The Changing World of Manufacturing – Part III – Length of Value Chains

R Jayaraman

Author: R Jayaraman

Date: Wed, 2016-11-23 15:12

The Changing World of Manufacturing –Part III – Length of Value Chains

Manufacturing is the ultimate value chain, the chain that creates or generates the values that companies promise to their customers. Value chains are common features where organised activities are done in sequenced, co-ordinated, calibrated, measured ways to create finished products and services.   

In Indian agriculture of yore value chains were short due to the fact that all the necessary ingredients were generated at the site – the ploughing field. Manure was made up of human and cow dung, water was from the nearby well, the wooden plough was produced from the nearby trees, and the output was sold in nearby markets through the mechanisms of “MANDI” OR “SANTHE.” It was a self-regulating, market driven barter system that governed those early times.

 

With industrial revolution came the longer value chains. Vendors or suppliers were involved in activities that provided some of the inputs needed for large factories, which could not produce the supplied / vended goods due to a lack of skill or resources or by choice. Oftentimes the perceived risks involved in managing long value chains through long chains of command deterred promoters who cut short the number of links. Thus evolved the broken up, specialised pieces of value chains, which became the model for the production and dispatch of goods and services. Needless to say, such systems, with the value creating pieces at long physical distances from each other, and with large number of persons involved in creating the final value, called for a common currency, thus spelling the death of the barter system. With “global companies” becoming the norm the day is not far off when the world will switch to one “Universal Currency” (UC), to wipe out the advantages and disadvantages of economies. Had this happened in 2015,  Donald might have been Trumped out, whose arguments of immigration, off shoring, job stealing etc. would have lost their teeth, ground by the UC toothpaste.

Manufacturing was the earliest manifestation of the industrial revolution. The ability of the inventor to come out with various goods which can be used by the market started off a set of activities which were used to convert the invention into a mass produced item for sale. This process involved machines, tools, man, other resources and management to come together in unique ways and create a totally new entity. Mass production and sales made possible the investment of money into such ventures by capitalists through the profits earned. This “pancha loka” (or five worlds) was the precursor of the soon rampaging juggernaut called “manufacturing.” Manufacturing made markets and vice-versa. They fed on each other. The value generation or value creation was the pre-requisite to produce goods and services. No goods, no services. Service is merely an extension of the manufacturing activity.

Value chains have, over the years, mutated, lengthened, shortened, widened, covered long distances and deepened through automation, computer usage and connectivity. Mutation occurred through maturity of the pancha loka. Over the years people got adept at building machines. “Growth” of machines happened in terms of higher volumes and production rates, production of the entire range of components in one machine, sophisticated machines enabled accessorisation leading to product differentiation, automation extended the speed range and complexity index, and connectivity has now enabled modularised manufacture and software driven production and controls. More is to come.

Tools have evolved from the basic hammer and tongs to the electronically controlled and operated implements, many of which can fit into small pockets in trousers. They have come a long way. Man has also evolved into a sophisticated creature, which term now includes “woman” as well (however, the spelling of woman indicates the reverse - such are the peculiarities of the English language), demanding and getting high salaries, perks, work from home options and sophisticated tools to work with.

The “other resources” list has lengthened and deepened, from power and water to on-tap charging of cell phones, oil and lubrication at the point of application, remote transfer of funds through mobiles. The future is only restricted by human imagination. There is more to come.

Finally, to put together the “chatur loka” as described above into a meaningful whole God created a voracious creature called “management.” Ever since the times of Peter Drucker, Peters and Waterman, Edwards Deming, CK Prahalad, Ram Charan, Eiji Toyoda and illustrious others this creature is still evolving and will continue to do so even after the chatur loka will die out. This loka is powered by the human brain and is an ever growing mutant which will never be satisfied by what it creates, looking for PDCA and continuous improvements, till death and doom do them apart.

Manufacturing is the basis of all value creation and we enjoy the fruits of this all-consuming activity of modern society. Manufacturing links the market with the customer, resources are put to optimal use to maximise the output, the right machines are designed and built to add muscle to the nerves of the human brain to optimise the process of creating value. Tools will continue to facilitate the process of manufacture, providing essential background music without which no orchestra can be enjoyed. With digitisation and industry 4.0 knocking progressively on the doors of manufacturing we are in for an interesting epoch of human development. Fasten your seat belts and become a part of the “march of the pancha loka.” All the best.   

 

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Elucidating value chain through Agriculture, what majority of population practice...Sir you've hit the bullseye... The essence of value chain is made clear to anybody. Contribution of Man, Machine, Money, Method(process/technique) and Management, influenced by hunger for human brain to roll PDCA, is the key to success to push Manufacturing to new heights. Thank you so much sir..for making us understand the value of supply chain to brawl for future.

