Companies—and consultants—adjust their thinking for manufacturing’s new global reality

In a sector where consistency and standardization reign supreme, confusion sparked by a rapidly tilting playing field has thrown a wrench into North American manufacturers’ game plans.

In other words, these are flush and exciting times for manufacturing consultants. “Manufacturing is a growth industry right now,” says Deloitte Consulting Principal Mark Gardner, who leads the firm’s automotive and industrial practice.

This growth increasingly consists of a new and innovative array of consulting engagements, which “in the old days” (i.e., more than three or four years ago) translated to various efficiency improvements. Although that cost-reduction focus continues, lean manufacturing, Six Sigma and other process-improvement projects have been joined by a wide world of new engagements.

Today, manufacturing consultants at Capgemini, Deloitte Consulting, BearingPoint, Bain & Company, Archstone Consulting and PA Consulting are staving off profit-plundering pirates, powwowing with sales and marketing on branding, digging into process improvement efforts among client’s suppliers, marrying supply chain management capabilities to customer relationship management (CRM) processes and delving into talent management challenges.

Globalization, which has thrust nations of low-cost competitors into the mix, is primarily responsible for most of the pressures bearing down on North American manufacturers—and much of the confusion that inhibits responses to those pressures.

“Globalization is a big issue but you have to be careful in how you define it,” notes Eric Schwalm, partner and head of Bain & Company’s North American industrial goods and services practice. “By globalization, I don’t mean [selling] products around the world. I mean regional products and sales organizations supplied from a global operating base.”

Schwalm and other seasoned manufacturing consultants say their top priority is helping North American clients understand how to plan, compete and succeed in the newly global playing field that poses significant risks (major cost structure disadvantages) but also opportunities.

“If I’m Hasbro game factory in Massachusetts, why would I produce games there because it’s so expensive compared to overseas locations?” asks Eric Johnson, professor of operations management at Dartmouth’s Tuck School of Business. “Well, one reason is because they can exploit ways to capture last-minute changes in demand, particularly during the holiday run-up … The question many U.S. manufacturers face is: How do we exploit value of being local?”

The answer is flexibility, which requires significant change. And that’s a good thing, for both manufacturing consultants and their clients. “I believe in the long run, U.S. manufacturers really have an advantage in the world,” Schwalm asserts.

Unconventional Wisdom

Helping clients work through their pain starts with correcting misperceptions. There are a number of them, and they involve both external forces and internal problems. Consulting firms do much more than correct misinformation, but today this step seems especially valuable as manufacturers grapple to address a range of interconnected problems, nestled within each of the following bits of bumper-sticker clarifications.

The entire world is not flat. Yes, supply chains are flattening thanks to an explosion of new suppliers in low-cost countries, but not all markets have flattened. Many U.S. manufacturers remain regional in terms of their markets: they serve U.S. customers while trying to stave new competitors with lower cost structures and, as a result, lower prices. Schwalm estimates that only about 10 percent of U.S. manufacturers—the largest ones, such as General Electric, Hewlett Packard, Dell, Texas Instruments and Intel, to name a few, who also sell to overseas markets—have figured out how to serve regional customers from a highly flexible and mobile global supply chain.

The rest of the market is playing catch-up, and contending with growing complexity. “As partner networks become more global and more diffuse, managing it, controlling it and maintaining visibility into it becomes a critical challenge,” says John Ferreira, a principal and founder of Archstone Consulting.

The consulting work under the “global manufacturing” heading ranges from figuring out where to manufacture and, in some case, which new markets to enter, to helping equip clients to do so.

“What do you make where and why?” asks PA Consulting Head of Manufacturing Martin Smith. “The answer has come a long way in the past 10 years. There used to be a sense that if you’re not in China, you’re a fool. … Now, it’s much more complicated, because it’s not just China. We do quite a lot of studies of where companies can locate manufacturing capabilities of various sorts.” The analyses are complicated because they must evaluate a complex array of political conditions, available skills, salaries, logistics and other factors.

After addressing the what, where and why, manufacturers confront a more imposing question: how? “It’s not so much a cost challenge as it is a capability challenge,” Schwalm asserts. “That is a real fundamental challenge. To do this well, you
basically have to design a product and then characterize that product to the entire supply chain digitally.”

Not surprisingly, several of the aforementioned electronics and high-tech manufactures have made the quickest transformation to an all-digital manufacturing organization. They can take a bill of materials and ship it electronically all over the world and then also manage their entire engineering processes, manufacturing processes and supplier network electronically.

“I tell people it’s a good thing that there’s an ocean between us and China,” jokes Gary Baldwin, Capgemini’s vice president of manufacturing. “I’m not sure how successful U.S. manufacturing would be without that water separating us.” Baldwin’s allusion to the logistical costs and risks associated with importing more goods from overseas supports Johnson’s contention that U.S. manufacturers have a unique opportunity by dint of their proximity to end consumers.