pwc.com/industrialmanufacturing                       Achieving                       excellence                       in ...
2   Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
Contents                                   Introduction                                                                   ...
Identifying and preventing supply chain riskSupply chain risk has been on a roller                     Gaining visibility ...
Xirallic – when the finishing touch becomes critical        The pearl-lustre effect of Xirallic paint                  The...
Checklist – preventing supply chain risk• Have you developed a set of leading risk    • Do you have effective systems in p...
Forward and real-time                                      susceptible to natural disasters, civil             There are s...
Linking demand planning with the whole value chainHigh commodity prices have brought                 Demand planning –rene...
Smurfit Kappa Ireland – protecting margins andimproving demand planningIn an industry with ever increasing             Wit...
Checklist – linking demand planning with              the whole value chain              • Do you have demand-led business...
Collaborative networks                                      accompany it, might be equally relevant            function to...
Making customer and supplier collaboration realIn the same way that collaborative                 Developing a collaborati...
Checklist – making customer supplierand collaboration real• Are you sitting down with your             • Are you identifyi...
Addressing lifecycle opportunities and demonstrating sustainable valueOne of the most important ways that                G...
A whole supply chain approach – measuring               economic, social and environmental impact               EDANA is a...
Lifecycle assessment                                      The ‘cradle to cradle®’ design                 tyres in France. ...
Optimising manufacturing                                    first global business to put a true value                  Che...
Attracting the people and skills needed for the futureCEOs worldwide are once again citing                       investing...
ConclusionLooking ahead, the importance of                 High energy and commodity prices will            But, as we hav...
Further readingCustomer                              Capturing growth                       14th PwC CEO                  ...
Assembling value                 Never waste a                      Different shadesAssembling value is the PwC           ...
Global Industrial                                      Manufacturing IndustryGlobal IndustrialManufacturing team          ...
Territory Industrial Manufacturing contactsAustralia                      Korea                                           ...
pwc.com/industrialmanufacturing© 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC...
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Achieving excellence in production and supply

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В этой брошюре мы сосредоточили свое внимание на пяти вопросах, решение которых в существенной степени определяет разницу между высочайшим, удовлетворительным и средним качеством в промышленном производстве.

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Achieving excellence in production and supply

  1. 1. pwc.com/industrialmanufacturing Achieving excellence in production and supplyIndustrialProductsIndustrialManufacturingThe third instalmentin our ManufacturingExcellence series.
  2. 2. 2 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  3. 3. Contents Introduction 3 Identifying and preventing supply chain risk 4 Linking demand planning with the whole value chain 8 Making customer and supplier collaboration real 12 Addressing life cycle opportunities and demonstrating sustainable value 14 Attracting the people and skills needed for the future 18 Conclusion 19IntroductionWelcome to the third in our series of papers Common to all five is the importanceon manufacturing excellence. In the first two of companies engaging and connectingeditions we focused on growth markets and better with customers, suppliers and thecustomers. Now we look inside manufacturing world around them. Companies that areand take a look at the threats to and disconnected or fail to engage appropriatelyopportunities for achieving excellence in will miss opportunities to achieve excellencemanufacturing production and supply. or, worse, face the danger of ticking time bombs that could fatally disrupt productionEvents such as the Japan earthquake have and supply. Those that are successful inhighlighted the importance of supply chain making the connections have the opportunityresilience. We live in a world where the to gain ground and move ahead of their peersconnections up and down the supply chain, in distinctive and tangible ways.as well as inside companies and outside tothe world around them, are increasinglyimportant. In this context, we highlight fiveissues that we believe will play an importantpart in determining the difference betweenmanufacturing excellence, adequacyor mediocrity.• Identifying and preventing supply chain risk.• Linking demand planning with the whole value chain.• Making customer and supplier collaboration real.• Addressing lifecycle opportunities and demonstrating sustainable value.• Attracting the people and skills needed for the future. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 3
  4. 4. Identifying and preventing supply chain riskSupply chain risk has been on a roller Gaining visibility over be critical for a variety of reasons andcoaster ride. Before the financial crisis risk management strategies need to takesupply chains were hit with skyrocketing critical supplies these into account. In the Xirallic case,prices of oil and other commodities. Then The Japan earthquake highlighted the pigment was impossible to sourcethey were caught in a perfect storm of not just the interdependencies of the from elsewhere. These kinds of risksrising bankruptcies, high levels of debt, global supply chains that characterise need to be identified and appropriatetight credit, and weak demand. Now they many industries but the challenge for measures taken, for example by way offace a mix of conditions. companies of maintaining visibility inventory cushions, dual sourcing or over the supply chain. The full extent collaboration with suppliers to developCommodity prices are back to high levels, alternative sources. of supply chain disruption followingthere has been a renewal of confidence the earthquake remains unclear asbut market conditions are varied. Following the Japan earthquake, Boeing the timescales for stock cushions andConsiderable macro-level and financial was reported to be considering building full visibility play out. Yossi Sheffi,market concerns remain. Events in the a new supplier system to minimize director of the Massachusetts Instituteform of the Arab Spring civil uprisings the impact of natural disasters on its of Technology Center for Transportationand the March 2011 Japan earthquake operations. About 35% of the 787 and Logistics, observed: “Even the bestremind us of the risk of abrupt supply Dreamliner aircraft is being developed companies have very good visibility intochain disruption. and manufactured by Japanese their Tier One (direct) suppliers, but