Transcript | Agile Factories: Building Flexibility and Adaptability in Manufacturing – with Robert Giacobbe, Sharon Lindstrom and David Petrucci

Kevin Donahue

This is Kevin Donahue, a senior director with Protiviti, welcoming you to a new edition of Powerful Insights. In this episode, we're talking about agile factories. I had the pleasure of speaking with Sharon Lindstrom, Dave Petrucci and Robert Giacobbe on this topic, and they provided some terrific insights. Sharon is a managing director and global leader for Protiviti's Manufacturing and Distribution Industry group. Dave is the global leader for Protiviti's Supply Chain practice, while Robert is a leader with our Supply Chain and Business Performance Improvement group.

Sharon, great to speak with you today.

Sharon Lindstrom

Good to see you again, Kevin.

Kevin Donahue

Robert, pleasure to have you on the program.

Robert Giacobbe

Thank you.

Kevin Donahue

And last, Dave, great to have you here. Let me ask you our first question. Within the manufacturing sector, we're hearing more these days about the need to have so-called agile factories. What exactly is an agile factory?

David Petrucci

Kevin, thanks for having me and the others on today. An agile factory is a concept of a set of people-flexible processes and newer technologies to provide more agility in how factories run. Let me go back to, what are the challenges, and why don't factories run well today? It starts with, what happens every morning or every evening or every afternoon when a manufacturing line starts up? And first, usually, it's chaos. It's firefighting. There's a plan every day, but if the factory starts at 6, by 6:05, the plan is wrong: Not having enough people show up. Parts were delayed for delivery. Parts were no good from a quality standpoint. Customer changes orders at the last second. Machines break down again. It's chaos.

Our manufacturing plants were designed to be very stable, very repeatable, but they weren't meant for all the disruptions we have today. What does that drive? It drives this concept of a hidden plant. And what a hidden plant is, is the reality of, someone's running a spreadsheet behind all the fancy, expensive systems that were put in place and bought, and they're trying to manage that chaos and firefighting with a spreadsheet every day. And that is trying to rebalance a schedule, trying to figure out what orders must go out today, knowing that they don't have enough parts to make everything they need. What we're trying to deal with is that the legacy environments that were put into manufacturing plants weren't built for what today's world is and that chaos and that disruption that happens.

So there's this drive for building agility into our manufacturing process - and sometimes that's newer technology, sometimes that's different skill sets from a people standpoint. But the concept is, we've got to adapt the way we manufacture. And that doesn't matter if it's offshore, onshore, South Shore, whatever. We have to have a better way of manufacturing products and getting them to market.

Kevin Donahue

Sharon, I saw you nodding here. What are your views on that as our global leader for the manufacturing and distribution industry?

Sharon Lindstrom

I totally appreciate the chaos comment, because it's nothing new that manufacturers are operating in a global environment, and it's a tangled web that we have woven with fewer degrees of separation. And we've had some interesting entanglements, but we learned a lesson from the pandemic not only about resiliency, but, as Dave mentioned, also about flexibility.

There's one thing about being resilient, but there's another thing about being flexible. We did see it in the early days of the pandemic. You had auto manufacturers that were no longer producing cars - they were producing ventilators - or you had additive manufacturers that pivoted to injection molding because there was such demand for the protective face shield, especially for our frontline workers early on. And of course, my favorite is the distilleries that pivoted to making hand sanitizer.

That flexibility is key. And now that we're in this postpandemic world, we need to focus on being able to respond rapidly to anything that shifts in the market. Hopefully, it will not be another global pandemic. But a lot of times, it is around these changing customer needs, and they're happening at a faster pace. I know as a consumer that I not only see, but I also expect to have, a lot of choices around different options out there, including sustainable options for any of my purchases. I focus on ease and speed of delivery and the wraparound customer services as a consumer. And when I look at manufacturing companies I work with, it's taking more of that B2C type of approach to a B2B environment, and we have to do that through flexible operations.

Kevin Donahue

Robert, from your perspective, building on this discussion, are agile factories a new concept, or have they been in place for a while, possibly defined with different terminology?

Robert Giacobbe

The concept has been around for a long time. In fact, I can remember back in the early '90s, maybe the late '80s, there was a big push for agility, and there was a term that came out - mass customization - early '90s, mid-'90s. It was the idea that companies could produce a wide range of products with a lot of varieties and still keep unit costs at the same level as mass production, hence the term mass customization.

It was an interesting concept, and there were companies that tried to go and adopt it. There was a consortium of companies up in the northeast that put their capabilities together, and they called themselves the Agile Web - it was a bunch of machinists and things like that. It was an idea before its time. It's been around for a long time. It died out a little bit. And the reason that it died out is because it was not sustainable, not achievable, back then, 25 years ago to have the idea that you could be a mass producer of all these services and products and all these varieties and still keep costs that low. It was a daunting thing to make happen. The technology wasn't there at the time. The data availability was not there at the time. The idea of analytics was not there at the time. So it made it difficult.

