Achieving excellence in production and supply

pwc.com/industrialmanufacturing

Achieving
excellence
in production
and supply
Industrial
Products
Industrial
Manufacturing
The third instalment
in our Manufacturing
Excellence series.

2 Industrial Products Industrial Manufacturing – Achieving excellence in production and supply

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 19

Introduction
Welcome to the third in our series of papers Common to all five is the importance
on manufacturing excellence. In the first two of companies engaging and connecting
editions we focused on growth markets and better with customers, suppliers and the
customers. Now we look inside manufacturing world around them. Companies that are
and take a look at the threats to and disconnected or fail to engage appropriately
opportunities for achieving excellence in will miss opportunities to achieve excellence
manufacturing production and supply. or, worse, face the danger of ticking time
bombs that could fatally disrupt production
Events such as the Japan earthquake have and supply. Those that are successful in
highlighted the importance of supply chain making the connections have the opportunity
resilience. We live in a world where the to gain ground and move ahead of their peers
connections up and down the supply chain, in distinctive and tangible ways.
as well as inside companies and outside to
the world around them, are increasingly
important. In this context, we highlight five
issues that we believe will play an important
part in determining the difference between
manufacturing excellence, adequacy
or 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

Identifying and preventing supply chain risk

Supply chain risk has been on a roller Gaining visibility over be critical for a variety of reasons and
coaster ride. Before the financial crisis risk management strategies need to take
supply 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 source
they were caught in a perfect storm of not just the interdependencies of the from elsewhere. These kinds of risks
rising bankruptcies, high levels of debt, global supply chains that characterise need to be identified and appropriate
tight credit, and weak demand. Now they many industries but the challenge for measures taken, for example by way of
face a mix of conditions. companies of maintaining visibility inventory cushions, dual sourcing or
over the supply chain. The full extent collaboration with suppliers to develop
Commodity prices are back to high levels, alternative sources.
of supply chain disruption following
there has been a renewal of confidence
the earthquake remains unclear as
but market conditions are varied. Following the Japan earthquake, Boeing
the timescales for stock cushions and
Considerable 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 Institute
form of the Arab Spring civil uprisings the impact of natural disasters on its
of Technology Center for Transportation
and the March 2011 Japan earthquake operations. About 35% of the 787
and Logistics, observed: “Even the best
remind us of the risk of abrupt supply Dreamliner aircraft is being developed
companies have very good visibility into
chain 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 can

1 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.


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.3

3 Merck press release, Merck Resumes Xirallic Production in Japan, May 10 2011.


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?

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 America
supply chain risk alerts strike action, then these risks should be where the banking system and smaller
Many 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 financial
high 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, for
their supply chain risk is and haven’t
defined this risk comprehensively
– the potential ticking example, pointed to “the prospect of an
enough. Nor are they thinking about it time bomb unexpected and sudden, market-driven
ahead of time. rise in long-term interest rates” as a key
One risk that should be central to supply risk.6 Although the creditworthiness
Companies are used to looking ahead chain risk management is the financial of larger companies in most advanced
for innovative practices to make supply stability of suppliers. We believe current economies had improved as profitability
chains more efficient and lean, but their financial and macro-economic conditions increased, default rates have continued
risk mitigation activities often remain in 2011 are such that manufacturers to rise for smaller companies. Now, the
backward-looking, based on events they should elevate their scrutiny of this latest economic concerns in the US and
have already experienced. This risk risk factor. the risk of sovereign debt contagion in
management approach is lagging in Europe have brought fears of a double-
The banking crisis has made the recent
nature and almost always ensures dip recession back on the global agenda,
economic downturn and the subsequent
that new risks will be spotted only when heightening the risk of company failure.
recovery different from previous
they become serious issues. A direct link
economic cycles. Lenders and banks
to organisational objectives is one way of
are under great scrutiny and have held
making supply chain risk management
on to very large portfolios of marginal
forward-looking.
businesses that they would have
As 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 more
using real-time data. Hand-held mobile difficult for these businesses to service
communications and IT systems make loans and the banks will have to pay
electronic connectivity with partners and more attention to them. Alternatively,
suppliers much easier. Having sensors any renewed downturn will put
in place throughout the supply chain pressures on marginal companies and
enables manufacturers to know instantly also on banks.
what is going on at that moment in time

