What were once tried-and-true business models are facing obsolescence, and organizations are more pressured than ever to make significant changes to stay competitive, resilient, and profitable. Why? In a word, disruption.
Disruptors of all types — inflation, supply chain challenges, labor shortages, shrinking margins, and others — are radically transforming customer expectations and how organizations operate. Those ahead of the curve can attain remarkable success, breathing new life into a declining institution or sending a startup soaring to dizzying heights. Organizations that ignore disruption, however, risk their very survival.
Consider a company that manufactures food products. The traditional model was to set up production lines as a repeatable process without need for frequent modification. But with changing consumer tastes, staying ahead of the curve means increasing the variety of products and customizing ingredients and packaging. Add to this supply chain disruptions that necessitate quickly switching lines to different products, and widespread flexibility and innovation is no longer optional. To manage these compounded challenges, you now need better production planning, more efficient manufacturing operations, and the capability to make split-second decisions to maintain projected margins.
Or consider an auto parts supplier that’s highly competent in one area of operation — say specialized welding — but lacks the infrastructure to move products through the painting process efficiently. In this case, outsourcing painting operations could maximize efficiencies, resulting in increased production throughput and revenue.
Accelerating innovation, resilience, and responsiveness
A flexible operating model drives innovation and responsiveness to market changes. It nearly always reflects a fundamental shift in long-standing beliefs about how organizations make money, and it requires a shift to a highly resilient, adaptable configuration of capabilities — capabilities that must align with strategy and changing market and customer demands. And, to achieve sustained success, the transition to a flexible operating model must occur throughout all levels of an organization. Learn how Industry 4.0 helps manufacturers mitigate disruption.
Going back to our food manufacturer, it modified its operating model and improved production support using data analytics and dashboards tied to each of its manufacturing lines. The entire management team can see on their phones exactly what’s happening on the lines in near real time. If a line needs to be changed, they have the information at their fingertips to help decide what to do, minimizing costly delays and maximizing margins. And the parts supplier is looking at the benefits of outsourcing noncore production steps that require specialized equipment or skills.
All organizations are vulnerable to disruption, but your organization may especially be at risk of not responding accordingly if it:
- Functions in siloes — too many disparate systems — resulting in duplicate work, inefficiencies, and increased costs.
- Has high fixed assets or makes large volumes of one item creating vulnerability and risk.
- Is slow to make decisions due to limited visibility across all systems and lack of accurate and timely data.
- Isn’t clear about its core competencies, value proposition, and role in the supply chain.
- Doesn’t take a disciplined approach to risk management and strategic planning.
- Is unwilling to shift to smart manufacturing and embrace an innovation mindset.
Taking a structured approach to designing a resilient operating model
Transitioning to a flexible operations model takes a deliberate, structured approach. Otherwise, it’s all too easy to react when pressures mount and make suboptimal decisions in the long run.
A systematic review of your organization’s capabilities and core competencies should be part of your annual strategic review and planning process. This is the time to take a step back and assess whether changes you’re seeing in the marketplace and among your customers still align with your capabilities and plans and where you might need to make changes. Key questions to ask include: What are your competencies? What’s the market like? Where is it going? Who are my potential customers and competitors? It’s difficult to choose a viable path without answers to those, and many other, questions.
As a part of the strategic planning process, we recommend organizations conduct at least annual voice-of-the-customer (VOC) reviews. Organizations often overestimate their degree of confidence in customer relationships when orders continue to come in. But the status quo should never be taken for granted. Instead, in addition to your customers’ current needs, focus more on the likely changes in their business that are going to cause their needs to shift so you can be a partner in their evolution. After all, your customers face disruption, too.
Taking time for strategic planning and voice-of-customer reviews isn’t easy, we know. You’re busy putting out fires to get orders out the door. However, you also need to be thinking ahead strategically in parallel to your daily business. Where does the organization need to be in two or three years, and what resources will you need to get there? We often hear an organization’s leaders ask how to improve the efficiency of a machine or a process when the question we encourage them to be asking instead is, “Going forward, will you really need this machine or process at all?”