firms with supplies disrupted by the little or none into their Tier Two and earthquake. CEO of Boeing Commercial Three suppliers.”1 Airplanes, Jim Albaugh, said the It is orthodoxy for companies to focus company is looking hard at its supplier their supply chain risk management relationships and the possibility of dual- on key suppliers who make the biggest sourcing critical parts: “We want to make value contribution to the manufacturing very sure that in the future we have a process. But the Japan earthquake production system that is not impacted illustrated that disruption can come in by natural catastrophe that could occur unexpected forms. A supplier that is anywhere in the world.”2 lower value or not central to the core product platform may nonetheless be critical. For example, following the Japan earthquake, a shortage of a specialty pigment that gives cars a glittering shine led car manufacturers to temporarily restrict orders on vehicles in certain shades of black, red and other colours. Most major automakers use a pigment, called Xirallic, which is produced at only one factory in the world – the Onahama plant near the Fukushima-Daiichi nuclear power station in Japan. The Xirallic example (see case study panel) reminds us that confining supply chain risk management to only the largest and most immediate parts of the supply chain is insufficient. Suppliers can1 Financial Times, US and Europe escape the worst of the quake’s aftershock, 19 May 2011.2 Reuters, Boeing mulling new supplier system in case of natural disaster, 4 July 2011.4 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  5. 5. Xirallic – when the finishing touch becomes critical The pearl-lustre effect of Xirallic paint The plant had to close following the finishes has become popular with car March 2011 earthquake, causing buyers. This evolution in consumer taste some car makers to stop or slow their has increased the importance of the own production. Merck succeeded in Xirallic pigment in the auto supply chain. completing the recovery and repair work It is manufactured by German chemical by early May, ahead of schedule. Regular company Merck KGaA but production production was recommenced in June took place at just one plant, 57 km south 2011. The company has also announced of the damaged Fukushima Daiichi that it intends now to diversify nuclear power plant in Japan. production with the commissioning of a second production line in Germany.33 Merck press release, Merck Resumes Xirallic Production in Japan, May 10 2011. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 5
  6. 6. Checklist – preventing supply chain risk• Have you developed a set of leading risk • Do you have effective systems in place indicators that is forward-looking, based across your supply chain to pick up and on a continuous monitoring and analysis act on early-warning signs or, in the of conditions? case of sudden onset risk, to deliver real-time information and enable fast• Are you recognising all the different implementation of preventive measures? types of risk that could affect your supply chain, including factors such • Is the potential ticking time bomb of as natural disasters, civil and political financial stability risk of suppliers on unrest or strike action? your radar screen? Do you have the screening systems in place to assess• Are risks being matched with this factor? appropriate remedial measures such as inventory cushions, dual sourcing or dialogue with suppliers on alternative production?
  7. 7. Forward and real-time susceptible to natural disasters, civil There are similar risks in other parts of and political unrest or factors such as the world, particularly in North Americasupply chain risk alerts strike action, then these risks should be where the banking system and smallerMany industrial manufacturing as much a part of risk management as companies are facing similar conditions.companies still don’t know who their factors such as currency risk. Ahead of the August 2011 financialhigh risk suppliers are. They haven’t market turmoil, the risk of global interest rate rises had been viewed as significant.expended the time to look hard at where Financial stability risk The European Central Bank, fortheir supply chain risk is and haven’tdefined this risk comprehensively – the potential ticking example, pointed to “the prospect of anenough. Nor are they thinking about it time bomb unexpected and sudden, market-drivenahead of time. rise in long-term interest rates” as a key One risk that should be central to supply risk.6 Although the creditworthinessCompanies are used to looking ahead chain risk management is the financial of larger companies in most advancedfor innovative practices to make supply stability of suppliers. We believe current economies had improved as profitabilitychains more efficient and lean, but their financial and macro-economic conditions increased, default rates have continuedrisk mitigation activities often remain in 2011 are such that manufacturers to rise for smaller companies. Now, thebackward-looking, based on events they should elevate their scrutiny of this latest economic concerns in the US andhave already experienced. This risk risk factor. the risk of sovereign debt contagion inmanagement approach is lagging in Europe have brought fears of a double- The banking crisis has made the recentnature and almost always ensures dip recession back on the global agenda, economic downturn and the subsequentthat new risks will be spotted only when heightening the risk of company failure. recovery different from previousthey become serious issues. A direct link economic cycles. Lenders and banksto organisational objectives is one way of are under great scrutiny and have heldmaking supply chain risk management on to very large portfolios of marginalforward-looking. businesses that they would haveAs far as possible, companies need to also normally tried to take earlier action on.look at connecting the supply chain and If interest rates rise, it is going to be moreusing real-time data. Hand-held mobile difficult for these businesses to servicecommunications and IT systems make loans and the banks will have to payelectronic connectivity with partners and more attention to them. Alternatively,suppliers much easier. Having sensors any renewed downturn will putin place throughout the supply chain pressures on marginal companies andenables manufacturers to know instantly also on banks.what is going on at that moment in time 30% Either of the above scenarios make itand for alerts to be triggered in the event important for manufacturers to identify ifof any unforeseen developments. Events such companies are in their supply chainssuch as the Japan earthquake highlight and take steps to derisk. The scale of thethe importance of being able to rearrange potential risk, in the UK for example, issourcing and orders in real-time rather illustrated by data in a mid 2011 Bank ofthan face the time-lag of periodic reports. England Financial Stability report whichThe scope of the risk canvas also needs shows around 30% of companies have Companies withto match the nature of the supply interest rates greater than profits.4 The interest rates greaterchain. Risk parameters should fully threat to supply chains as bank interest than profits.pick up factors such as a concentration rates rise could be a ticking time bomb Mid 2011 Bank ofon one product, supplier or site that for manufacturers. Default rates on loans England Financialcan heighten the vulnerability of that are continuing to rise among smaller Stability reportpart of the supply chain. Similarly, if a companies according to a survey of creditsupply chain includes locations that are conditions used by the Bank of England.54 Bank of England, Financial Stability Report, June 2011.5 Credit Conditions Survey, Q1 2011.6 European Central Bank, Financial Stability Review, 15 June 2011. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 7