But it was an important first step for companies and consultants to get their arms around the idea of agility and then, of course, have all these things happen to us over time with the pandemic and things like that. For today, it's not just external things like the pandemic and supply disruptions. There are self-imposed issues that drive agility have so many companies that are competing on product proliferation, especially in CPG. They're flooding the marketplace with new products that may not be that different from one another. And with that, it does become a need to be agile, to do this with less assets, or at least make better use of your fixed assets and reduce costs.

Sharon Lindstrom

Robert, I'm going to take off on something you said there about getting more productivity out of your assets too, because that's something when we look at, why have an agile factory? It's not only about the risk management. It's also about the opportunity. To get more productivity out of your assets is one thing. You could have reduced waste as a result. That obviously has an impact on cost. And remember, everybody's talking about sustainability these days. If you can mold that into the story as you talk to the market about your ESG story, all those are benefits that manufacturing organizations can capitalize on.

Robert Giacobbe

Sharon, you mentioned something that's important: You talked about in the B2B world, there's now a thread and a push to get more B2C. I agree with that. A lot of the OEMs I work with are now seeing those kinds of things put back on them. Even though they operate in the wholesale world, there's a desire to be more B2C. If you talk about agility in the broad sense of the word, that's part of the concept - being able to do more without increasing costs, without increasing assets and things like that.

David Petrucci

We've all been spoiled. We've all experienced the Amazon model, and now we all want that. No matter whether that's a B2B model or a B2C model, we all expect that. We see something, we want something, we expect it to be there next day. And the manufacturing world is certainly catching up to that. To be able to do that, you've got to be able to build that flexibility and agility into the model.

We used to think about manufacturing as a very resource- or people-intensive model, and that's part of the reason we moved so much of our manufacturing offshore 20 years ago. The reality is that we don't have enough resources to do the work even in the US today. I was doing work for a very large automotive manufacturer, and on a day-to-day basis, they had about a 46% absenteeism issue. That means you're either filling with temps or you're not getting work done. That's a huge number - and that was prepandemic, by the way. That wasn't postpandemic or during pandemic.

What a lot of people are looking at is, technology has been an inhibitor over the years. Robotics have been too expensive. They didn't work as expected. We didn't necessarily have the intelligence to simulate and forecast the way we needed to. But there have been so many advances over the last five to seven years. What you're seeing now is, we're not bringing technology and automation in to remove workforce. We're bringing technology and automation in to do work where there is no workforce. And as more and more discussion about onshoring rightshoring, nearshoring, happens, that's what you're going to see. It's a much easier discussion for greenfield plants that are going to be built and are being built where you drive automation in and fill the gap of where there is no labor market.

The bigger challenges in the brownfield plants that are there, their legacy, there's not always a big propensity to make new investments in them, but those are where the opportunities are. There's a concept around the globe called lighthouse manufacturing plants, and the World Economic Forum created these as your top manufacturing plants in the world either because of the best processes, the best technologies, the most efficient, etc., and those are great - and nine out of 10 of those are new plants that are being built. The challenge is there are the thousands of plants that we have around the world that have been there for 20, 30, 100 years, and what do we do with those? That's where a lot of the challenge comes from - how do we adapt those older facilities, those brownfield facilities, to be able to become more agile?

In many of those, it is a baseline-technology discussion. Can the pieces of equipment that might be 70 years old even communicate in today's world? There is a foundation of things that have to happen to get to an agile-factory type of response. They aren't daunting. They aren't overwhelming. There are different ways to start - there are different ways of getting there. And it always comes back to, what are the challenges that plant is facing? Is it in a market where labor is a huge challenge - yes or no? Is it in an area, or is it a product set, where higher-end technology and automation can drive value to it? Too many people lump manufacturing as one-size-fits-all, and it isn't. And part of the way to achieve an agile manufacturing facility is to understand your challenges, your products, your geographic positioning, and start making the steps from there on what you have to do.

Some of that is going to be, the people we have, we might need to upskill them to be able to run more advanced pieces of equipment and technology. Other areas, it might be more focused on getting better collaboration with your value chain and getting more foresight about what's happening down the line versus waiting a month for bad news to happen.

A lot of this starts with, do we understand the problems and the challenges at that specific plant, and how are we addressing the localization of that specific plant? And then we can define, here are the technologies we can apply, here are the resources we need to upskill to start going after that. One of the biggest challenges people look at is, at 6:05 in the morning, what do I do next? And a lot of that is simulating what are all my constraints, and what can I make right? I've got to put something out the door today. With all the things I have, what can I actually do? And I need to do that in about five minutes, and not sit there and send this back to some central planning computer that's going to take half a day to run, and then I have to interpret answers. So we have to be intelligent about giving quick responses, quick answers, to say, "What can I do?" "What should I do?" That's part of the agility.

Kevin Donahue

Sharon, from the standpoint of a manufacturer, do you think there is, today, greater interest in having more agile factories? We've talked about the issues that are coming up - the schedules that start at 6 a.m. and are off track by 6:05. Talent deficit, call it. I imagine technical debt might be a concern in that space. That said, do you see there being more appetite to create more agile factories from the manufacturing side of things at the moment?