30%
Either of the above scenarios make it
and for alerts to be triggered in the event
important for manufacturers to identify if
of any unforeseen developments. Events
such companies are in their supply chains
such as the Japan earthquake highlight
and take steps to derisk. The scale of the
the importance of being able to rearrange
potential risk, in the UK for example, is
sourcing and orders in real-time rather
illustrated by data in a mid 2011 Bank of
than face the time-lag of periodic reports.
England Financial Stability report which
The scope of the risk canvas also needs shows around 30% of companies have
Companies with
to match the nature of the supply interest rates greater than profits.4 The
interest rates greater
chain. 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 of
on one product, supplier or site that for manufacturers. Default rates on loans
England Financial
can heighten the vulnerability of that are continuing to rise among smaller
Stability report
part of the supply chain. Similarly, if a companies according to a survey of credit
supply chain includes locations that are conditions used by the Bank of England.5

4 Bank of England, Financial Stability Report, June 2011.
5 Credit Conditions Survey, Q1 2011.
6 European Central Bank, Financial Stability Review, 15 June 2011.


Linking demand planning with the whole value chain

High commodity prices have brought Demand planning –
renewed focus on the importance of
production efficiencies and a resilient
looking at the full picture
supply chain. The traditional mantra is Demand planning is a step before ‘just
on the importance of companies driving in time’ or ‘on demand’ manufacturing.
down costs and exploring opportunities ‘On demand’ might be an outcome that a
to gain ever leaner production and company decides on after going through
supply chains. But, while this may be an a full demand planning process but it is
important strategy for some situations, just one possible outcome. With demand
it may not always be the best and most planning, companies start with demand
sustainable approach for the long term. and their customers’ requirements and
link that to the whole of their operational
Concepts like ‘lean’ and ‘just in time’ have
planning. Whether the product is then
gained a lot of traction in the past decade
produced on demand, in a regular flow, in
or so. They have a huge part to play for
a large-scale batch or some mix of these
many companies but their value is only
is determined by the whole context of the
as good as their fit with what specific
customer’s needs, the production logistics
companies 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 particularly
a component or product that is vital but productive when customers and
which could be prone to scarcity. As we manufacturers look not just at what is
have seen with the example of Xirallic being demanded but why it is needed in
in the previous section, there can be a that way. All the way along the supply
fine line between ‘just in time’ and ‘just chain, suppliers and their customers are
not 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.


Smurfit Kappa Ireland – protecting margins and
improving demand planning
In an industry with ever increasing With this lead time and costing
competition, paper-based packaging information, SKI is able to accurately
company Smurfit Kappa Ireland’s (SKI) assess the most efficient minimum
success is based on reliable and timely order quantities and build these into
product supply. It has placed a high service level agreements with customers.
priority on working with customers on It also has unit-based tracking and
their 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 can
boosted by significant investment in benefit from and rely on the short lead
new machinery at strategic plants times and that they can forecast with
and an overhaul of supply chain and sufficient accuracy to allow them to
business software systems. It has operate a ‘just in time’ type system. In
replaced a variety of dated and difficult turn, SKI has been able to protect its
to maintain legacy systems with new margins by maintaining prices while
enterprise level corrugated business delivering added value. For example,
software which integrates with the SKI is moving towards the idea of
company’s scheduling software. It now ‘solutions plants’ which are geared
has a centralised database model that to identifying solutions for particular
runs across all plants, enabling it to customer needs such as point of sale
manage 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 plants
for manufacturing. Cultural change has also been necessary
to make the changes effective. With
The company has much greater historic accurate timely data and increased
and real-time visibility on demand and efficiencies, management has had to
supply. Accurate costing information, change its modus operandi. Without
based on actual real time data from agile, proactive and flexible management
the factory floor, enables it to quickly and staff, the information and systems
identify and remedy margin issues. It can alone would not have transformed the
then take immediate action through, for business. The company’s management
example, redesign or price discussions was very open and honest in
with customers. Management now have communication with staff with regular
accurate information on ‘make ready’ and forthright discussions throughout
times. They can guarantee service levels the process. Staff responded by taking
to customers on specific lead times and on new roles and becoming more flexible
deliver with certainty. and innovative.