  8. 8. Linking demand planning with the whole value chainHigh commodity prices have brought Demand planning –renewed focus on the importance ofproduction efficiencies and a resilient looking at the full picturesupply chain. The traditional mantra is Demand planning is a step before ‘juston the importance of companies driving in time’ or ‘on demand’ manufacturing.down costs and exploring opportunities ‘On demand’ might be an outcome that ato gain ever leaner production and company decides on after going throughsupply chains. But, while this may be an a full demand planning process but it isimportant strategy for some situations, just one possible outcome. With demandit may not always be the best and most planning, companies start with demandsustainable approach for the long term. and their customers’ requirements and link that to the whole of their operationalConcepts like ‘lean’ and ‘just in time’ have planning. Whether the product is thengained a lot of traction in the past decade produced on demand, in a regular flow, inor so. They have a huge part to play for a large-scale batch or some mix of thesemany companies but their value is only is determined by the whole context of theas good as their fit with what specific customer’s needs, the production logisticscompanies and, most important, their and the supply chain circumstances.customers actually need. ‘Just in time’,for example, may not be the best fit for Demand planning can be particularlya component or product that is vital but productive when customers andwhich could be prone to scarcity. As we manufacturers look not just at what ishave seen with the example of Xirallic being demanded but why it is needed inin the previous section, there can be a that way. All the way along the supplyfine line between ‘just in time’ and ‘just chain, suppliers and their customers arenot there’. good at specifying what they want but don’t necessarily share why and how they want it. Overlooking this wider context means that opportunities may be missed to engineer solutions that would help both the supplier and the customer, for example by understanding the context of customer promotions or point of use requirements. Similarly, while most companies tie future customer needs and expectations into product development, the interface with manufacturing and supply chain planning is often overlooked or left too late. This can be a particular stumbling block for the manufacture of parts that require special arrangement for their production. But it might also lead to opportunities missed for the smooth and quick scale-up and sourcing of more straightforward components.8 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  9. 9. Smurfit Kappa Ireland – protecting margins andimproving demand planningIn an industry with ever increasing With this lead time and costingcompetition, paper-based packaging information, SKI is able to accuratelycompany Smurfit Kappa Ireland’s (SKI) assess the most efficient minimumsuccess is based on reliable and timely order quantities and build these intoproduct supply. It has placed a high service level agreements with customers.priority on working with customers on It also has unit-based tracking andtheir demand planning. visibility of stocks at all times, allowing it to significantly reduce buffer stocks.Effective demand planning has been Customers are confident that they canboosted by significant investment in benefit from and rely on the short leadnew machinery at strategic plants times and that they can forecast withand an overhaul of supply chain and sufficient accuracy to allow them tobusiness software systems. It has operate a ‘just in time’ type system. Inreplaced a variety of dated and difficult turn, SKI has been able to protect itsto maintain legacy systems with new margins by maintaining prices whileenterprise level corrugated business delivering added value. For example,software which integrates with the SKI is moving towards the idea ofcompany’s scheduling software. It now ‘solutions plants’ which are gearedhas a centralised database model that to identifying solutions for particularruns across all plants, enabling it to customer needs such as point of salemanage work from plant to plant, have a displays for promotion campaigns,consolidated view of all orders and route design and logistics.new sales orders to any of the SKI plantsfor manufacturing. Cultural change has also been necessary to make the changes effective. WithThe company has much greater historic accurate timely data and increasedand real-time visibility on demand and efficiencies, management has had tosupply. Accurate costing information, change its modus operandi. Withoutbased on actual real time data from agile, proactive and flexible managementthe factory floor, enables it to quickly and staff, the information and systemsidentify and remedy margin issues. It can alone would not have transformed thethen take immediate action through, for business. The company’s managementexample, redesign or price discussions was very open and honest inwith customers. Management now have communication with staff with regularaccurate information on ‘make ready’ and forthright discussions throughouttimes. They can guarantee service levels the process. Staff responded by takingto customers on specific lead times and on new roles and becoming more flexibledeliver with certainty. and innovative. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 9
  10. 10. Checklist – linking demand planning with the whole value chain • Do you have demand-led business • Have you weighed up the planning systems and practices in appropriateness of developing place to enable you to link customers’ collaborative relationships and requirements to the whole of your networks up and down the operational planning? supply chain? • Are you looking all the way along • Is procurement and contracting the supply chain to share and risk-based and does it take account communicate not just ‘what’ is wanted of factors such as the total cost of but ‘why’ and ‘how’, identifying ownership rather than price alone? opportunities to improve production and supply? • Are you measuring the contribution of suppliers to value generating • Do you have historic and real-time improvements and solutions? Have visibility on demand and supply and you planned for this thoroughly, are you managing it in ways that setting targets based on real data and enable you to optimise pricing monitoring progress daily and weekly and production? to validate the benefits?10 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  11. 