The good folks at McKinsey have put out a massive report called “Manufacturing the Future: The Next Era of Global Growth and Innovation“. The pdf version runs to 184 pages and everyone serious about manufacturing should read it. The trick is to absorb and consider the data and ignore their interpretations of that data. You have to think for yourself – draw your own conclusions.
The problem with the report is that McKinsey sees themselves as big thinkers of big ideas that are useful to big companies, and their business model is to do big projects for those big companies and send them big bills for their services. They are hardly alone in this slant. If you read most of what comes from academia they have the same big bias, as do the politicians -typically experts at little other than their own re-election and enrichment, let alone manufacturing. So the report does a good job of describing the world and it’s implications for manufacturing; but all of its recommendations revolve around what the mega-multi-nationals ought to do about it.
For instance, the report says, “In recent years, some companies have started to embrace a ‘granularity of growth’ approach [“granularity”, by the way is big in the report – must be the cool buzzword these days] to markets. This involves looking for niches and underserved sources of demand that can be more profitable than broader markets where more competitors are present. However, few companies have mastered the crossfunctional routines to consistently translate granular market understanding into granular operations strategies. In the next era of manufacturing, getting to this micro view of manufacturing strategy will be a key difference.”
The idea that markets are comprised of niches – there is no ‘mass’ and the mass marketers underserve those niches – is fundamental to lean thinking. In fact, lots of companies have “mastered the crossfunctional routines” to serve them – they have done so in the form of organizational structures made up of customer facing value streams. It is just the big guys who haven’t mastered value streams. Financially obsessed control freaks who dominate big company headquarters are constitutionally incapable for empowering local value streams to serve unique niches. By nature they will always pull the organization into a one-size-fits-all mode. (Everyone in the company is fully empowered to do whatever best serves the customers …. provided they all meet the same short term functional financial goals and don’t violate any of the policies in the thousands of pages of company policy manuals governing every aspect of the job).
The McKinsey folks cite a study in which they have identified 22 unique markets within China; a one-size-fits-all-Chinese-people approach won’t work. So how to design a strategy that works for each of the 22 niches? Big Data according to McKinsey.
Big data is basically gathering enormous amounts of information from point of sale, Facebook, or wherever you can find it, then get your hands on a mega-computer and develop staggeringly complex algorithms to sort through all of that data and figure out what the folks in each of those 22 Chinese niches wants. A good example is Walmart, which uses big data-type applications to figure out what its customers want. The alternative, of course, would be for each store to decide what its customers want. A store manager doesn’t need big data and big computers. He or she just has to talk to the customers. In fact, he or she already talks to customers and already knows. But Walmart is fundamentally incapable of letting those folks call the shots to any significant degree – what would there be for all of the intellectual horsepower in Bentonville to do if the people closest to the customers were empowered? Big data is the crutch for those who cannot or will not empower people.
Too many leaders of too many small and medium companies become star struck with this big cmopany nonsense. Right now there are 22 small Chinese companies fully capable of providing exactly what is needed in their local market … or a handful of medium sized companies that can organize into a handful of value streams that can be empowered to serve those markets very well. They don’t need to follow any of the McKinsey strategies to succeed.
The economy of scale die-hards would argue that those small firms can’t leverage a central product development effort – a high powered team that can develop core products and customize them for each market. The cost of development will have to be spread among too few customers. True enough … but those smaller companies won’t have to pay for a monolithic headquarters and millions of dollars worth of big data hardware and software – and they will come up with better solutions for customers by personal interaction with them than anyone sifting through big data ever will.
The moral of the McKinsey report story is that globalization is leading to market fragmentation – niches of one – and the big challenge for big manufacturers is to figure out how to operate like a collection of small manufacturers. The last thing small manufacturers should do is to use McKinsey type recommendations to figure out how to behave like big manufacturers.
Original: http://www.idatix.com/manufacturing-leadership/think-for-yourself/
Jim G says
In the 1950s the NY Giants had their preseason practices in this area. As a result about half of the people here are Giants fans despite being deep in Patriots country. The Mom and Pop stores know this and stock lots of Giants paraphernalia. The big box headquarters don’t know this and you cannot find any Giants gear in their stores.
Literally every employee in the big box store knows this information but HQ knows best I guess.
Paul Todd says
As manufacturing complexity and variety increased in the 1960s, American companies responded with MRP to better manage the resulting inventory. The best Japanese companies responded with pull systems to better react to market demands without massive inventories. As applied here, Big Data seems to be analogous to MRP.
JM Fleck says
I really struggle with this one, Bill. I can fully get behind the idea of empowering local decision makers to provide what their customers want. At the same time, I am a big fan of interpreting the data to provide better decision making for the supply chain in general. Perhaps like most things, the lines are more grey than black and white. Perhaps, the lesson is that both the corporate data crunchers and store managers need to both listen better.
The example I typically use is around a large grocery chain in the Netherlands. In the past, they allowed the local stores to order whatever they thought they needed. When a large futbol match was coming up on the weekend the stores would stock up on pretzels and beer and such. In many cases they would order 30% more than their typical order to ensure they had enough supply to cover some uncertainty of demand (we all hate to run out of beer when throwing a party). Compound this thinking by store, and the distribution center is going crazy on Thursday, working a lot of overtime, to get all the stock to the stores for the weekend. Come Monday, much of that stock is still in the stores and typical order drops by 30% and the distribution center is now left with significant excess capacity. Not to mention what this does to cash flows. In other words, they are creating unnecessary variability in the supply chain, that does not match with the reality of demand.
Now the store managers know demand inceases, and the central office knows that too, but based on their data the increase is more like 3%. So what would be the countermeasure here? This may be a case of providing more guidelines than rules. If somebody in the supply chain wants to create an order outside an accepted ranage, then they need to provide justification. Or perhaps they need to be incented, both corporate and stores, on a measurement that show how well ordering matched demand? Maybe there is addiional incentive for devising local strategies. The store manager may get wind of something from customers, and the data crunchers could help them interpret the information to see if the math backs it up.
Jack Parsons says
Here is another example of a failed master “expert” system, the “Orca” system of the Romney Campaign: http://www.humanevents.com/2012/11/21/hayward-orca-aground-romneys-high-tech-get-out-the-vote-failure/
Brendan O'Malley says
Hi Bill, Great post. One thing you didn’t comment on is the (to me) absolutely ridiculous notion that the Chinese market (for anything) could be described as composing only 22 segments. That’s equivalent to saying that the US market can be seen as 7 segments, given the relative population sizes. And remember that the US is much more homogenous than China in languages, culture, personal wealth, etc, etc. How would a marketing guru fare in the US if they announced the new bright idea that instead of seeing the US as just one big market, it could be broken down into 7? Who pays for this rubbish?
david foster says
“Think for yourself”…In a used bookstore many years ago, I picked up an old book titled “Infantry in Battle.” It was published at Fort Benning in the 1930s, and was edited by then-Colonel George C Marshall. The book is about the lessons to be drawn from WWI, based on personal experience monographs written by American, French, and German officers (no Brits for some reason.)
Many of the points that the authors make about tactics, strategy, and modes of thinking are relevant to business as well as warfare…one that I think is particularly valuable is this:
“No one ever won a battle by frantically trying to remember what someone else once did in some vaguely-similar situation”
Tom says
You are right about “McKinsey sees themselves as big thinkers of big ideas that are useful to big companies, and their business model is to do big projects for those big companies and send them big bills for their services”. I suffered during two big studies in a large oil company, where McKinsey “consultants” stole our ideas on the subject, rehashed them in Mckinsey slang and sold them to management as their own. You can imagine the size of the bill.