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?


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 process
A 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 their
might want to create or participate in operations for many years as a way of
collaborative supply chain networks.
Getting knowledge and offsetting the contract pricing demands
Being more open and inviting value from suppliers of their customers. By changing the
participation not just in the ‘what’ but procurement process to one of price,
Whether manufacturers decide to go
in the ‘why’ and the ‘how’ a product agility, quality and value the advantages
down the collaborative network route or
is required can be a path towards of working with these types of value-
not, all manufacturers can benefit from a
greater productivity and supply chain driven suppliers becomes apparent.
re-examination of their procurement and
optimisation. It is also a strategy that
sourcing strategies. Procurement is often Recently, for example, a global cereals
is likely to benefit companies that
price-led and fails to take account of producer commenced a three year
are 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 operations
rather than price alone.
procurement or sourcing department but, shortly after, was extended to the
The creation of collaborative networks is is doing eye catching deals on price but procurement function. It was difficult at
most evident in the closed type of supply then components that seemed good value first to find functional improvements and
chains developed by some companies, become related to severe and frequent savings but, once the company engaged
typically in the technology sector. cases of downtime and, ultimately, much with their contract suppliers and
In 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 operational
Peter 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 shipment
a 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 be
integrated set of networks in which far stronger and the pipeline of new
linked and agree approaches to critical
many of the technologies being applied improvements is full for the next
supplier needs that take account of the
are developed at least partially by the 12-18 months with more suppliers and
value and total cost of ownership rather
company orchestrating the system. producers entering the programme
than price alone. Where appropriate,
A large proportion of the components each month.
the procurement process itself also
made by key suppliers are unique to the
needs to be conducted in ways that can
final product.”7
gain from the knowledge of suppliers.
Marsh contrasts closed supply chains A relationship which is purely
with “open supply chains – common in transaction-based and focused on
industries such as automotive, aerospace driving down the price is unlikely to
and many areas of consumer electronics – utilise the value and the insight that
(where) the emphasis is on standardised component suppliers might be able to
components that fit together in a offer. Such insight can be instrumental
modular fashion. In these systems, in preventing inefficiencies or other
suppliers are generally encouraged to be problems arising later.
the main innovators and sell the same
Such considerations become even more
components to a range of customers.”8
important when companies are moving
Of course, it is possible for industries and
beyond component and equipment
supply chains to have a mix of open and
purchasing and are setting up contract
closed networks. The decision whether
manufacturing arrangements. It often
to develop a closed supply chain, and the
surprises many in the procurement
collaborative relationships that typically

7 Financial Times, Closed encounters with suppliers, July 6 2011.
8 Ibid.


Making customer and supplier collaboration real

In the same way that collaborative Developing a collaborative Breaking down silos
networks are increasingly important
up the supply chain, as discussed in the
mindset and protocols Developing a collaborative approach
previous section, they are also highly Making collaboration real, whether it is with customers and suppliers externally
pertinent for the customer relationship. with customers or with other companies also needs to be matched with greater
Business 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 is
revenues came from the production of among manufacturing companies. difficult to achieve if there are internal
components or end products. Now many In our experience, many manufacturing disconnections. Silo working with
companies 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 many
involves understanding customer needs to some companies’ attitudes to their manufacturing companies with
and involving them in the development customers, it is not too strong to say that consequent challenges for developing the
of 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 is
performance series, we talked about The challenge here is that most
always right’ is not an adage that sits
the importance of collaborating with companies operate budgets and savings
easily with the engineering culture that
customers to build relationships targets functionally. The best companies
still dominates in some parts of the
and revenue. We believe this type build a business-wide operating or
manufacturing sector.
of approach will be fundamental to management system that takes the
innovating smarter and developing a The same challenges also apply to overall challenge and breaks it down
sustainable manufacturing business for collaboration with suppliers. In some into operational imperatives. In this
the future. We looked at how industrial respects, they are perhaps even greater. way, the focus is more on key business
manufacturing 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 the
customers better, both individually and established practice and procedure. challenge and strategic decisions to be
in 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.