11. Collaborative networks accompany it, might be equally relevant function to find that their potential for an industrial products supplier as a suppliers have been running processA crucial question for manufacturers manufacturer serving end customers. improvement techniques such as ‘lean’to consider is the extent to which they and ‘six sigma’ methods across theirmight want to create or participate in operations for many years as a way ofcollaborative supply chain networks. Getting knowledge and offsetting the contract pricing demandsBeing more open and inviting value from suppliers of their customers. By changing theparticipation not just in the ‘what’ but procurement process to one of price, Whether manufacturers decide to goin the ‘why’ and the ‘how’ a product agility, quality and value the advantages down the collaborative network route oris required can be a path towards of working with these types of value- not, all manufacturers can benefit from agreater productivity and supply chain driven suppliers becomes apparent. re-examination of their procurement andoptimisation. It is also a strategy that sourcing strategies. Procurement is often Recently, for example, a global cerealsis likely to benefit companies that price-led and fails to take account of producer commenced a three yearare seeking to build their growth on wider considerations of value. The result continuous improvement programme.strategies of innovation and service can be a situation where a company’s It focused first on their operationsrather than price alone. procurement or sourcing department but, shortly after, was extended to theThe creation of collaborative networks is is doing eye catching deals on price but procurement function. It was difficult atmost evident in the closed type of supply then components that seemed good value first to find functional improvements andchains developed by some companies, become related to severe and frequent savings but, once the company engagedtypically in the technology sector. cases of downtime and, ultimately, much with their contract suppliers andIn a recent discussion of open vs. closed higher operating and maintenance costs. manufacturers, they found huge benefits.supply chains, Financial Times writer Often, suppliers and the procurement These came in the form of operationalPeter Marsh cites Apple as the most function are oblivious to these facts uptime, reduced packaging consumption,heralded example of a company using because the financial impact lands in better power usage and lower shipmenta closed supply chain and observes: operations and not in procurement. and storage costs to the tune of millions“A closed supply chain is a highly of euros. Even better, relationships are Procurement and operations need to beintegrated set of networks in which far stronger and the pipeline of new linked and agree approaches to criticalmany of the technologies being applied improvements is full for the next supplier needs that take account of theare developed at least partially by the 12-18 months with more suppliers and value and total cost of ownership rathercompany orchestrating the system. producers entering the programme than price alone. Where appropriate,A large proportion of the components each month. the procurement process itself alsomade by key suppliers are unique to the needs to be conducted in ways that canfinal product.”7 gain from the knowledge of suppliers.Marsh contrasts closed supply chains A relationship which is purelywith “open supply chains – common in transaction-based and focused onindustries such as automotive, aerospace driving down the price is unlikely toand many areas of consumer electronics – utilise the value and the insight that(where) the emphasis is on standardised component suppliers might be able tocomponents that fit together in a offer. Such insight can be instrumentalmodular fashion. In these systems, in preventing inefficiencies or othersuppliers are generally encouraged to be problems arising later.the main innovators and sell the same Such considerations become even morecomponents to a range of customers.”8 important when companies are movingOf course, it is possible for industries and beyond component and equipmentsupply chains to have a mix of open and purchasing and are setting up contractclosed networks. The decision whether manufacturing arrangements. It oftento develop a closed supply chain, and the surprises many in the procurementcollaborative relationships that typically7 Financial Times, Closed encounters with suppliers, July 6 2011.8 Ibid. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 11
  12. 12. Making customer and supplier collaboration realIn the same way that collaborative Developing a collaborative Breaking down silosnetworks are increasingly importantup the supply chain, as discussed in the mindset and protocols Developing a collaborative approachprevious section, they are also highly Making collaboration real, whether it is with customers and suppliers externallypertinent for the customer relationship. with customers or with other companies also needs to be matched with greaterBusiness models in the manufacturing along the supply chain, entails major collaboration inside companies.sector are changing. In the past most mindset and cultural change, particularly Greater external connectedness isrevenues came from the production of among manufacturing companies. difficult to achieve if there are internalcomponents or end products. Now many In our experience, many manufacturing disconnections. Silo working withcompanies also earn a significant amount companies do not have the outward- demarcations between marketers,from offering services and solutions facing skillset that is needed to foster product designers and production– and the trend is upwards. But this collaboration. Indeed, when it comes engineers characterises manyinvolves understanding customer needs to some companies’ attitudes to their manufacturing companies withand involving them in the development customers, it is not too strong to say that consequent challenges for developing theof product and service offerings. they are anti-customer, seeing them right interfaces with customers and the as a nuisance, getting in the way and supply chain.In the second paper in our manufacturing making life difficult. ‘The customer isperformance series, we talked about The challenge here is that most always right’ is not an adage that sitsthe importance of collaborating with companies operate budgets and savings easily with the engineering culture thatcustomers to build relationships targets functionally. The best companies still dominates in some parts of theand revenue. We believe this type build a business-wide operating or manufacturing sector.of approach will be fundamental to management system that takes theinnovating smarter and developing a The same challenges also apply to overall challenge and breaks it downsustainable manufacturing business for collaboration with suppliers. In some into operational imperatives. In thisthe future. We looked at how industrial respects, they are perhaps even greater. way, the focus is more on key businessmanufacturing companies can use a It is not just natural reticence or culture processes that transverse the functions.variety of techniques to understand that inhibits openness, it is well- They allow everyone to contribute to thecustomers better, both individually and established practice and procedure. challenge and strategic decisions to bein groups. The default setting for companies is, taken that will often be counter intuitive understandably, one of confidentiality to individual functions. rather than openness. Capital expenditure projects, such as Successful collaboration needs to be built operations, IT or service solutions, provide on a clear and compelling case of why an example of this. Often decisions collaboration makes good business sense, on these are taken within individual what it covers and does not cover, and functions as they benefit their budget, what it means for changes to established either through savings or revenue growth. custom and practice. Even companies But a broader business-wide management that have the skills and mindset will system perspective might conclude and founder without a well-articulated decide that a particular project is not the strategy for changing the basic default best project and more can be gained from settings on what can be shared and what a different investment project with is confidential. far bigger benefits and impact for the business.12 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  13. 