The decentralization of production is a hot topic nowadays. The idea of distributing manufacturing that lets you make products close to your customer to obtain an edge in time to market and speed of delivery seems like an increasingly viable strategy for many high end manufacturers. Lower shipping costs and more responsiveness to customers’ needs could give companies an edge. Much manufacturing is being commoditized and profitable areas often rely more on service and meeting customers’ needs than was previously the case.
Why are people looking at decentralized manufacturing?
China, in a word. Competition from thousands of Chinese factories that can inexpensively make ever more complex goods is casting a spectre over the prospects of many manufacturers worldwide. Today much of China’s manufacturing output is considered both low cost and low quality. This attitude and view is shortsighted however. In certain areas such as smartphones (Huawei, OnePlus, Xiaomi & Oppo), white goods (Haier), construction equipment (Sany) Chinese companies are already approaching the quality of more established global brands. In hyper competitive new markets such as consumer drones, a Chinese company, DJI, became the market leader. Like Korean and Japanese companies before them, many Chinese firms seem to want to make higher quality goods that compete globally.
This is putting established vendors under pressure. Not being able to compete on price gives them two options. They could Dunder Mifflin sleepwalk themselves into the future and continue to imagine that there are not a thousand factories in China gunning for their margins and market. Or they could increase their R&D, quality, service and overall offering to compete.
What are the advantages of decentralized manufacturing?
In such a scenario the eight weeks or so it takes for products to arrive from China and the capital tied up in ordering goods from there might give distributed manufacturing companies an edge. By manufacturing locally or distributing their manufacturing worldwide close to their customers, they could be faster and more responsive. Newer goods could be designed faster, rolled out quicker and be given to customers more rapidly. Decentralized production also dovetails well with an increasingly more isolationist and xenophobic world where nationalism and populism are on the rise.
More factory automation and digital manufacturing solutions such as 3D printing also make manufacturing in Europe or the USA increasingly more competitive. China’s labor costs are rising and increased automation may erode lower labor cost advantages further. This is the goal behind Industrie 4.0 and other highly optimized manufacturing initiatives worldwide.
Decentralized manufacturing gives you a significantly lower shipping cost to your end consumer. Manufacturers can also cut out distributors, resellers and other middlemen, bypassing them to directly do business with end customers. Products could be made locally, close to customers and made more according to their wishes or according to niche applications. Just in time products could be delivered quicker with less risk. Tighter regulations could give consumers more confidence and local country brands such as “Made In Germany” would do the same.
What are some industries and applications that could benefit from decentralized production?
MRO: In aviation maintenance and repair millions of dollars of spare parts have to be kept on hand by repair centers and airlines. Delays in MRO operations are very costly and this is especially true if a repair has to wait for an unavailable part. Significant volumes of global cargo aircraft shipments are parts for other aircraft. Parts suppliers and OEMs also have to keep millions of dollars in parts on the books and in warehouses, for decades. By using metal 3D printers to make qualified parts on demand the cost picture starts to improve significantly. Less delays to due to unavailable parts, less capital tied up in parts, less shipment cost. Instead of one central factory producing parts, multiple machining centers worldwide can produce parts on demand using 3D printing locally. These manufacturing centers can be collocated with UPS shipping locations or large airports which also typically have…lots of aircraft to service.
Automotive: Car companies as well fill huge warehouses with decades’ worth of parts. This represents capital being tied up in storing things for some future breakage. Decentralized production close to customers or close to assembly centers will reduce shipping cost and make their manufacturing more agile.
What are some models for decentralized production?
Truly local manufacturing
Truly local manufacturing indicates that a product or good will be made in a postal code area. In every postcode a manufacturing unit will produce a range of goods for that post code. Using 3D printing or other manufacturing, mostly automated small scale production locations will produce for many manufacturers close to where consumers live.
The types of things that could be made here would be limited and rents would push costs higher. This most local (apart from print at home) manufacturing process would be a different way of looking at manufacturing. A network for micro factories would provide manufacturing as a service for many different brands at once. They would get paid per item that they made or per service transaction. Shipping and distribution costs would be significantly reduced as would the environmental impact of the product.
Instead of shipping from China where hundreds of parts from all over the world come together to be assembled, national “lights out” factories would do the manufacturing for that country. A wider array of things could be produced and the locations would be more expansive and require more investment per location. More finished goods in a wider selection could be produced here either for one brand or for many.
With combinatory manufacturing the main good will still be assembled and made in China. The phone guts and hardware will be made there. The 49% unfinished device will then be sent to Switzerland. Here 3D printing will provide unique cases which could be customized using software such as Twikit’s. Hand assembly of the last parts and customization would then account for 51% of the value of the phone and presto, you have a phone made in Switzerland. This would leave the customization up to the local manufacturing unit while China’s manufacturing prowess is leveraged.
Decentralized production is still for many companies a vision of a future foretold. It seems interesting and could succeed but many companies prefer the old way for now. Decentralized manufacturing operations could for many products give companies a decided edge and advantage over competitors. Will your next phone be made locally?