Very Aptly Explained the Fundamentals of Value Chain. One really needs to ponder thought over to understand the complexity involved in the Agriculture Value Chain and draw comparison/leverage with the manufacturing sector. A business scenario can be simply identified as constant value addition – direct or indirect in each step of its activities. Indirect value addition’s sole purpose is to ensure that direct value addition can happen on a continuous basis. Highly fluctuating, competitive market with constantly demanding customers has lead to a realization that only value addition itself is grossly insufficient and there is a need to constantly change the process of value addition in a way that has never been done before and ultimately obtain results like never before. No longer can we afford strategy as simply positioning a fixed set of activities along a value chain. More than just adding value, we need to recreate it. Focus of strategic analysis should cross the boundaries of company and the industry even, encompassing the entire value adding system, within which different economic actors—suppliers, business partners, employees, and customers work together to co-produce value. The specific roles and relationships need to be reinvented so that new values can be created by new participants. All this with a strong base to maintain close fit between the two major resources – competencies and customer. Mantra of Growth - Strategic Innovation + Operational Excellence by Maximizing Productivity

Amazing write – up Sir! The whole concept of Value chain is explained in a very simple and complete manner. First of all, the concept of Indian agriculture being a type of value chain is in itself an eye opener. The article says very well how the value chains were short in agriculture in olden days. You have very beautifully narrated the different phases of length of value chains, how it extended its arms starting from Industrial revolution, vendors to larger factories and then broken pieces of value chains clustered in terms of production & dispatch of services. The blend of concepts such as ‘Universal Currency’ and ‘Global companies’, ‘Pancha Loka’ and manufacturing; and ‘Chatur Loka’ and ‘Management’ was wonderful. Manufacturing, as mentioned, was one of the earliest forms of value chains. The idea of value chain is based on the way we see the whole organisation or the manufacturing process. The operations / manufacturing is one of the primary activities in Porter’s Value chain. I believe that the industrialization and its merger with digitization is bringing newer and newer versions of value chains. With every passing day, we can realize that the whole world is drifting towards oneness. In earlier days, customers used to be happy when they were given new product ready to be used carved from raw materials. But now the situation is completely different. The addition of value is not enough and customers want some meaning added to it. With ‘meaning’, I mean that apart from meeting the basic criteria, the products should be a multi – purpose satisfier. For an instance, there was a time when ATM was used to withdraw cash by inserting card, but now we have an option added to it which is card less cash withdrawal. There was a time when CNC with only single spindle was available but now we have not only automated single spindle but also automated multiple spindle CNC machines. I think that Value chain is stretching its arms into each and every sphere of available industries so that there are more and more values added to the product / service and are available to the end consumer for their better life. Lastly, I once again thank you Sir from core of my heart for providing insights about the increasing length of Value Chain in Manufacturing and helping us to delve into futuristic world. I am inspired and excited for the coming future and equally ready for a change which may be for the betterment of human race. THANK YOU!!!

Thank you, sir, for explaining the Change in manufacturing with such a profound thought process. I could envisage the manufacturing manifestation while reading these words. It really helped me to rove from the century old farms to the smart factories of the future (Industry 4.0). The journey of the mankind from the soil to the internet of the things has really been an intense contributor to the changing lengths of value chain in manufacturing. The flourishing flowers of today’s smartness are the most efficient products of the seeds sown through the oldest efforts with the hands. The value chain has certainly been volatile when it comes not only to the three axes of the Cartesian system but also the fourth axis viz. time. For example, the mobile phones that we use with all credit to the smartness these tiny devices offer not only to the living but also to the non-living entities, have disturbed the whole value chain of the manufacturing. The chips are getting conceptualized and manufactured in the Silicon Valley and travel all over to the China for further assembly. Finally, we get a handset delivered at our home which is assembled by our own countrymen working in a plant located in Telangana. This small device travels across different territories, gets its shape and looks modified through the various cultures and finally lands in the hands of the person sitting thousands of miles away. Although the final product label we see in the different currencies, it’s value remains the same. Now, to understand the real effect on the value chain length, more emphasis can be given on the today’s consumer behaviour. It’s not only the money which makes the difference. It is the consumer’s overpowering imagination of the desire. One who foresees this unimaginable demand, can make a difference with the differentiated product offering. Value chain, then, emerges out the key factor in deciding the spatial travel, price and time to satisfy the customer demand. The investors are on the other side of this consumer base of the value chain. More the no. of consumers, more is the no. of investors and a flourishing value chain. The digitalization has virtually managed to reduce the gap between the consumers and the investors thought the use of media like the internet of things. Internet has become a second shadow of every human being whether the sunlight or moonlight exists or does not. Time will come when the machines will directly sense the needs of the human development and with the help artificial intelligence, they will define the new products and the markets. It’s highly implausible at this point of time, but then, the world has seen beyond the implausible. Manufacturing and its value chain have thus reduced the distances by helping the humans by detecting our solar system’s biggest underground ocean on the Jupiter’s moon, Ganymede, which contains more water than all the oceans on earth. Manufacturing will certainly help Elon Musk’s dream come true one day for colonization of Mars. Good luck humanity to become an interplanetary civilization.