13. Checklist – making customer supplierand collaboration real• Are you sitting down with your • Are you identifying and acting on suppliers and customers to look at the internal barriers to change such as potential for shared systems, protocols silo-based working or established and ways of working? rules, customs and practices? Do you have effective business-wide operating• Are you confident your company or management systems in place to has the outward-facing mindset and cross-over functional boundaries? culture needed to identify and develop the potential gains of collaboration up • Do you have effective business and down the supply chain? planning and shared information systems in place to support• Do you have a clear understanding collaboration? of why collaboration makes good business sense, what it covers and does not cover, and are you communicating this to the people who need to make it happen? Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 13
  14. 14. Addressing lifecycle opportunities and demonstrating sustainable valueOne of the most important ways that Gaining competitiveindustrial manufacturers can securegrowth is by demonstrating the advantagesustainable value inherent in their Manufacturers and suppliers that areproducts and exploring the opportunities able to demonstrate sustainability inthat come from considering the whole their processes and products are gainingproduct lifecycle. Increasingly, companies competitive advantage. For example,are realising that such an approach can building and construction companiesbe a differentiator in the marketplace competing to be part of the supply chainthat can directly enhance revenues rather for most major projects are expectedthan being a bolt-on strategy in response to meet certain specifically-definedto regulatory imperatives. thresholds. Many projects now expect suppliers to go well beyond these as endOpportunities to maximise sustainable customers, whether they are public orvalue arise at the product design, private entities, seek to show that theirproduct support and product end of new facility excels in sustainability terms.life stages. In the first of these stages,sustainability can be designed-in to For example, the 2012 London Olympicsthe product. Once a product is in use, has sought to set new benchmarks insupport and maintenance packages can carbon reduction for large scale projectsbe tailored to extend product life or and regeneration projects. As wellincrease its output or efficiency. Always as climate change, it also has strongthe relationship with the customer is of themes related to waste, biodiversity,central importance. Some customers are inclusion and healthy living that havemature and are looking for a ‘through been part of contractor and supplierlife’ total cost approach. Others are selection. Similarly, in France PwC hasless sophisticated and, in such cases, been working with Nice City Council onsuppliers need to think carefully about tender proposals for the construction oftheir cost/value equation and how they a new soccer stadium. Each of the fourcommunicate this. proposals have been graded according to their environmental impact, takingIn many sectors, sustainability-related into account factors such as energy andinitiatives are most evident among water consumption and the life cycle offirst and second tier suppliers who building materials.are close to the consumer/retailerinterface where, often, regulationapplies or customer choice comes intoplay. But understanding of the valueof sustainability and its adoption oftenfades as you move further along thesupply chain. A noteworthy exampleof impetus to address such issuesthroughout the entire supply chainand across the whole industry is thenonwoven fibre sector. Here firms in theindustry have come together to formEDANA, an initiative that seeks to embedsustainability throughout the entiresupply chain (see opposite).14 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  15. 15. A whole supply chain approach – measuring economic, social and environmental impact EDANA is an international association focus for information on key issues in serving the diversified interests of over the industry such as the evaluation of 220 member companies, representing the environmental impact of single use over 90% of the vertically integrated vs. reusable products and the industry’s supply chain in nonwovens.9 It promotes contribution to waste prevention – a big cooperation on sustainability in the debate surrounding disposable nappies. value chain and conducts an annual sustainability report on its efforts to EDANA’s 2011 sustainability report was embed sustainability at the core of the informed by an initiative called Vision industry. Nonwoven fibres have a wide 2010.10 It asked the Copenhagen Institute range of uses. Most well known are for Futures Studies to carry out a detailed feminine hygiene products, nappies and assessment of nonwovens in which wound care dressings but nonwovens are they developed a number of scenarios also used in more than 40 automotive and associated recommendations for parts, such as air and fuel filters, trunk EDANA and its member companies over liners and carpets, and they are used in the next ten years. The results show many aspects of building construction. the importance of the sector to health, hygiene and environmental challenges A key part of EDANA’s approach is to that will become increasingly acute over identify and communicate the social, time. For example, the report highlights economic and environmental benefits and the ways in which the sector’s products impact of nonwoven fibres. In doing so, are contributing to the number of people it brings together assessments of matters who can remain economically active such as the economic and social value- in an increasingly feminised global add of the industry. These measures are workforce and the impact of products diverse, ranging from things such as such as incontinence pads to help an the number of people employed by the ageing population remain mobile and sector through to the social and economic independent. benefits of its products. It provides a9 www.edana.org10 EDANA, Sustainability Report 2011. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 15