Checklist – making customer supplier
and 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?


Addressing lifecycle opportunities and demonstrating sustainable value

One of the most important ways that Gaining competitive
industrial manufacturers can secure
growth is by demonstrating the
advantage
sustainable value inherent in their Manufacturers and suppliers that are
products and exploring the opportunities able to demonstrate sustainability in
that come from considering the whole their processes and products are gaining
product lifecycle. Increasingly, companies competitive advantage. For example,
are realising that such an approach can building and construction companies
be a differentiator in the marketplace competing to be part of the supply chain
that can directly enhance revenues rather for most major projects are expected
than being a bolt-on strategy in response to meet certain specifically-defined
to regulatory imperatives. thresholds. Many projects now expect
suppliers to go well beyond these as end
Opportunities to maximise sustainable
customers, whether they are public or
value arise at the product design,
private entities, seek to show that their
product 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 Olympics
the product. Once a product is in use, has sought to set new benchmarks in
support and maintenance packages can carbon reduction for large scale projects
be tailored to extend product life or and regeneration projects. As well
increase its output or efficiency. Always as climate change, it also has strong
the relationship with the customer is of themes related to waste, biodiversity,
central importance. Some customers are inclusion and healthy living that have
mature and are looking for a ‘through been part of contractor and supplier
life’ total cost approach. Others are selection. Similarly, in France PwC has
less sophisticated and, in such cases, been working with Nice City Council on
suppliers need to think carefully about tender proposals for the construction of
their cost/value equation and how they a new soccer stadium. Each of the four
communicate this. proposals have been graded according
to their environmental impact, taking
In many sectors, sustainability-related
into account factors such as energy and
initiatives are most evident among
water consumption and the life cycle of
first and second tier suppliers who
building materials.
are close to the consumer/retailer
interface where, often, regulation
applies or customer choice comes into
play. But understanding of the value
of sustainability and its adoption often
fades as you move further along the
supply chain. A noteworthy example
of impetus to address such issues
throughout the entire supply chain
and across the whole industry is the
nonwoven fibre sector. Here firms in the
industry have come together to form
EDANA, an initiative that seeks to embed
sustainability throughout the entire
supply chain (see opposite).


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 a

9 www.edana.org
10 EDANA, Sustainability Report 2011.


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 the
and ‘cradle to cradle®’ minimising harmful impacts. Its goal main tyre recycling methods on behalf
approaches 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 production
The push towards sustainability is being
ecosystem to replenish – namely, by of synthetic turf. This enables the
given a strong reinforcement by the impact
designing products that have value substitution of ethylene propylene diene
of 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 energy
tax or trading requirements. This all puts a
the next generation. “Toward this end, consuming and granule lifetime is only
premium 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 include
energy, water and other inputs in their
attributes and their potential to be the construction of retention basins
manufacture and end-use, and produce
safely cycled,” argue ‘cradle to cradle®’ which make it possible to store rainwater
fewer air, water and other pollutants.
proponents William McDonough and or runoff water temporarily. Using whole
Manufacturers are responding in a Michael Braungart. They talk about or shredded tyres for retention basins
variety 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 raw
to 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 basin
recyclable and reusable to the greatest materials and can be returned to high- whilst conserving a very large quantity
extent possible. Manufacturers can valued uses in new products without of water.
also differentiate themselves and gain contaminating the biosphere.”11
competitive advantage by initiating
Aliapur is a used tyre recovery
take-back programmes and by assuming
company founded by seven leading tyre
extended product responsibility, ensuring
manufacturers, including companies
that their products’ ultimate disposal is
such as Bridgestone, Dunlop, Goodyear,
environmentally sustainable.
Michelin and Pirelli. Its aim is to
Manufacturers who gain reputation neutralise the environmental hazards
in this space stand to benefit from brought about by the presence of used
‘dematerialisation’, where they use
fewer materials to do more and their
products gain a value and resonance
over and above their basic functionality. Life cycle analysis of a new product range
Lifecycle assessment and ‘cradle to
cradle®’ 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 the
harmful impacts and maximise benefits packaging, Sphere, asked PwC to ‘fossil origin’ bags. The greenhouse
for 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’ polyethylene

