Factors that are reshaping the manufacturing industry and product development
COVID-19 has raised the bar high for fast and frugal innovation, especially in manufacturing. As governments and hospitals around the world braced to handle the surge of COVID-19 patients, ventilators were found in short supply. Why? Because, according to experts, ventilator manufacturing is time-consuming and expensive. Using sub-standard ventilators can compromise a patient’s health and chances of survival. This pandemic is precisely the kind of crisis that can turn into an opportunity for fast and frugal innovators in manufacturing. Imagine being able to quickly manufacture desired volumes of high-quality advanced ventilators in record time while meeting the necessary quality standards and price points!
This is what has prompted a race between automakers to build ventilators across the world. Companies like Ford and General Motors have turned to their idle factories – retrofitting assembly lines and utilizing their existing supply base for ventilator manufacturing. Auto manufacturers were well suited to manufacture ventilators as they have the scale, quality processes, and experience of working with complex products. Furthermore, auto suppliers are also engaging in developing medical PPE equipment. For example, China’s BYD became the largest mask maker in the world, which has helped them post an increase in profit by 14.3% in the 1st half when car sales have slumped worldwide.
In the new world order, true frugal innovations will be the key to survival. It is important to note that frugal innovation does not mean compromising on high-end features of the product or service to reduce the total cost of ownership. On the contrary, frugal innovation means being able to offer superior digital experiences, complete with all features, at a price point that is affordable. For example, it does not count as frugal innovation when you sell a car with airbags fitted only for the front seats. True innovation is when you can manufacture and sell a feature-rich car (any product or service for that matter) at a price that the market can afford. In India, heart diseases are prevalent and also the leading cause of mortality (accounting for one in four deaths in India). Even though the demand for heart pacemakers is high, the market used to be very small due to the lack of affordable prices. Thanks to frugal innovation from companies like Medtronic and other Indian startups (Medived), the full feature product was developed at a price the Indian market could afford. As a result, this market has seen exponential growth in recent years.
Frugal innovation means being able to offer superior digital experiences, complete with all features, at a price point that is affordable
To spur such quality and economic innovation in manufacturing, we will need to integrate plans with the geopolitical situation, with supply chains for manufacturing, and with new-age technology platforms that are best suited for the region/market. This three-pronged framework will be central to manufacturers, who, in the new normal, will need to produce world-class products at the right scale, quality standards, and price points.
COVID outbreak has caused a lot of economic disruption and unemployment across the globe. According to the World Bank, advanced economies are expected to shrink by 7% in terms of GDP. This contraction, coupled with pre-existing trade embargos and protectionist policies of major countries has brought back economic nationalism to the forefront. Under these circumstances, there is increasing pressure on manufacturing firms to bring back production closer to their home base. For example, Japan has announced a $2.2 billion economic recovery package to bring production back home and diversify into Southeast Asia.
The initial exodus of manufacturing from the West happened due to lower cost dynamics offered by the East. For companies to bring this manufacturing back home (re-shore), while meeting the current price points will be the biggest challenge. This is why they need to explore fast and frugal innovation.
Taking the example of ventilator manufacturing, if developed countries manufactured ventilators which could support multiple patients, they could ensure that the total cost of ownership for hospitals would still be similar, despite manufacturing happening in the (expensive) developed world.
Supply chains for manufacturing in the digital world
Modern products are often complex and need a high degree of specialization. This causes supply chain complexity for the manufacturers as they have to engage with specialists and various subcontractors across the globe. Engaging with various third parties requires establishing additional procurement practices, meeting tax obligations, and supplier negotiations.
It is not enough to just move the manufacturing of a given product to another country. We also need to ensure that the overall manufacturing ecosystem (Tier 1, Tier 2 suppliers, etc.) are managed to ensure seamless supply.
With the current pandemic disrupting the existing supply chains, manufacturers have struggled to keep up their operations running, resulting in shortages to the end customer – more so when it comes to critical supplies. Also, with governments riding the wave of economic nationalism, organizations now need to revisit their sourcing decisions.
It will be imperative to redesign geographically dispersed supply chains for better control of fluctuating volumes. Firms need to look at sustainable and frugal solutions like embracing digital transformation technologies for establishing a robust and resilient supply chain. Tools such as data and analytics will play a big role in helping analyze supply chain risk. These tools can enable real-time visibility and insights - from supplier readiness across locations to the best way to move inventories to multiple factories.
New-age technology platforms
Rebuilding the manufacturing industry in the new normal thus becomes imperative. Technology has played a great role in navigating this pandemic and will continue to do so as we plan a comeback and give shape to the new normal. Organizations have realized the need to consolidate communications, collaboration, and business processes in a solution that is secure and guarantees privacy. Like other sectors, manufacturing will also see the acceleration of digital transformation across all areas – whether it keeps employees connected and productive, connecting dealer management systems, automated, robotics-driven factories, or ensuring health guidelines compliance in their facilities.
Using AI / ML platforms, manufacturers can proactively engage with consumers throughout a product’s life cycle, gaining new insights and creating AI-driven assets that target their desired outcomes. Embedding AI in products can help supply personalized and intelligent assistance, predictive maintenance, and remote monitoring of the products.
Furthermore, AI-powered solutions with a combination of sensors and cameras can help create the required audit trail for compliance with health guidelines requested by statutory authorities. This includes mask identification, sanitization practices such as washing hands as well as the distance between two employees – all monitored centrally. Large facilities/factories can also deploy similar solutions via drones while maintaining privacy.
Full-scale, end-to-end factory automation for frugal innovation becomes that much more important as manufacturers moving closer to their own base need to maintain accurate market price points. For one of our clients, we have enabled a smart factory through an end-to-end solution for tracking and controlling electronics production with automated maintenance. We will witness a drastic increase in automation in the manufacturing industry as it undergoes digital transformation to adapt to the new normal.
Let me conclude by leaving you with two examples:
KIA Motors’ Seltos was launched in India at a time (June 2019) when the market was down to its knees, enduring its worst-ever slump. By March 2020, KIA Seltos became the bestselling SUV of the month (in India). How and why did this happen, even in the face of a pandemic? KIA Seltos ticked all the right boxes of being a world-class, feature-rich SUV at a price-point India could afford.
What really matters for customers today is a personalized customer experience. Hyper-personalization will ensure personalized communication and more meaningful interactions with customers, leading to customer loyalty. Apps like MTailor that help you create custom clothes by measuring you right on your phone are a strong example. Apart from the perfect fit, services also include shipment and delivery of your tailored clothing at affordable prices (specific to the market). Hyper-personalization helps companies in effective vertical integration from suppliers (as they know what to procure) to manufacturing (personalized products for each individual) to supply chain and sales (directly reach customers).
In the new normal, industries, and especially the manufacturing industry, will need to adapt fast and frugal ways to drive innovation and digital transformation in product development. Both aspects will need to be pursued in tandem for the success of the product and the manufacturer.
*The blog was first published on the NASSCOM website