  16. 16. Lifecycle assessment The ‘cradle to cradle®’ design tyres in France. PwC has conducted a approach goes a step further than comparative life cycle assessment of theand ‘cradle to cradle®’ minimising harmful impacts. Its goal main tyre recycling methods on behalfapproaches is product design and manufacturing of Aliapur. One of these is the use of that reflects the ability of nature’s granules from old tyres in the productionThe push towards sustainability is being ecosystem to replenish – namely, by of synthetic turf. This enables thegiven a strong reinforcement by the impact designing products that have value substitution of ethylene propylene dieneof rising energy and other input costs, beyond their immediate lifetime and monomer rubber (EPDM) granules.including the cost of carbon arising from can provide input, or ‘nutrients’, for EPDM granule production is very energytax or trading requirements. This all puts a the next generation. “Toward this end, consuming and granule lifetime is onlypremium on designing products that have product ingredients are evaluated for half that of granules made from old tyres.minimal carbon footprints, consume less their human and environmental health Other options for tyre recycling includeenergy, water and other inputs in their attributes and their potential to be the construction of retention basinsmanufacture and end-use, and produce safely cycled,” argue ‘cradle to cradle®’ which make it possible to store rainwaterfewer air, water and other pollutants. proponents William McDonough and or runoff water temporarily. Using wholeManufacturers are responding in a Michael Braungart. They talk about or shredded tyres for retention basinsvariety of ways – with products that have “either ‘biological nutrients’ that are provides an alternative to quarry gravel.prolonged useful lives or modular parts derived from the biosphere and can As tyres are less costly both as a rawto extend the useful lives of components biodegrade to build healthy soil, or material and in terms of transportation,or that are composed of parts that are ‘technical nutrients’ that are recyclable they make it possible to fill the basinrecyclable and reusable to the greatest materials and can be returned to high- whilst conserving a very large quantityextent possible. Manufacturers can valued uses in new products without of water.also differentiate themselves and gain contaminating the biosphere.”11competitive advantage by initiating Aliapur is a used tyre recoverytake-back programmes and by assuming company founded by seven leading tyreextended product responsibility, ensuring manufacturers, including companiesthat their products’ ultimate disposal is such as Bridgestone, Dunlop, Goodyear,environmentally sustainable. Michelin and Pirelli. Its aim is toManufacturers who gain reputation neutralise the environmental hazardsin this space stand to benefit from brought about by the presence of used‘dematerialisation’, where they usefewer materials to do more and theirproducts gain a value and resonanceover and above their basic functionality. Life cycle analysis of a new product rangeLifecycle assessment and ‘cradle tocradle®’ strategies can help industrial Europe’s number-one producer of bags use three times less non-manufacturers design out or minimise household wraps and waste collection renewable natural resources than theharmful impacts and maximise benefits packaging, Sphere, asked PwC to ‘fossil origin’ bags. The greenhousefor any given production process. perform a life cycle analysis of its emissions generated at all stages new product range, produced with of the new bag’s lifecycle – from renewable polyethylene made from cultivation, through manufacture sugarcane ethanol. It wanted to and end-use and disposal – are offset identify the gains expected in terms by the carbon taken up during the of environmental impact compared growth of the sugar cane, the main with waste bags made from plastics of raw material in the bag. fossil origin. Over their complete life cycle, the ‘biosourced’ polyethylene11 MBDC/Cradle to Cradle®, Design for a cradle to cradle Future, 2010.16 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  17. 17. Optimising manufacturing first global business to put a true value Checklist – addressing on the natural resources used andprocesses the environmental impacts caused by lifecycle opportunitiesUnderpinning everything is the need for providing products to its customers. and demonstratingmanufacturers to be able to monitor and Environmental P&L accounting is an sustainable valueoptimise their processes to ensure they emerging field for reporting. The profit • Are there opportunities in yourare as efficient as possible and are not and loss account is intended to give sector to take a whole supply chainin any way wasteful. The use of modern PUMA a detailed understanding of approach to sustainability?process control technology on individual the implications of decisions on theoperations and processes, enabling environment, enabling better positive • Are you identifying and promotingthem to be continually monitored and actions to be taken to deliver commercial the environmental, economic andaccurately controlled, can significantly benefits and safeguard the natural assets social value-add of your productsreduce or eliminate waste and, in businesses depend on. PUMA has taken a and feeding this back intoturn, ensure minimal use of energy significant first step, effectively holding product development?and other inputs. Such technology a mirror up to its supply chain, showingcan be integrated into overall system • Do you have modern process its dependencies on natural capitalarchitecture, allowing full transparency control systems in place to manage so that they can be tackled from theon quality aspects from unit operation production in ways that reduce first design concept to the shop shelf.up to manufacturing execution system or eliminate waste and, in turn, The supply chain holds the key for(MES) or even enterprise resource ensure minimal use of energy and many companies’ ability to tackleplanning (ERP) level. other inputs? environmental risk and impacts.Waste heat is a major efficiency and • Have you evaluated the potentialenergy production opportunity for of initiatives such as take-backmanufacturers in some sectors. In programmes and extendedglassmaking, for example, large amounts product responsibility which haveof waste heat with temperatures between the potential of reinforcing and400°C and 800°C are produced. But sustaining customer relationships andmany companies are still failing to make revenue streams as well as boostinguse of the energy generation potential environmental sustainability?of such heat. The electrical energy fromwaste heat could cover up to half a glass • Do you have effective mechanismsmanufacturing plant’s total electricity for monitoring, gathering data andneeds,12 saving money and reducing reporting on energy intensity, carboncarbon dioxide emissions. use and other impacts and have you considered ways of enhancing this, for example through environmentalMeasuring and reporting profit and loss accounting?progressMonitoring and control of energyintensity, carbon use and other impactsis increasingly important, not just forregulatory compliance purposes, butalso for customers so that they canevaluate environmental and otherimpacts in their supply chains. In 2011,PwC helped sports lifestyle companyPUMA develop an environmental profitand loss account, making them the12 Siemens, Energy efficiency thanks to waste heat recovery, innovative concepts for the glass industry, 2008. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 17
