The business case for adopting Predictive Improvement

01 October 2015 Consultancy.uk

We live in a world which is ever changing. Businesses are facing increasing challenges to meeting consumer demand. As well as having to respond to volatile commodity prices and currency fluctuations, increased information available to consumers is impacting traditional demand planning.  Businesses are having to respond to consumer choices quicker than ever before.

Factors like the ‘Delia Effect’ - named after legendary UK Chef Delia Smith - where food products sell out quicker than usual when featured on television programmes, now impact the whole supply chain, and manufacturers in particular. Forecasting and delivery channels need to be designed to respond accordingly.

For many companies, digital manufacturing, or Industry 4.0 and all of the new opportunities that come with Big Data analytics, cloud computing, artificial intelligence, the Internet of Things, robotics and so on are suddenly connecting business in new and transformative ways that will provide much more flexibility and agility.

Digital manufacturing

Moving Beyond Continuous Improvement
For years manufacturers have strived towards achieving operational excellence through continuous improvement, new ways of working, staff behaviour behaviours, and application of key learnings throughout the company’s operations. The aim is to become more efficient by reducing complexity, streamlining operations, managing performance and aligning the roles and responsibilities of staff accordingly.  This has been a key area for consulting businesses to work with clients on small interventions to large scale improvement.

We have seen that technology has been playing a key role in transformation over recent years and therefore, these developments are nothing new. In reality, however, most continuous improvement programmes are focused on specific plants, regions, business units or departments, and do not cover the entire value chain. The result is that while one silo may become very efficient, overall benefit to the business is eroded. Programmes often lack overarching KPIs which measure the ability to drive both efficiency and effectiveness. This leads to reduced clarity of roles and ownership, and ultimately impacts leadership. Efficiency improvement tools that employees have used to improve performance to-date are still useful, but are insufficient to make a difference across the chain. Employees need to interact with different departments within the business, as well as with partners and customers outside of their organisation, to operate the process to best performance. Innovation, for example, is no longer an internal process, and the ownership for ideas and their implementation frequently crosses organisational boundaries.

Continuous Improvement

This development has a major impact on business models, communication processes and ultimately performance management. Small, agile start-up businesses will challenge these models as a matter of course. Large businesses set up to drive efficiency may find themselves in a disadvantageous position unless they are able to adapt. All of this also has an impact on what continuous improvement means. It needs to be more predictive about the market and trends. So the consultants need to be able to predict the connections and apply the knowledge to support the client.

The need for Predictive Improvement
At Hitachi Consulting we believe the way forward is for companies to begin the journey from a culture of continuous improvement to a one of Predictive Improvement. It is a case of looking to move beyond continuous improvement methodology. This will take time, but is the only way companies will hit fast moving targets and be able to adapt to every changing consumer demands.

To reap the true benefits of digital you have to develop a dynamic operational strategy across the whole value chain that can deal with both everyday variability and future disruption. Predictive Improvement goes beyond classic continuous improvement and is about anticipating tomorrow; developing new capabilities in leadership, management and processes to be able to respond quickly and stay ahead of the curve and, building a culture of predictive improvement, which is about using innovation to do things differently and making significant changes with high impact. The difference between providing advice, implementation and technology consulting will become less clear. The ability to connect different disciplines, e.g. beyond IT into deep technical solutions expertise, will increase in importance.

Changing Behaviours
There is much more to driving improvement than just enabling technologies. Even the most advanced and innovative technologies cannot deliver results on their own. The need for increased rigour to improve capabilities, leadership and management, processes, communication and performance management only becomes greater along with technology.

Digital

Within the boundaries of an organisation, the promise of a career up the ladder has, in the past, gained loyalty from employees. This is no longer the case and each individual will increasingly own their skills and capabilities, USP and the ability to match these to a business’s needs. This shift in power impacts the ability of a business to secure and retain skills and, importantly, impacts variable and fixed cost structures and the way the business is able to price competitively.

From the employee perspective, the perception of a “factory” worker on a repetitive production line needs to change. In the same way as a car mechanic now uses a laptop rather than a spanner, the average level of education and skill across industry needs to increase. Digital replaces manual work but also increases the responsibility on the remaining workforce.

Management needs to ensure that decisions are made at the right time, using the right information. Digital will mean ensuring that anyone involved in operating a process must be able to interpret information at the right time and act upon it, regardless of where they are organisationally or geographically.

Already, today’s leaders are expected to be collaborative, engage with their people and not dictate. The leadership style in a business model which collaborates more and more beyond traditional boundaries requires engagement with people who have a lesser feeling of dependency on the organisation rather than an implicit dependence on authority or position power.

Cathy Johnson - Hitachi Consulting

The Challenge
The implications for consulting are being ahead of this development and mastering the connection between disciplines at the right time and place. Partnerships with product providers will be critical, either from within the client organisation or with consulting partners.

The challenge to businesses looking to adopt Predictive Improvement processes will be aligning the whole value chain to respond to what the information is saying and will change the way people see ownership of information. This will require different skill sets in leaders and employees, doers and thinkers who can act upon strategy immediately and cope with change and uncertainty. The measure of success which has driven continuous improvement so far will be complemented or superseded by customer-driven measures - even consumer driven measures - and the feedback process will be more immediate through social media.

An article from Cathy Johnson, Vice President EMEA Consumer at Hitachi Consulting.

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UK manufacturing sees orders slow amid Brexit anxiety

11 April 2019 Consultancy.uk

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.”