11 MBDC/Cradle to Cradle®, Design for a cradle to cradle Future, 2010.


Optimising manufacturing first global business to put a true value Checklist – addressing
on the natural resources used and
processes the environmental impacts caused by lifecycle opportunities
Underpinning everything is the need for providing products to its customers. and demonstrating
manufacturers to be able to monitor and
Environmental P&L accounting is an sustainable value
optimise their processes to ensure they
emerging field for reporting. The profit • Are there opportunities in your
are as efficient as possible and are not
and loss account is intended to give sector to take a whole supply chain
in 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 the
operations and processes, enabling
environment, enabling better positive • Are you identifying and promoting
them to be continually monitored and
actions to be taken to deliver commercial the environmental, economic and
accurately controlled, can significantly
benefits and safeguard the natural assets social value-add of your products
reduce or eliminate waste and, in
businesses depend on. PUMA has taken a and feeding this back into
turn, ensure minimal use of energy
significant first step, effectively holding product development?
and other inputs. Such technology
a mirror up to its supply chain, showing
can be integrated into overall system • Do you have modern process
its dependencies on natural capital
architecture, allowing full transparency control systems in place to manage
so that they can be tackled from the
on 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 tackle
planning (ERP) level. other inputs?
environmental risk and impacts.
Waste heat is a major efficiency and • Have you evaluated the potential
energy production opportunity for of initiatives such as take-back
manufacturers in some sectors. In programmes and extended
glassmaking, for example, large amounts product responsibility which have
of waste heat with temperatures between the potential of reinforcing and
400°C and 800°C are produced. But sustaining customer relationships and
many companies are still failing to make revenue streams as well as boosting
use of the energy generation potential environmental sustainability?
of such heat. The electrical energy from
waste heat could cover up to half a glass • Do you have effective mechanisms
manufacturing plant’s total electricity for monitoring, gathering data and
needs,12 saving money and reducing reporting on energy intensity, carbon
carbon dioxide emissions. use and other impacts and have you
considered ways of enhancing this,
for example through environmental
Measuring and reporting profit and loss accounting?
progress
Monitoring and control of energy
intensity, carbon use and other impacts
is increasingly important, not just for
regulatory compliance purposes, but
also for customers so that they can
evaluate environmental and other
impacts in their supply chains. In 2011,
PwC helped sports lifestyle company
PUMA develop an environmental profit
and loss account, making them the

