Demand-driven manufacturing is a simple enough idea: manufacturers producing product based on demand for said product. Previously the domain of smaller, boutique operators, demand-driven manufacturing is increasingly becoming the ethos of larger producers. Decreased costs, increased productivity, lower wastage and more predictable movement of product are all key motivators for industry. Demand-driven manufacturing presents an attractive opportunity to operators, large and small.
There is no denying that Australian manufacturing has suffered in recent years due to rising costs, increased competition and undoubtedly inaccurate forecasting models. The demand-driven model is touted as a solution to many of the problems that manufacturers face. Will we see a revival of Australian manufacturing as a result?
What is it demand-driven manufacturing?
So, in less one-dimensional terms, what exactly are we talking about? According to Syncrono’s report ‘Top 10 Trends in Modern Demand-Driven Manufacturing’:
“Demand-Driven Manufacturing is a method of manufacturing primarily used by discrete, custom manufacturers, where production is based on actual demand (orders or consumption) rather than a forecast.”
Sounds great, right? Rather than the tricky business of forecasting, the large expenditure and associated risk involved, manufacturers simply produce based on actual orders (or consumption, as stated above). As you can imagine however, this is easier said than done. After all, the industrial revolution was based on the equation that increased output, along with cumulatively low capital, labour and land costs would equal cheaper goods for everyone and meet the needs of a growing population. The ‘stack ‘em high and watch ‘em fly’ mentality has understandable appeal, and most certainly played a part in the evolving of the developed world.
Why is demand-driven manufacturing an important change to make?
The ‘economies of scale’ model suggests that the cost of manufacturing decreases relatively, as production increases. The traditional forecasting model of manufacturing essentially requires a ‘best guess’ of future demand for a product, to streamline production and ensure these cost savings are achieved. These days however, the volatility of demand has driven many manufacturers to look for ways to stabilise their businesses. Forecasting is increasingly out of sync with actual demand for product, resulting in disastrous losses for manufacturers, who are left with overstock of some inventory and shortfalls in others. Not only does this mean that capital has been expended in areas which are yet to (if ever) pay off, but also that orders go unfulfilled in areas that weren’t successfully forecasted.
According to The Harvard Business Review:
“We investigated the longevity of more than 30,000 public firms in the United States over a 50-year span. The results are stark: Businesses are disappearing faster than ever before. Public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago. Although we may perceive corporations as enduring institutions, they now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience guards against an early demise.”
“We believe that companies are dying younger because they are failing to adapt to the growing complexity of their environment. Many misread the environment, select the wrong approach to strategy, or fail to support a viable approach with the right behaviours and capabilities.”
How do manufacturers implement a demand-driven model?
According to the Demand Driven Institute (DDI), there is a five-step approach to implementing this model into a manufacturing business, put simply:
While it’s simple to read, it’s almost certainly not so simple in practice. For this reason, the DDI actually offers courses which will teach businesses to execute these changes and move towards the demand-driven model.
Like many technological and planning advances in business, adjusting can be costly and involve a certain amount of trial and error. Understandably, this puts a lot of manufacturers off the idea of changing their production model. Luckily, rather than adopt an ‘all or nothing’ approach, this kind of manufacturing solution can be effected in stages. How, you might ask? Read on.
The Internet of Things (IoT)
The IoT or the IIoT (Industrial Internet of Things) is a term that most of us are familiar with by now. This exciting revolution, which allows your iPhone to switch off the lights and air-conditioning with a simple, handy application, is also resulting in huge improvements for industry. (See our earlier article about the IoT and its implications for agriculture, for an example of the power of this technological advance.)
By incorporating the IoT into machines, tools and sensors within a manufacturing plant, businesses can not only streamline the building of product, but also monitor in real time, inventory, customer orders, location of materials, delivery—and much more! Having integrated systems means that information gets to where it’s needed more quickly, and allows for incredible gains in efficiency.
The IoT can help to keep production moving and downtime to a minimum. All machines (and tools, and sensors) talking to each other in real time, constantly, is one of the key revelations of this advance in technology. Some of the areas that can benefit most include:
- Real-time info on parts and materials needed for each job
- Progress reporting on jobs being completed
- Materials replenishment ordering
- Transport and storage of materials
- Reporting issues instantly
- Safe operation of machinery and access equipment (free of human error and fatigue)
Driverless forklifts, CNC machines, inventory monitoring systems and automated manual processes (such as ordering) are all examples of the IoT making manufacturing more efficient.
Synchronisation and Visibility
IoT implementation in manufacturing results in two key elements in the demand-driven manufacturing model: synchronisation and visibility.
According to manufacturing software firm, Synchrono:
“Visibility at all levels is becoming increasingly critical for innovation, competitive value, synchronising activities, traceability, production flow – and the list goes on. As customer and customisation demands increase, more Modern Demand-Driven Manufacturers are relying on greater visibility at the value stream, supply chain, or enterprise levels to drive increased performance.”
In order to future-proof their businesses, and overcome the inherent faults in the traditional forecast model of manufacturing, operators are increasingly moving towards the demand-driven model. With a plethora of technology available, as well as courses on how to implement it, there is a great deal of potential for manufacturing industries worldwide. Our ‘best guess’ is that we’ll see more examples of this innovation, and perhaps (are we being too optimistic?) a resurgence of manufacturing based in Australia?