Improve operational flexibility with these seven drivers
In addition to taking a structured approach, these seven drivers will help you create a more flexible operations model:
1. Scale your processes and operations
Right-size your equipment, processes, and capabilities. You want the right equipment to meet order demand (large machinery for high-volume runs, smaller machinery for small runs); the right customer care staffing to meet order processing demands; and the right technical capabilities to meet customer demand. Align operations with current, and anticipated, customer needs.
2. Forge strategic alliances
What if you find your equipment or competencies diverging from changing customer needs? Form alliances with organizations that can fill the gap. Take a company that built a successful business making a narrow range of light fixtures for fluorescent bulbs. The rise of LED technology, however, has created almost countless possibilities for fixture shape and size, forcing the company to quickly pivot to supply the products customers want at competitive pricing. Forming an alliance with another supplier makes that possible. Or take a metal processor that’s running at full or perhaps over capacity. By leveraging a strategic alliance with a firm that has extra capacity, the metal processor can choose to run its highest margin products while shifting lower margin production to its partner.
3. Engage your workforce in new ways
Many organizations face challenges attracting and retaining skilled people. Advanced technologies are changing traditional manufacturing jobs, requiring experienced employees to learn new skills on a very different shop floor. By contrast, younger workers raised on screens may find long stints of demanding physical labor undesirable.
Consider a plastic injection molding business that schedules its line workers in 12-hour shifts. Facing a talent shortage, managers are looking at different ways to change the work. Perhaps employees can rotate through multiple operations during a shift, offering more variety and less sustained physical effort.
Beyond the shop floor, take a common back-office task: compiling data for management reports. Today, with the right automation, this can be done with a few clicks, not a dedicated staff. However, once these tools are added, employees need new skills to analyze the data and assume new decision-making responsibilities — a very different role. Provide training to reskill your team and retain your loyal employees.
And perhaps the staff in these and other roles don’t even need to work in your office — they might reside in another city, state, or country and work remotely, providing further flexibility and improved access to necessary capabilities. Revisit your policies and flexibility on where the work needs to occur. Learn how using robotic process automation (RPA) allows you to automate reports.
4. Increase throughput through optimizing efficiencies
Organizations can increase production levels with existing equipment and staffing by eliminating downtime, reducing changeover time, improving quality, and reducing material wastage. Take for example the consumer goods manufacturer who improved their bottle filling line output by 20% simply by adding accumulation tables and aligning timing belts between stations.
5. Leverage technology and data analytics
Technology is both a major disruptor and a key enabler of flexible operations. Take a company that provides fleet management services. The process from customer order to delivery traditionally had been cumbersome, involving multiple handoffs among siloes — customer service, supply chain, purchasing, accounting — and afforded customers little visibility into their order status along the way. Today, customers want visibility. They’re used to real-time updates, whether ordering a pizza online or a box of, well just about anything, from Amazon.
Now, the fleet management business is streamlining the order and fulfillment processes using its technology and data to improve flexibility, thereby reducing handoffs and misinformation between siloes, so customers can gain similar to-the-minute updates.
Organizations of all types are using data analytics in myriad other ways, whether to optimize staffing, accurately predict monthly financial results, identify products or services individual customers are likely to purchase, or to predict the need for and schedule maintenance to minimize lost production time. Learn how to leverage business analytics to improve your margins.
6. Speed up decision-making
As the pace of change accelerates, organizations must also accelerate decision-making, often with less information at hand than leaders might like. Make pilot programs and beta-testing your friends. Planning an organization-wide change? Pilot it in one functional area first. Rolling out a new technology? Try it in one division before bringing others on board. Launching a new product? Start with a soft launch with one target customer segment.
7. Watch the regulatory landscape
Join industry and trade groups. Stay abreast of trends and proposed legislation. Consider how they’ll impact not only your organization but also — this is key — your customers, so you can anticipate where and how to add value. Perhaps your organization not only can respond to change faster but also do some disrupting of its own.
Conclusion
Your customers’ needs are changing. The marketplace is changing. Technology and other disruptors are challenging old business models and operations, placing enormous pressure on organizations to pivot — sometimes rapidly. Flexible operations help leaders relieve that pressure, minimize risk, and pursue new opportunities and revenue streams. And, they guide you with agile, focused action toward improved competitiveness, profitability, and growth.