  18. 18. Attracting the people and skills needed for the futureCEOs worldwide are once again citing investing in education and training initiatives including the involvement ofa lack of key skills as the hottest issue to meet its staffing needs, including Airbus UK in a cross-sector initiative inon their agenda. Managing talent apprenticeship programmes of the kind the West Midlands with power utilityhas overtaken risk as top of the CEO it uses in Germany. company E.ON to link learning in schoolsagenda and two thirds report that to the real world of engineering.lack of the right skills is their biggesttalent challenge.13 Manufacturing is Investing in the skills Emerging markets are also placing ano exception and companies in many supply chain high priority on the skills agenda. Indifferent countries report shortages of India, for example, efforts are underway Manufacturers are increasingly to enhance the skills level of thesuitably qualified science, technology, addressing their skills and talentengineering and mathematics (STEM) labour force, with the National Skills challenges by stepping up investment in Development Council looking to “skill orqualified workers. In the UK, a fifth their people development programmes.of manufacturers report skills gaps upskill” 150 million workers, and new For example, multi-brand commercial private engineering colleges springing upand, despite high unemployment, products manufacturer Ingersoll45% report that hard-to-fill vacancies at a rapid rate.20 Rand has developed its own ‘Ingersollare causing delays in new product or Rand University’ (IRU). It is a trainingservice development.14 resource which provides strategic education to develop business leaders, Checklist – attractingNew types of skills enhance strategic competencies and drive the Ingersoll Rand culture. the people and skillsGaps seem particularly evident in the Training programmes are delivered needed for the futuretype of skills needed to deliver the locally across the globe as well as at theculture of collaborative working and company’s University Education Centres • Are your assessment of skillsetbreaking down silos that is discussed in Davidson, North Carolina; Prague, requirements and your peopleearlier in this report. For example, the Czech Republic; Shanghai, China; development and recruitmentspecific skills gaps in problem solving, and Bangalore, India. IRU learning activities keeping up with theteam working, oral communications programmes are also available on- changing needs of your customerand customer handling skills account for line, 24 hours a day, at no cost to the and supply chain strategies?four of the top five positions in a list of employee. During 2010, 23,000 Ingersoll15 skills shortages reported by • Are you making the appropriate Rand employees used this trainingcompanies in the UK process and investment in in-house resource.18 The resource is also open tomanufacturing sector.15 development packages and future customer, distributors and partners. talent programmes? Have you gotIn the US, the Manufacturing Attention is also being focused on ways the metrics in place to assess theInstitute reports that “according to US of stimulating the future supply line of return on such investments?manufacturing executives, a skilled, STEM-qualified students. In the UK foreducated workforce is the single most • Are you making the most of ways example, Tomorrow’s Engineers iscritical element of innovation success in which you could reach up the led by Engineering UK and the Royal— and the hardest to acquire.”16 future talent supply chain and Academy of Engineering and reachesEric Spiegel, US chief executive of collaborate with schools and more than 35,000 students in overGerman engineering group Siemens, universities? 1,000 schools across the UK each year.19observed: “There’s a mismatch between It brings engineering into the classroom, • What are the opportunities forthe jobs that are available, at least in enabling young people to experience shared initiatives across yourour portfolio, and the people that we for themselves the possibilities that supply chain or with othersee out there.”17 Siemens is responding engineering has to offer. The broad companies in your sector?to this environment in the US by programme is backed up with regional13 PwC, 14th Annual CEO Survey, 2011.14 UK Commission for Employment and Skills, National Employer Skills Survey for England 2009, August 2010.15 Proskills UK, The Sector Skills Assessment 2010 for the Process and Manufacturing Sector, December 2010.16 http://institute.nam.org/page/edu_workforce.17 Financial Times, Siemens chief warns on US skills shortage, June 11 2011.18 Ingersoll Rand, 2010 Sustainability Website Content.19 http://www.engineeringuk.com/tomorrows_engineers.20 The Times of India, TN to get 42 new engineering colleges, July 9 2010.18 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  19. 19. ConclusionLooking ahead, the importance of High energy and commodity prices will But, as we have seen, greaterthe themes discussed in this report continue to require an emphasis on the collaboration and external connectednessis likely to intensify rather than need for manufacturers to monitor and is difficult to achieve if there are internaldiminish. Manufacturers that succeed optimise their processes to ensure they disconnections or if the right skillset isin strengthening the connections and are as efficient as possible and are not in not in place to deliver it. A collaborativeresilience of links up and down the supply any way wasteful. Sustainability in the approach with customers and supplierschain and demonstrating the value-add of form of minimising harmful footprints externally needs to be matched withtheir strategies for sustainability will be in and maximising lifecycle utility will be an culture change internally. Just asa stronger position than companies that expectation and will also be an important companies are stepping up investment inunderestimate these priorities. service-add to build relationships and their people development programmes revenue with customers. to address STEM skills shortages, soFactors such as geopolitical, economic they also need to be looking at theand financial market risk are an ever- Demand planning, with manufacturers softer skills, such as problem solvingpresent. As the experience from the Japan linking the totality of their customers’ and team working, that are needed forearthquake has showed, companies need requirements to the whole of their collaborative working up and down theto identify and monitor all the different operational planning, will be an important supply chain.types of risk that could affect supply priority. This requires a greater degreechains and match them with appropriate of collaborative working. Being moreremedial measures such as inventory open and inviting participation not justcushions, dual sourcing or dialogue with in the ‘what’ but in the ‘why’ and thesuppliers on alternative production. ‘how’ a product is required can be a path towards greater productivity and supplyThe banking crisis has made the chain optimisation. It is also a strategynature of the recovery from the recent that is likely to benefit companies that aredownturn very different from previous seeking to build their growth on strategieseconomic cycles. Lenders and banks of innovation and service rather thanhave held on to loans that they would price alone.have normally tried to take earlieraction on. If interest rates rise or fearsof a renewed downturn become real,we believe manufacturers need to beespecially vigilant to the potentialticking time bomb of financial stabilityrisk of companies in their supply chains. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 19
