Manufacturing Strategy Imperative Re Design for Cost Reductions and Resilience

Technology has accelerated the rate of change in our world and allowed us to operate more effectively and with lower costs. It would be an understatement to say we are living in uncertain times, especially during the months of COVID-19 disruptions and isolations.

The pandemic has exposed the vulnerabilities in today’s production assets networks and value chains. Some manufacturers have concerns around cash reserves after many weeks or months of lower revenues. They now need to retool their production networks to strike a new balance between cost optimization – remaining competitive as demand returns – and increasing resilience where it matters most.

The daunting challenge is to analyze these production assets within the structure of the overall value chain and figure out what to keep, what to shed, how to optimize costs, where to build in redundancies, and where to add flexibility/agility, both now and in the coming years. There is no simple answer. However, having a sound and robust process in place with technology that supports network-wide optimization, strategic “what if” scenarios evaluation and making necessary changes is critical. Be prepared to both weather the current storm and to quickly respond to an eventual upswing in the economy.

Key Insight: The Production Assets Network Structure Determines Most Value Chain Costs

Manufacturing assets are critical hubs in a value chain. For process manufacturers, the production assets network structure determines by far the lion’s share of the value chain costs. The biggest cost optimization savings opportunities are available when you are assessing or re-designing the network you have in place. Once manufacturers have established a network and negotiated major transportation contracts, there are limited actions that can further optimize costs. For most process industry manufacturers, the next significant cost savings come from exploring manufacturing capabilities/flexibility options and raw materials sourcing.

Optionality designed into the network structure increases resilience. This could include adding redundancy for critical product lines, having the flexibility to produce the same product at different locations, having multi-sourcing supply options, exploiting material substitution options in the bill of materials or recipe, or analyzing the pros/cons of a global network versus a regional network closest to demand.

Having a robust network optimization tool in place lets manufacturers realize maximum cost savings and position themselves to run truly efficient and more resilient operations. Ironically, most companies do not routinely and strategically optimize their networks for cost optimization or resilience. Those that do are the profitability leaders. Companies are so busy with daily operations and short-term crisis that they do not always take the time to look at the bigger picture. Unfortunately, a company’s existing network structure is often a primary cause of daily disruptions and short-term challenges.

Change is constantly occurring across the value chain. Nobody needs to remind you of this given the daily news. You need to know which changes you can impact, which you cannot, and how to respond to maximize your profits. How well you respond to change determines your company’s profitability – and your stress level. If you have the processes and a robust network optimization tool in place to recognize the changes occurring in your value chain, identify and analyze potential courses actions, and communicate the execution plan, you will reduce your personal stress and increase your company’s profits.

Revolutionize Strategic Decision-making with a Proven Process and Network Optimization Solution

Strategically designing and optimizing a moderate to complex manufacturing network with multiple products requires thousands, if not millions, of interdependent decisions. Your top financial and manufacturing strategy team members are the best at simulation-based spreadsheet analysis. They can evaluate a potential change in your business plan or supply/demand balance and tell you the impact of a given course of action. If your team is the best of the best, they can explore maybe as many as 100 different options.

However, if you have multiple products made across multiple manufacturing sites, serving thousands of customers, there are thousands, if not millions, of interdependent options and decisions to make. Who’s looking at all these options? Having an optimization-based solution like Aspen Supply Chain Planner™ to effectively consider all strategic options and holistically optimize across the entire network is the difference between the profitability leaders and the rest. Aspen Supply Chain Planner has been used to evaluate a wide range of “what if” scenarios evaluations and strategic studies including:

Integrated production operations strategy and efficiencies
Capital investments decisions and value chain impacts
Manufacturing footprint and capabilities optimization
Sourcing strategy
Make-or-buy strategy (e.g. contract manufacturing)
Production assets rationalization
Production assets flexibility and capabilities
Product mix analysis and volume transfers
Distribution / logistics network (re)design

The pandemic’s effect on manufacturing environments has varied dramatically based on industry. Chemical companies are trying to balance shifting demand and raw materials disruption. Automakers and their network of parts suppliers are struggling to recover from weeks of shutdown and determining how to come back up to speed across a wide geography of manufacturing locations. Many consumer goods, packaging and electronics equipment producers are seeing unprecedented spikes in demand, with uncertain visibility as to how long they will last. In all cases, business leaders are telling us that a critical goal of theirs is to be prepared to deal with fast-changing demand patterns quickly and profitably.

Preparing for the ups and downs of the times ahead, you may find that the best approaches to dealing with these uncertainties have a long track record and are tried and true. One of the few things we know about uncertainty is that the more things change, the more they stay the same. Applying solid business practices and processes that have shown their benefit in good times and bad, is likely to provide a path of relative stability and success. If you haven’t already done so, consider two things:

Take a long, rigorous look at your manufacturing asset network infrastructure and be prepared to make the changes that are needed – quickly and dynamically – as the world continues to change rapidly in unpredictable ways. Find more details in Profit Point’s eBook, “Unlock Hidden Profits in Your Production Assets Network.”
Implement a proven change process that involves a broad group of stakeholders and relies on robust, optimization-based scenario analysis that will allow you to meet your business objectives during today’s uncertain times, as well as during tomorrow’s economic growth.

Learn more in AspenTech’s white paper: “Alignment Between Supply Chain and Operations Execution: The Formula for Higher Profits.”