The blog is a culmination of author’s insights on changing world of manufacturing with a focus on its value chain. The author has discussed various aspects of manufacturing as value chain before and after industrial revolution. Expansion of value chain is well explained using an example of agriculture and the barter system. The concepts of Universal Currency, Punch loka, Chatur loka, Management make the reading interesting. I think, the protagonist word “manufacturing” is used as a broader term here and should not be confused with “Operations” which is one of the five stages of value chain of a company. After industrial revolution manufacturing capabilities increased which changed demand in terms of quality and quantity. Growing demands further pushed manufacturing value chain limits and in turn it pushed demands further. There is a circle of response between Manufacturing and the Market. This circle keeps on rolling all the time. With the expansion of manufacturing capabilities the value chains became longer. The longer value chains were not easy to handle or govern. Hence the shorter links were formed which are specialised forms of manufacturing industry as we see them today. The specialisation has helped cutting the longer value chains. The specialised value chain links are again becoming shorter and shorter due to advancement in technology. Though the value chain links are getting shorter, the total length of value chain is increasing day by day to manufacture a meaningful product for end customer. Automobile manufacturing can be taken as an example here. Manufacturing process requirements have become very stringent which necessitated specialised goods and services. Even in recent past of ten years such products or services were not required for automobile manufacturing. The specialised processes have made value chain links shorter but overall length of the value chain for automobile manufacturing has been increased drastically. The role of management is also dynamic in this continuously changing complex manufacturing scenario. The ultimate goal of a management is to improve efficiency at all value streams in a value chain in order to remain competitive and at the same time satisfy the needs of customer though delivery of products/services. Manufacturing sector is developing dependencies on computer / IT network. The challenges around the management are changing day by day as concepts like industry 4.0 and internet of things are becoming reality. The world is coming closer and closer every passing day. Recourses from far corners of the globe take part in providing services/producing certain goods today. The manufacturing world is becoming more and more happening and exciting place to be in. We are fortunate to serve the industry in this period of transition. Thank you.

Insightful yet simplistic write-up Sir! The journey of the value chain from the barter system to today's robust, multimodal and segmented value chain is unfolded profoundly. The analogy of 'chatur loka' and 'Pannch loka' is refreshing and makes the blog interesting! With the advancements in technology and transportation, value chains grew longer and longer and today they reach the handset of the consumer. With the increased capacity of the production, increase in speed of production with automation, connectivity, consumer-centric markets, and changing consumer mindset, the newer versions of the value chain are coming in. As sir says the value generation has become the pre-requisite for manufacturing. Today, you sit on the couch and order a phone on the site, and relax. Meanwhile, ts chips are manufactured in silicon valley, body in Koria, assembly in China and are delivered in India to your doorstep. digitization has bridged the gap between the customer and manufacturer and has developed a web of short interconnecting value chains. But the overall length of the value chain is increased and will keep increasing substantially. The role of management in this highly volatile manufacturing value chain is becoming more and more dynamic, and crucial with the increase in complexity of the chain. With the artificial intelligence and Industry 4.0, the challenges in front of the management are going to be more complex. An interesting path yet to be witnessed. Time will come when a supervisor will sit merrily on a couch sipping tea and watch machines dynamically scheduling and planning a production line, finding faults in them and planning a suitable maintenance schedule minimizing job lateness, learning from previous situations and implementing and striving to add value in manufacturing. Cheers to the future! Be ready to experience the fourth industrial revolution.

Thank you for your patience to read the blog and the time taken to comment. Thank you for the compliments. The Industry 4.0, which has already been kicked off in Germany and other places is unfolding new vistas in value creation. For example, the Mercedes Benz line is producing cards with minimal to low manual participation in the shop floor activities. Ditto for the BMW line as well. IOT is now being used in many industries, although the building atmosphere control instruments supplied by Tata Honeywell, Danfoss and other companies have been in use for at least twenty years, if not more. Current usages include SCADA controls in most manufacturing units, traffic signals, car and TV remotes etc. Length of value chains will also be altered. If, for example, companies are able to successfully switch over their current operations to the 4.0 mode, then the cost savings and efficiencies may tempt them to move upstream, thereby reversing the clock of vertical integration, and throwing the 'outsourcing' business into a spin. Just imagine, the software developments currently done by learned men and women operating out of offshore sites, is to be replaced by AI and other advancements, a huge turmoil will result. We are in for exciting times, I am glad I am over 60. All the best.

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