With manufacturing demand at a lull, smart companies are making the most of this opportunity to position themselves to take full advantage of the eventual economic upturn. Here's how.
Manufacturing dynamics have changed considerably over the years. Today a vast majority of manufacturers operate on a make-to-order manufacturing paradigm, where the goal is to produce customized products with the same timeliness and profitability metrics historically associated with standard high-volume manufacturers. With manufacturing demand at a lull, smart companies are making the most of this opportunity to position themselves to take full advantage of the eventual economic upturn.
To a certain extent, when it comes to manufacturing strategy, make-to-order enterprises have been doing what they know best: Making it up as they go along. Up until fairly recently, mass production manufacturing was the dominant paradigm. To this end, much of the manufacturing management software deployed over the years has been based on a mass production model, where efficiencies stem from economies of scale from high-volume, long-term production runs. As a result, much of these management tools are at odds with the requirements of the made-to-order lean enterprise.
There are significant differences between the philosophies of mass production and make-to-order manufacturers (please see the sidebar "Key Characteristics&" at the end of this article), although both have had similar objectives of shortening lead times, improving quality, reducing costs and responding to rapidly changing market dynamics.
There have been two events over the past few decades that have greatly influenced the make-to-order enterprise: lean manufacturing concepts adopted from the Japanese, and the advent of the Internet and its subsequent use to support the manufacturing and distribution supply chain.
Learning Lean From the Japanese
Intense competition amongst U.S. and Japanese automakers over the last 25 years has led to the adoption of lean manufacturing principles within all U.S. manufacturing businesses. Early Japanese leaders, such as the Toyota Motor Co.'s Eiji Toyoda, Taiichi Ohno and Shingeo Shingo, are widely credited with the development of new, lower-cost manufacturing practices, specifically, a disciplined, process-focused production system known as the "Toyota Production System," or "lean production." The objective of this system was to minimize the consumption of resources that added no value to a product.
The "lean manufacturing"concept, which focuses on manufacturing involving less human effort, capital investment, floor space, materials and time across operations, has been widely adopted by make-to-order manufacturers in North America.
The "Dell Weather:" Harnessing the Power of the Internet
One of the most successful applications of Internet technology to emerge from the dot-com era was the Dell Direct sales model. Beginning in 1984, Dell Computer began offering access to consumers to leverage the Web to browse and order computers online. By offering a choice of options spanning from peripherals to upgraded components, consumers could design a computer that met their specific needs and wants. At its high point, the site was registering an astounding $5 million in revenue per day — or nearly $2 billion a year.
While the majority of make-to-order manufacturers are business-to-business (B2B) as opposed to business-to-consumer (B2C), the Dell model is significant in that it demonstrates the power of the Internet. Manufacturers today are making the Internet a core part of their business. Not only are they using the Internet to provide quick and easy access to customers, they are also using the Web to reduce the cost of doing business with manufacturers and to enhance customer relationships.
Making it as a Make-to-order Manufacturer
We've discussed the various characteristics that define make-to-order manufacturers. Now, let's look at a number of best practices make-to-order manufacturers are employing to master this dynamic production environment.