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Connected manufacturing can help support a demand-led supply chain, says expert

Out-Law Analysis | 16 Aug 2016 | 3:31 pm | 4 min. read

FOCUS: Manufacturers can use data to improve the way they source equipment, parts and materials and help optimise their production processes as a result.

New technologies will allow manufacturers to collaborate with their supply chain to share data about what their demand needs are and to shape how those suppliers respond to those needs.

Real-time forecasting and subsequent demand-led supply is possible if manufacturers work with suppliers to link systems together to capture and analyse data from a variety of sources.

Experts from Pinsent Masons, the law firm behind Out-Law.com, will be discussing how data and digital technologies could influence manufacturers' relationship with their supply chain at the Financial Times Future of Manufacturing 2016 event in October.

The power of data

Increased connectivity in manufacturing will enable continuous demand sensing.

At the moment manufacturers can plan for peaks and troughs in demand by analysing previous sales data. It can reveal, for example, a need for children's toy manufacturers to produce extra stock at Christmas time.

More and more products will become connected devices, capable of transmitting data back to manufacturers. This connectivity will allow manufacturers to monitor the use of their products and better predict when customers will need maintenance services or to replace those items.

On a global scale this data will offer a real-time picture of when peaks and troughs in demand might occur and allow manufacturers to work with suppliers to source the materials and parts necessary to account for likely surges in demand.

Manufacturers might also make use of the latest data analytics tools to monitor references to their products on social media and use the information to predict and account for increased demand or, if things have gone wrong, a downturn in that demand.

The ready availability of data from these and other sources means that manufacturers will be able to tailor their needs from suppliers as they will understand better what data tells them about likely supply needs on a real-time basis.

Having access to data about the way a product is used, its likely lifespan, areas for optimisation, and how consumers view the goods can help manufacturers to become proactive service-based businesses. They could use the data to approach consumers to offer maintenance services, opportunities for replacements or upgrades as well as customised versions of their products.

The data could also help manufacturers improve the efficiency of factories. Knowing when demand is likely to spike can help manufacturers plan their labour and equipment needs and cut down on waste.

Challenges in delivering 'just-in-time' supply

With more real-time data that manufacturers can use and share, suppliers will be increasingly expected to become more responsive to bespoke needs of their manufacturing customers.

Manufacturers might expect suppliers to deliver more materials or parts within a shorter timescale to account for likely surges in demand they anticipate from their data analysis. For manufacturers operating on low profit margins and often without major cash reserves this 'just in time' (JIT) approach to supply offers an attractive way to regularly tweak their supply orders and avoid major capital outlays on stock.

As Accenture alluded to in a paper on smart production (20-page / 765KB PDF), beacon technologies, such as RFID tagging, might be put to greater use by manufacturers.

At the moment many businesses use RFID chips to track where stock is and plan for its replenishment. RFID, or radio frequency identification, chips are read by readers when they get within a few feet of them, meaning that organisations can learn not just what is on a chip but where the chip is. 

Accenture suggested that RFID tags could be "used on the factory floor to track work-in-progress materials, route those materials efficiently, enable parts requirements, handle JIT replenishments, and manage the availability and utilisation of assets".

The success of the JIT approach, however, depends on both the geographic proximity of suppliers to their manufacturer customers and whether suppliers deploy minimum order policies.

In the UK, many manufacturers have at least part of their supply chain located overseas. In an increasingly global market this is a trend that is unlikely to be reversed. The opportunity of demand-led supply enables manufacturers to be more agile and overcome challenges they would otherwise face. This might include, for example, logistical issues that may reduce the speed at which manufacturers can react to demand surges and source the relevant materials, parts and equipment they need. It stresses how important so-called manufacturing 'clusters' are to the success of the sector.

Connectivity can enable collaboration

Manufacturers and suppliers that invest time and money in delivering a demand-led approach to production can potentially exploit opportunities for collaboration.

Where demand levels can be more confidently predicted through data, manufacturers could work together to share resources. For example, if equipment would sit idle during a lull in demand, manufacturers could consider leasing it out to others. Similarly, businesses could share some staff so as to manage labour costs, tapping into that resource when demand surges and allowing collaboration partners to deploy the workers when demand falls and productivity levels are reduced.

Legal challenges

Manufacturers looking to exploit data need to be aware of legal issues that could arise when doing so.

In some cases, particularly where data is gleaned about how a product is used, data could be considered to be personal data about customers and need to be handled in accordance with data protection laws. Manufacturers will need to ensure they notify consumers about how that data could be used and obtain necessary consents before sharing the information with suppliers or third parties.

It is also possible that data could become such an important asset for a manufacturer in their market that unfairly withholding others' access to the information could contravene competition rules. Equally, however, sharing confidential business information can also fall foul of competition laws, so manufacturers need to be careful as to how they use and share that data.

Developing successful collaborations also requires manufacturers to rethink contracting. Traditional linear supply contracts may no longer be appropriate, and provisions should be flexible to account for potential changes as projects evolve and be focused more at encouraging cooperation than on setting unreasonable contractual obligations and penalties.

Clare Francis is an expert in commercial contracts in the manufacturing sector at Pinsent Masons, the law firm behind Out-Law.com. Experts from Pinsent Masons will be discussing how data and digital technologies could influence manufacturers' relationship with their supply chain at the Financial Times Future of Manufacturing 2016 event in October.