12 Siemens, Energy efficiency thanks to waste heat recovery, innovative concepts for the glass industry, 2008.


Attracting the people and skills needed for the future

CEOs worldwide are once again citing investing in education and training initiatives including the involvement of
a lack of key skills as the hottest issue to meet its staffing needs, including Airbus UK in a cross-sector initiative in
on their agenda. Managing talent apprenticeship programmes of the kind the West Midlands with power utility
has overtaken risk as top of the CEO it uses in Germany. company E.ON to link learning in schools
agenda and two thirds report that to the real world of engineering.
lack of the right skills is their biggest
talent challenge.13 Manufacturing is
Investing in the skills Emerging markets are also placing a
no exception and companies in many supply chain high priority on the skills agenda. In
different countries report shortages of India, for example, efforts are underway
Manufacturers are increasingly to enhance the skills level of the
suitably qualified science, technology, addressing their skills and talent
engineering and mathematics (STEM) labour force, with the National Skills
challenges by stepping up investment in Development Council looking to “skill or
qualified 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 up
and, despite high unemployment, products manufacturer Ingersoll
45% report that hard-to-fill vacancies at a rapid rate.20
Rand has developed its own ‘Ingersoll
are causing delays in new product or Rand University’ (IRU). It is a training
service development.14 resource which provides strategic
education to develop business leaders, Checklist – attracting
New types of skills enhance strategic competencies and
drive the Ingersoll Rand culture. the people and skills
Gaps seem particularly evident in the Training programmes are delivered needed for the future
type of skills needed to deliver the locally across the globe as well as at the
culture of collaborative working and company’s University Education Centres • Are your assessment of skillset
breaking down silos that is discussed in Davidson, North Carolina; Prague, requirements and your people
earlier in this report. For example, the Czech Republic; Shanghai, China; development and recruitment
specific skills gaps in problem solving, and Bangalore, India. IRU learning activities keeping up with the
team working, oral communications programmes are also available on- changing needs of your customer
and 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 Ingersoll
15 skills shortages reported by • Are you making the appropriate
Rand employees used this training
companies in the UK process and investment in in-house
resource.18 The resource is also open to
manufacturing sector.15 development packages and future
customer, distributors and partners.
talent programmes? Have you got
In the US, the Manufacturing Attention is also being focused on ways the metrics in place to assess the
Institute 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 for
educated workforce is the single most • Are you making the most of ways
example, Tomorrow’s Engineers is
critical 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 reaches
Eric Spiegel, US chief executive of collaborate with schools and
more than 35,000 students in over
German engineering group Siemens, universities?
1,000 schools across the UK each year.19
observed: “There’s a mismatch between It brings engineering into the classroom, • What are the opportunities for
the jobs that are available, at least in enabling young people to experience shared initiatives across your
our portfolio, and the people that we for themselves the possibilities that supply chain or with other
see 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 regional

13 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.


Conclusion

Looking ahead, the importance of High energy and commodity prices will But, as we have seen, greater
the themes discussed in this report continue to require an emphasis on the collaboration and external connectedness
is likely to intensify rather than need for manufacturers to monitor and is difficult to achieve if there are internal
diminish. Manufacturers that succeed optimise their processes to ensure they disconnections or if the right skillset is
in strengthening the connections and are as efficient as possible and are not in not in place to deliver it. A collaborative
resilience of links up and down the supply any way wasteful. Sustainability in the approach with customers and suppliers
chain and demonstrating the value-add of form of minimising harmful footprints externally needs to be matched with
their strategies for sustainability will be in and maximising lifecycle utility will be an culture change internally. Just as
a stronger position than companies that expectation and will also be an important companies are stepping up investment in
underestimate these priorities. service-add to build relationships and their people development programmes
revenue with customers. to address STEM skills shortages, so
Factors such as geopolitical, economic they also need to be looking at the
and financial market risk are an ever- Demand planning, with manufacturers softer skills, such as problem solving
present. As the experience from the Japan linking the totality of their customers’ and team working, that are needed for
earthquake has showed, companies need requirements to the whole of their collaborative working up and down the
to 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 degree
chains and match them with appropriate of collaborative working. Being more
remedial measures such as inventory open and inviting participation not just
cushions, dual sourcing or dialogue with in the ‘what’ but in the ‘why’ and the
suppliers on alternative production. ‘how’ a product is required can be a path
towards greater productivity and supply
The banking crisis has made the chain optimisation. It is also a strategy
nature of the recovery from the recent that is likely to benefit companies that are
downturn very different from previous seeking to build their growth on strategies
economic cycles. Lenders and banks of innovation and service rather than
have held on to loans that they would price alone.
have normally tried to take earlier
action on. If interest rates rise or fears
of a renewed downturn become real,
we believe manufacturers need to be
especially vigilant to the potential
ticking time bomb of financial stability
risk of companies in their supply chains.


