The manufacturing model employed by the automotive industry has changed very little over the last century. In 1913, Henry Ford revolutionized the car assembly process by creating the moving assembly line that had dramatically increased the number of vehicles produced per day. Over time, in order to satisfy the growing demand for vehicles, automakers expanded their assembly facilities to leverage economies of scale: utilizing larger factories that strive to achieve maximum output at high equipment and labor efficiency.
Mass production is still largely considered the way to minimize costs and maximize yield in the auto industry, cultivating a culture that drives to keep assembly lines running at maximum rate and producing large inventories of cars based on anticipated, but often grossly inaccurate, market demand.
This culture has placed many manufacturing in a productivity vise. Driven to increase manufacturing equipment utilization and return on assets, automakers produce large inventories, which they try to deplete through aggressive price reduction and other incentives. These campaigns, of course, reduce profit margins and put pressure on operations to become even more productive and produce more vehicles, which, in turn, triggers additional discounts that erode already slim margins.
Globalization has a profound ongoing effect on the automotive industry. Growing operational complexity, diverse markets and high consumer expectations are forcing automakers to move away from capitalizing purely on economy of scale and embrace a mindset of economy of scope, focusing on global flexible manufacturing capabilities.
The future production environment will need to be highly adaptable and reconfigurable to respond to rapid changes in market demand, technology innovation and changing regulations, among others. Flexible manufacturing technologies employed by most automakers are a critical ability in this process and the foundation for profitable growth, but these alone will not suffice in a long term strategy to fend off the competition.
Going beyond flexible manufacturing, a practical design anywhere, make anywhere, sell anywhere strategy is needed, and automakers will strive to improve their ability to harmonize, supervise and coordinate globally dispersed and diverse production capabilities.
We believe that forward-looking automakers will adopt the concept of a global plant floor. Factories of the future will be a global network of production facilities managed as single virtual factory. This type of manufacturing network consolidates multiple resources and capabilities to form an end-to-end fulfillment network that we call fulfillment execution system (FES).
FES facilitates the global plant floor by providing singular, closed-loop management of demand, capacity and resources, and outbound order fulfillment across the entire network of manufacturing plants and along the supply chain.
Utilizing the FES framework, data gathered from the global plant floor will be connected to corporate-level intelligent decision support tools, creating visibility and intelligence on operational data. It enables manufacturers identify problems, isolate root causes, understand the state of execution processes, and adopt corrective actions quickly across multiple plants.
We are not suggesting that all plants in the global factory be identical. In fact, local economies, labor rates, regulatory conditions and labor relations dictate that factory capabilities in different geographies should be different.
The concept of FES is that it allows a centralized provisioning, analytics and global process optimization, while recognizing and supporting necessary localization. To that end, digital manufacturing technologies are critical to understand the manufacturing capabilities of different production facilities and verify the ability to produce vehicles across the fulfillment network.
We maintain that cloud-based architectures can accelerate the implementation of the global plant floor. While assembly plants are typically intensively networked internally, assembly line automation and information reporting tend to remain local.
Cloud-based architectures will facilitate low-cost connectivity and real-time data sharing and greater agility handling supply chain disruptions. In particular, cloud-based architectures are critical when rapid on-boarding or off-boarding of third party manufacturers is called for, such as when changing suppliers and channel partners and to support acquisitions and divestitures.
Joe Barkai is practice director for IDC Manufacturing Insights' Product Lifecycle Strategies research service. His research topics center on effective product lifecycle management, and include innovation, design and engineering, service and warranty, and product end of life.
Pierfrancesco Manenti leads the IDC Manufacturing Insights research practice and is the global lead for the Operations Technology Strategies advisory service. Among the process domain areas, Manenti specializes in manufacturing operations, supply chains, and product lifecycle strategies.
