Balancing complexity vs simplicity key in manufacturing

25 August 2015

Manufacturing businesses have over the years become more complex on the back of growing international competition from increasingly sophisticated competitors, as well as the multivariate expectations of consumers. Complexity is making companies inefficient, lacking in agility, challenging to manage, difficult to scale and hard to do business with. In response, many business executives are looking to simplify their operations, providing those that manage to strike the simplicity trade-off with an opportunity to take a competitive edge.

In a recent report from PA Consulting Group, titled ‘Simply Better’, the management consultancy explores the state of complexity in the Dutch manufacturing industry*, finding that not all complexity is bad or needs to change and not all complexities can be treated the same. Yet complexity remains, and when not managed well, complexity costs money and clients.

PA - Deconstructing the myths of complexity in the manufacturing sector

The researchers highlight a number of disruptive trends influencing the rise of complexity in the wider operations of a business, including among others the need to compete, customers are demanding more uniqueness in products, customers expecting simple ‘plug-in and play’ approach when using their technology device and cloud based computing. Companies also have to deal with fragmented IT landscapes and obsolete supply chains in many areas.  

Due to globalisation and increased competition manufacturing companies are forced to reassess their priorities. They are required to perform well on multiple value disciplines of Treacy and Wiersema’s model for market leaders: product leadership, operational excellence or customer intimacy. As a result of the additional demands for more capabilities, resources, procedures and IT systems, the complexity across the organisation increases.

More complexity essentially means more costs. And while it is all about striking the right balance between additional value added of complexity and costs of complexity, too much complexity can be costly. Business executives remain concerned about the pileup of complexity – recent research from an analyst firm finds that many business want to simplify, with executives around the globe set to invest $4.2 billion in simplification initiatives by 2017, up from $1.8 billion in 2014. However a majority of the respondents (93%) did not have a clear idea about the costs of the complexity and the associated risk to their products, markets and customers.

Complexity by business area

IT and application complexity
Care must however be taken, that the baby isn’t thrown out with the bathwater, as not all complexity is bad or that the complexity of the solution is inherently the issue. Especially in areas like IT for instance, convoluted projects are a consequence of complex – and sometimes contradictory – business demands rather than the other way around. The authors find that in general, the more complex the business function, the more complex the related IT application will be. “So while IT complexity is often regarded as an IT issue, it is just as much a business issue. If business processes and IT could be designed and implemented in parallel, company-wide complexity could be reduced”, states Hans Houmes, Manufacturing sector lead at PA in the Netherlands. Yet only 20% of the survey participants indicated that their company tackles complexity in an integrated manner.

A further factor the reports highlights is that complexity is by no means limited to large companies. While larger companies become more complex, the level of ‘bad complexity’ is most prevalent in small companies, which was found to be true for both bad complexity – and bad application complexity.

Level of complexity by organisation size

According to the consulting firm, companies that aim at striking the right simplicity trade-off should consider three broad steps:

Step 1: identify the areas of bad complexity. Complexity is not just about the sheer volume of products, suppliers and locations but about the interdependence in relationships between different parts of the business. By implementing a Business Design Framework, businesses will be able to assess the different kinds of complexity across their organisations – and with the framework in place, deal with bad complexity.

Step 2: generate ideas on the most attractive simplicity initiatives. This again takes the Business Design Framework, and asks critical questions regarding the complexity of different parts of the framework, seeking to bring as much simplicity to different functional areas in line with business needs. Questions might be: How can we simplify our product portfolio and service catalogue for our customers? How can we simplify our business processes and our organisation?

Creating simplicity comes from the combination of eradicating, transferring and managing complexity. For each of the areas of bad complexity, the most appropriate approach must be defined, says Houmes.

Business Design Framework

Step 3: delivering lasting change. Houmes notes that dealing with complexity is an ongoing exercise, with continued discipline required along the way. Theory needs to be transformed into practices that are understood by those implementing simplification. Organisations also need to identify what capabilities attract their customers, or are key to ensuring they operate in the most profitable way. “Recognising and treasuring these differentiators is key to defining the company’s good and bad complexities”, comments Houmes.

