria point toward housing manufacturing in the United States as an ideal choice, Rosenfield asserted. With sophisticated production technologies such as three-dimensional printing and water fabrication more readily available in the U.S. than in other locations, enterprises such as New Balance and Intel have continued to leverage domestic manufacturing partnerships

E-commerce means "lean" won't suffice

The shift toward online and mobile purchasing is another development that firms have to consider, especially in the retail space. In a column for EBN, storage engineer and consultant Jim O'Reilly suggested that the culture of instant gratification fostered by e-commerce means that firms can no longer afford to adopt the philosophy of "lean" operations, which states that inventories should be kept as low as possible, products should be assembled at facilities with minimized costs and shipments should arrive just in time. In a climate characterized by demand for immediate service and speedy delivery, adaptability becomes a greater virtue than leanness.

"We need to reduce the logistics chain and increase flexibility, while keeping inventory down and quality up. We need to get nimble," O'Reilly wrote.

He pointed to the smaller companies - not Apple and Samsung - that recently showcased their products at the Consumer Electronics Show in Las Vegas and noted that their lower volumes require flexibility.

"A long, rigid pipeline doesn't make any sense for these companies. Having to forecast volumes for six months and place orders before unit one has shipped, they risk disaster from a lack of sales or a start-up quality issue. They need a nimble supply chain," O'Reilly argued.

Minimally, companies need to continually evaluate their business cost reduction strategies in light of broader market shifts.

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