Further reading

Customer Capturing growth 14th PwC CEO Manufacturing
Collaboration markets survey: Industrial barometer
Designs Excellence In the 80’s and 90’s, many
manufacturing Given today’s economic
It’s a given that a business companies looked to the sector summary conditions, this window on
needs 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 emerging
work in practice for industrial looking to places like China you to understand what your
markets’, we show how CEO
sectors, where customers aren’t as important markets in their peers are thinking, and how
confidence is being driven
consumers, but businesses? own right. We highlight some they are responding to current
by targeted investments
In this paper we take a examples of manufacturers business issues. Every quarter,
in particular emerging
look at how manufacturing who are already building the Manufacturing Barometer
markets – often far from
companies are collaborating plants, working with local surveys US-based senior
home. Like their peers in
with customers to build partners and governments, executives from multinational
other sectors, industrial
relationships 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.


Assembling value Never waste a Different shades
Assembling value is the PwC
good crisis of green
quarterly analysis of mergers Business leaders have taken In this short paper we look at
and acquisitions in the global their companies through the state of the climate change
industrial manufacturing unprecedented times recently agenda post Copenhagen and
industry. In addition to a and now face new challenges the business implications for
detailed summary of deal in embedding the lessons Industrial companies. The
activity in each quarter, we learned and driving for accompanying manufacturing
supplement each issue growth in a rapidly changing sector supplement gives
of Assembling Value with environment. In this report some background on the
a special report looking at we show how some leading current state of the sector
the impact of wider industry players in the Industrial followed by an analysis of top
challenges on the strategic Manufacturing sector have sector companies and their
deal 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.


Global Industrial
Manufacturing Industry
Global Industrial
Manufacturing team Group
Barry Misthal The Global Industrial Manufacturing
Global Industrial Industry Group at PwC includes over 9,300
Manufacturing Leader professionals who are committed to serving
barry.misthal@us.pwc.com the Industrial Manufacturing industry. It is
Tel: +1 267 330 2146 part of an Industrial Products group consisting
of over 32,000 professionals, including over
17,000 providing Assurance services, 8,300
Erica McEvoy
providing Tax services, and 7,000 providing
Global Industrial Manufacturing
Advisory services.
Marketing & Knowledge
Management Our group is dedicated to delivering effective
erica.mcevoy@au.pwc.com solutions to the complex business challenges
Tel: +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.


Territory Industrial Manufacturing contacts

Australia Korea Switzerland
Graeme Billings Jae-Eun Lee Stefan Raebsamen
graeme.billings@au.pwc.com jae-eun.lee@kr.pwc.com stefan.raebsamen@ch.pwc.com
Canada Luxembourg Taiwan
Calum Semple Mervyn Martins Gary Chih
calum.k.semple@ca.pwc.com mervyn.martins@lu.pwc.com gary.chih@tw.pwc.com
Central and Eastern Europe Malaysia United Kingdom
Matt Pottle Thaya Sangara Pillai Chris Baker
matthew.pottle@cz.pwc.com thaya.sangara.pillai@my.pwc.com chris.baker@uk.pwc.com
China Mexico United States
Malcolm MacDonald Hector Rabago Barry Misthal
malcolm.macdonald@cn.pwc.com hector.rabago@mx.pwc.com barry.misthal@us.pwc.com
Finland Middle East
Urmas Rania Alistair Kett
urmas.rania@fi.pwc.com a.kett@ae.pwc.com
France Netherlands
Edouard Sattler Alexander Staal
edouard.sattler@fr.pwc.com alexander.staal@nl.pwc.com
Germany Russia
Martin Bork John Campbell
martin.bork@de.pwc.com john.c.campbell@ru.pwc.com
India South Africa
N.V. Sivakumar Diederik Fouche
n.v.sivakumar@in.pwc.com diederik.fouche@za.pwc.com
Ireland South and Central America
Alisa Hayden Marcos Panassol
alisa.hayden@ie.pwc.com marcos.panassol@br.pwc.com
Italy Spain
Gianluca Sacchi Julio Balaguer Abadia
gianluca.s.sacchi@it.pwc.com julio.balaguer@es.pwc.com
Japan Sweden
Shigeru Shiina Olof Enerbäck
shigeru.shiina@jp.pwc.com olof.enerback@se.pwc.com


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