H Balance

Rebalancing industrial ecosystem to create a distributed manufacturing footprint

Oct. 5, 2022
Rebalancing is the act of unwinding consolidation to create a more distributed manufacturing footprint and, therefore, spread your risk.

By Caroline Pan, chief marketing officer at Bright Machines

Have you ever felt like your life might be out of balance? That your three-legged stool of career, family, and personal self-care could tip over at any moment? That a sudden loss, or unanticipated surge in demand in any one area could wreak havoc on the others? 

Welcome to world of manufacturing and global supply chains in the 2020s.  

In this case, picture the legs of the stool representing countries in which companies produce their goods. Imagine one leg—China—growing in strength over time. Decades pass, and that leg becomes so thick, so solid and stable, that it makes the need for the others obsolete.   

Then the unthinkable occurs. The leg cracks. It teeters. And then it throws the entire stool off balance. 

This is what global manufacturers had to face when the COVID-19 pandemic suddenly cut off access to what had, for many, become the most critical lynchpin of their manufacturing operations. When offshore production centered in China ground to a halt, raw materials were stranded, assembly lines stalled, and container ships sat idle. And two years later, supply chains are still struggling to catch up. 

What does rebalancing mean and why is it important? 

Before we define rebalancing, let’s look at what it is not: consolidation. Consolidation in manufacturing may streamline and simplify operations, but it is also inherently risky, akin to “putting all your eggs in one basket” by focusing production in one (or a very few) low-cost locations. But for a long time, the rewards (cheap labor and freight) outweighed the risks. Rebalancing, however, is the act of unwinding that consolidation—to some extent—to create a more distributed manufacturing footprint and, therefore, spread your risk.  

For most large enterprise manufacturers, rebalancing essentially drives a redistribution of capacity, which creates more flexibility for where products can be made. It opens up the potential to shift capacity away from regions that are suddenly hard hit. It ensures you’re not overly exposed in any one region, as you never know when or where the next crisis will occur.  

What’s key to remember here is that the unexpected is a sure thing. It’s not “if” but “when” the next disruption will arise. In a recent McKinsey study, experts across four industries (automotive, pharmaceuticals, aerospace, and computers/electronics) reported experiencing material disruptions (those lasting a month or longer) every 3.7 years on average, with shorter disruptions happening even more frequently. Other scenario modeling indicated that a “single, prolonged production-only shock would wipe out between 30-50% of one year’s EBITDA for companies in most industries…and on average, companies can expect losses equal to almost 45% of one year’s profits over the course of a decade.”

How do I go about trying to rebalance? 

There’s no simple blueprint for how a company should design their factory footprint. The optimal mix of local, regional, and global sites—for both suppliers and production operations—will vary from company to company. But a good way to get started is to think first about where the majority of your end customers are and to try to align your supply chain as much as reasonably possible. The entire industry is going through a transition where even companies who’ve wholly outsourced to China in the past are now completely reversing direction. According to Deloitte, “more than 80% of industries experienced supply chain disruptions because of the pandemic, and about 75% of companies are planning to accelerate their reshoring initiatives by building smart factories closer to home locations, or their customers’ point of need.” 

Of particular note is the role that automation plays in this rebalancing effort. Having a distributed network of factories is not enough, especially if they rely solely on manual assembly. Not only would the economics (capex and labor costs) of this approach typically be cost-prohibitive for most companies, it would still be vulnerable to pandemics, labor shortages, and unpredictable market demand. As recommended by Accenture, companies need to “balance asset decisions against longer-term needs to increase future flexibility”. 

Companies that embrace automation—especially flexible, intelligent automation—as a critical enabler of their supply chain-diversification strategy can more easily facilitate the transfer of manufacturing capacity from low-cost, labor intensive countries to higher-wage countries in a more cost-effective way. Such actions can offset potential future risks and drive greater standardization across multiple factories as well.  

What is intelligent automation? 

Intelligent automation is a new idea in manufacturing that marries the benefits of traditional automation (high speed, throughput, and quality) with the agility and dexterity of humans. Complex, intricate assemblies that could previously only be done by hand can now be achieved with precision robotics and machine vision.   

It provides the flexibility to address both changes in capacity (volume) and specific products (type) from factory to factory as (local) demand changes. Once a network of distributed factories with intelligent automation is created, they can be monitored and adjusted based on demand. Rather than the vicious cycle of over-hiring and then laying off workers in times of boom and bust, companies can selectively ramp capacity up or down in specific factories and specific locations by tweaking cycle times or shifts with just a few clicks.  

In addition, user-friendly, intuitive software enables line operators to reprogram automation hardware and repurpose lines as needed. That means “new capacity” for other (different) products can be created quickly and easily—rather than building an additional dedicated line or greenfield factory. 

What about the workers? 

Rebalancing doesn’t just apply to factories and assembly lines—it applies to workers too. Despite sensational headlines of manufacturing jobs being “taken by robots,” the reality is that there is a significant global labor shortage impacting the industrial sector, with a manufacturing skills gap in the US that could result in 2.1 million unfilled jobs by 2030.  

As production becomes more advanced—incorporating technologies such as robotics, artificial intelligence and machine learning—people themselves will need to follow suit. A survey from the Manufacturing Institute and Deloitte found that 58% felt that manufacturing jobs offered limited career prospects, but eight out of 10 said they would opt for a manufacturing job with customized training and a clear pathway for career progression.

Those looking to rebalance and automate their factory operations should consider how their workforce evolves in tandem. Instead of reducing their labor pool, some companies are reassigning assembly line workers to other, more value-added tasks—leaving the robots to handle the tedious and mundane. Intelligent solutions on the factory floor means that manufacturers have an opportunity to implement reskilling or upskilling programs for their workforce, so they can not only interact with the technology, but leverage it to drive innovation as well.  

A new way forward 

The global crises of the past few years have created a new urgency around supply chain rebalancing, including a concerted effort by many Western companies to reshore manufacturing from China. As manufacturing operations inevitably become more distributed and diversified, it’s important to consider the role that intelligent automation can play to increase flexibility and resilience. 

It’s very hard to accurately forecast demand for a new product, let alone know (in advance!) how best to service that demand during an unexpected crisis. So having a reasonably distributed factory network, aligned to the locations of the customers you serve, with flexibility built in to adjust when things change (as inevitably they will), is the most practical scenario. 

Modern manufacturing companies are rethinking the old paradigms. No longer is it just about hiring more bodies, opening and closing factories, and “throwing money (and people) at the problem.” It’s about thinking more strategically—taking a more balanced approach—to designing not just products but also the overall manufacturing ecosystem (factories, equipment, and people) that needs to support it.