  20. 20. Further readingCustomer Capturing growth 14th PwC CEO ManufacturingCollaboration markets survey: Industrial barometerDesigns Excellence In the 80’s and 90’s, many manufacturing Given today’s economicIt’s a given that a business companies looked to the sector summary conditions, this window onneeds to focus on its emerging markets for low- the views and expectations In ‘Growth reimagined:customers. But how does this cost sourcing. Now they are of other executives will help Prospects in emergingwork in practice for industrial looking to places like China you to understand what your markets’, we show how CEOsectors, where customers aren’t as important markets in their peers are thinking, and how confidence is being drivenconsumers, but businesses? own right. We highlight some they are responding to current by targeted investmentsIn this paper we take a examples of manufacturers business issues. Every quarter, in particular emerginglook at how manufacturing who are already building the Manufacturing Barometer markets – often far fromcompanies are collaborating plants, working with local surveys US-based senior home. Like their peers inwith customers to build partners and governments, executives from multinational other sectors, industrialrelationships and revenue. conducting research – and manufacturing companies manufacturing CEOs have most importantly, generating regarding their view of the renewed confidence in their significant sales – in some key US and global industrial companies’ growth prospects. emerging markets. manufacturing economies They honed their cost-cutting over the past quarter and their skills during the recession, outlook for the next patiently waiting for the time 12 months. when global growth would return.20 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  21. 21. Assembling value Never waste a Different shadesAssembling value is the PwC good crisis of greenquarterly analysis of mergers Business leaders have taken In this short paper we look atand acquisitions in the global their companies through the state of the climate changeindustrial manufacturing unprecedented times recently agenda post Copenhagen andindustry. In addition to a and now face new challenges the business implications fordetailed summary of deal in embedding the lessons Industrial companies. Theactivity in each quarter, we learned and driving for accompanying manufacturingsupplement each issue growth in a rapidly changing sector supplement givesof Assembling Value with environment. In this report some background on thea special report looking at we show how some leading current state of the sectorthe impact of wider industry players in the Industrial followed by an analysis of topchallenges on the strategic Manufacturing sector have sector companies and theirdeal environment. used the period to adapt and responses to climate change strengthen their businesses issues based on publicly providing lessons for those available information. tackling their own particular stage of the cycle. Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 21
  22. 22. Global Industrial Manufacturing IndustryGlobal IndustrialManufacturing team GroupBarry Misthal The Global Industrial ManufacturingGlobal Industrial Industry Group at PwC includes over 9,300Manufacturing Leader professionals who are committed to servingbarry.misthal@us.pwc.com the Industrial Manufacturing industry. It isTel: +1 267 330 2146 part of an Industrial Products group consisting of over 32,000 professionals, including over 17,000 providing Assurance services, 8,300Erica McEvoy providing Tax services, and 7,000 providingGlobal Industrial Manufacturing Advisory services.Marketing & KnowledgeManagement Our group is dedicated to delivering effectiveerica.mcevoy@au.pwc.com solutions to the complex business challengesTel: +61 3 8603 4827 faced by industrial manufacturing companies. As a global leader in serving the industry PwC has extensive experience working with companies on industry-specific strategic, operational, and financial issues. Our expertise includes assurance, tax and advisory services, as well as specialised capabilities in regulatory compliance, risk management, performance improvement and transaction support. In helping our clients, we draw on the full knowledge and skills of PwC’s professionals.22 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply
  23. 23. Territory Industrial Manufacturing contactsAustralia Korea SwitzerlandGraeme Billings Jae-Eun Lee Stefan Raebsamengraeme.billings@au.pwc.com jae-eun.lee@kr.pwc.com stefan.raebsamen@ch.pwc.comCanada Luxembourg TaiwanCalum Semple Mervyn Martins Gary Chihcalum.k.semple@ca.pwc.com mervyn.martins@lu.pwc.com gary.chih@tw.pwc.comCentral and Eastern Europe Malaysia United KingdomMatt Pottle Thaya Sangara Pillai Chris Bakermatthew.pottle@cz.pwc.com thaya.sangara.pillai@my.pwc.com chris.baker@uk.pwc.comChina Mexico United StatesMalcolm MacDonald Hector Rabago Barry Misthalmalcolm.macdonald@cn.pwc.com hector.rabago@mx.pwc.com barry.misthal@us.pwc.comFinland Middle EastUrmas Rania Alistair Ketturmas.rania@fi.pwc.com a.kett@ae.pwc.comFrance NetherlandsEdouard Sattler Alexander Staaledouard.sattler@fr.pwc.com alexander.staal@nl.pwc.comGermany RussiaMartin Bork John Campbellmartin.bork@de.pwc.com john.c.campbell@ru.pwc.comIndia South AfricaN.V. Sivakumar Diederik Fouchen.v.sivakumar@in.pwc.com diederik.fouche@za.pwc.comIreland South and Central AmericaAlisa Hayden Marcos Panassolalisa.hayden@ie.pwc.com marcos.panassol@br.pwc.comItaly SpainGianluca Sacchi Julio Balaguer Abadiagianluca.s.sacchi@it.pwc.com julio.balaguer@es.pwc.comJapan SwedenShigeru Shiina Olof Enerbäckshigeru.shiina@jp.pwc.com olof.enerback@se.pwc.com Industrial Products Industrial Manufacturing – Achieving excellence in production and supply 23
  24. 24. pwc.com/industrialmanufacturing© 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopers International Limited(PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other memberfirm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professionaljudgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’sprofessional judgment or bind another member firm or PwCIL in any way.These materials are for general information purposes only, and are provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of thisinformation, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose.We thank a number of partners and staff at PwC for their contributions to the research, writing and management of this publication. This document is printed on heaven 42. heaven 42 is an environmentally responsible paper manufactured using Elemental Chlorine Free (ECF) pulp sourced from certified, well managed forests. heaven 42 is Forest Stewardship Council (FSC) Chain of Custody (CoC) certified (mixed sources).

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