Managing the underlying human factor is critical, with concrete process needed to guide the understanding of staff. Management too needs to be on-board with the changes, with the PA study finding that 72% of the respondents indicated that governance and leadership are the most critical factors in making complexity reduction initiatives successful, with a long-term approach required to transform staff. They have turned complexity reduction into a disciplined approach, in which initiatives and achievements are communicated on a regular basis. “By creating a lasting culture in which both good complexity, and a drive toward keeping down bad complexity are fostered, companies have a great opportunity to take a competitive edge,” concludes Houmes.

* The research consisted of face-to-face interviews with 40 CIOs, IT Directors and senior IT Managers.

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UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019

Manufacturing in the UK saw negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019 which saw continued softening in orders. With uncertainty still hitting the sector ahead of Brexit’s deferred deadline, the industry faces a difficult 2019.

Despite a perpetually changing economic landscape, manufacturing remains a keystone industry in the UK. Optimism in the industry has been riding high in recent years, reflecting the perceived potential of automotive technologies, but last year saw a slight dip in business performance, ahead of what seems set to be a turbulent period for British manufacturing. Ordinarily, the sector might have expected to recover its footing relatively quickly, but with the looming spectre of Brexit making the economy’s future completely uncertain, this has not been the case.

The uncertainties of Brexit have continued to create headaches for companies on both sides of the channel. As contingency planning continues, new analysis from BDO and the Make UK explores how manufacturing – a segment likely to be hard hit by Brexit – has fared in the final quarter of 2018.

Output balance stable

Manufacturing remains a key industry in the UK, generating around 10% of total economic output and supporting around 2.7 million jobs. Yet while the industry has seen a number of years of strong optimism as well as demand, Brexit is set to throw a spanner in the works, with a range of manufacturing companies leaving the UK, or considering it. Indeed, UK manufacturing’s output currently sits at a 15-month low as the industry anticipates a cliff edge Brexit.

In terms of growth for various parts of the UK economy, a slowdown was noted in the final quarter of 2018 compared to Q4 2017. Manufacturing, in particular, saw growth declines coming in at almost -1%, with a similar trend in production. Construction saw a sharp contraction, falling 2 percentage points to below 0% growth in December 2018. Only services managed to have positive % growth in the final quarter. The final quarter as a whole saw growth of 0.2% in the UK economy – the lowest level in six years.

Output across most sectors in the industry remains positive, with the percentage balance of change in output at 22%. The result is the tension quarter of positive percentage balance of change, with stagnation on the final quarter of 2018. The firm is projecting a slight softening of output going into Q2 2019. The firm notes that there is some stockpiling taking place, with orders and outputs unaligned going into 2019.

Order balance remains positive but dips further

While there is a broadly positive picture for output, the firm does note considerable differences between subsectors. Basic metals for instance, saw a net 24% fall to -18% over the past three months. Metal production is also seeing relatively poor performance as demand from the automotive industry enters a period of acute uncertainty. However, most industries are to see improved output on balance, with rubber & plastic increasing from a net 11% to net 56%.

Export trade

Having been buoyed by the lowered value of the pound, UK export orders are up slightly on the previous quarter, but remain well below the most recent peak in Q3 2018. Domestic orders were relatively strong, with a year between the most recent peaks for the segment. However, Q2 2019 looks to see domestic orders fall sharply, to half Q1’s result, while export orders too are set to see declines.

The decline reflects a decrease in basic metals, possibly a reflection of changes affecting the auto industry. Meanwhile, export orders are down due to Brexit cross-border uncertainty – the effect of the sterling devaluation unable to continue to buoy the market. Basic metals and metal products are both in negative territory for the coming three months.

Investment and employment intentions

UK employment figures reached new milestones, with total unemployment down to 3.9% while participation rates hit record highs. Employment planning continues to be in net positive territory, with a net positive balance of 22% in Q1 2019. The coming months are projected to see a slight dip, again, largely resultant from uncertainties around Brexit. Basic metals is the sector most likely to see a negative trend, reflecting the expected decline in orders.

Investment intentions meanwhile continue to be in positive territory. However, again, the now acute uncertainty about Brexit – the UK government has boxed itself into a corner – mean that confidence around investment could wane rapidly.

Commenting on the wider economy, Peter Hemington, a Partner at BDO, said, “Manufacturing firms have been ramping up their preparations for a disorderly Brexit, in large part through the stockpiling of imported goods. This has had the effect of inflating activity levels… It’s too late to do anything about this now.  But a disorderly Brexit would be far worse than the current relatively mild slowdown, possibly disastrously so… We are concerned it looks more likely than ever that we will exit the EU without a deal.”