Sharon Lindstrom

Absolutely. It's not only technical debt. It's probably process debt and, as Dave pointed out, people debt. There is a much greater interest, as I mentioned, in rapidly changing market conditions. It's not just the customer demands, although that's a big part of it. The question is, where do you start? That is inhibiting some companies from taking that first step forward, but know that there are a lot of benefits that you can get on the back end. And the benefits, as Dave pointed out, can be specific to a particular location, a particular function, etc. But if you don't take a first step, you're never going to see the value of it. But there's a lot of interest in it.

You can be much more competitive in the market by being able to respond to those changes. Your customer SAT scores, everybody's tracking their net promoter scores - those should improve. You've got better operational visibility, especially across the alphabet soup of systems we tend to have in operations. Robert touched on the asset productivity - you can get gains there. You have better efficiencies, reduced waste. We are seeing much more interest in it, because you've got to stay relevant and competitive in a quickly changing market. And we saw that hands down in our Top Risks survey - what people are concerned about: How do I stay competitive, how do I stay relevant, in such a quickly changing environment?

Kevin Donahue

Let's pivot to execution of all this. Dave, a question for you, and Robert, I'll have you chime in on this one as well. Again, this concept sounds great - the ideal framework for manufacturing and even other organizations. My guess, though, is that the devil is in the details. How should organizations proceed in putting an agile factory into place?

David Petrucci

Again, once it starts with, what are the more specific challenges to the manufacturing facility I'm looking at? They're not all the same. Many of these companies are running old and complex systems. There was an industry hierarchy built out for systems many years ago - the ISA 95 architectural system, everything from the controllers down to the pieces of equipment to the network to the manufacturing execution systems to the ERP planning systems, etc. We've built this ugly web of things over the years because different technologies came in at different times and we layered them on top of each other.

They were all done for a good reason, but we now look at that and say, why is this so complex? Why can't we make this simpler? And a lot of what agile factories talks about is driving simplicity into the systems and technologies and flattening down this pyramid that has been built of technology stacks over the years. And there's one good way of looking at how to do that. The world of manufacturing has been horrified of the term "cloud computing" ' it's not reliable enough. It takes too long. Transmission times are too long. It doesn't run in real time. I don't trust anything that's not sitting here in my facility or on my network, etc.

Over the last few years, many have proven that fear wrong, and the manufacturing world is starting to shift to running in the cloud. And that brings a lot of flexibility into these discussions. You think about a system upgrade in manufacturing, and you have 300 plants around the world, and every plant takes four to six months to implement something. We're talking years now, instead of days, months. And one of the advantages that the cloud can bring is, I can install things remotely, I can manage them remotely, I can push out to 300 plants at one time versus doing them one at a time. The rapidness of adoption and change can be driven in the cloud quite extensively.

Yes, there are still certain things that have to execute locally, but for the most part, with defining the edge, defining how things communicate between the plant and the cloud, a lot of that has been worked out now. And the largest manufacturers in the world have now built trust in this environment and have moved to execute in this environment.

The cloud will have a huge impact on the flexibility, the agility, going forward. That's not the answer for everything. That's a component of it. We need to continue to look at how we get better information and more real-time information from our equipment. And going back to the architectures that were built previously, the transaction systems and the analytics systems are two different environments in most manufacturing worlds. And the analytics have never been of much value, because they don't tie back into what happens in real time.

The biggest part of moving to more agile factories is being able to consume that real-time analytics information to make next best actions within a plant, because we're going to have bad things happen. We're never going to reduce or stop bad things from happening in a plant. That is a way of life. How we react to those, and how fast we react to those, is what we're talking about with agile factories.

There have been many terms around - "Industry 4.0," "smart factories," etc. I like the term "agile factories" because I'm never going to make a completely smart factory, but can I make it more flexible, more agile to the changes that are happening, the disruptions that are going to happen. I can. And that's the value. Those are the steps of getting to completely lights-out manufacturing and things of that sort. But being able to take real-time transactional information, real-time analytics, and drive to what's truly the next best action I should take when this bad thing happens. And that bad thing could be lack of parts, lack of people, equipment down. That's, in my eyes, what agile factories is. And we have most of the components we need today to make that happen? It's, how do we put the pieces together?

Robert Giacobbe

From an execution standpoint, what's interesting to me is, agility has so many definitions and perspectives on it, everything from collaboration to resiliency and agility - we throw all those terms together a lot of the time. I would counsel our clients to do what we would do: We would go in and determine for a specific company or client, what is agility for them - what, specifically, does it mean for them? And it can mean anything. If you've got complex parts you're sourcing that have a year of replenishment lead time and they can be highly disruptive, then agility, for you, would mean a new set of infrastructure and collaboration on how to better engage in the supply space and manage it that way.

Or maybe you've got a profit-driving aftermarket and having reliable parts into the aftermarket is always an issue. Agility, for you, would be driving demand from the aftermarket into production operations and making it a very discrete set of tools and models for you. Agility is very clear as to what it means, and what are the benefits behind it and what are the exact tools and data that you're going to use to enable that form of agility?

Kevin Donahue

Sharon, I want to loop back around to you and talk about some of the roadblocks you see in a manufacturer or another organization in the manufacturing industry. We've touched on some of them here. That said, I imagine there are quite a few given the legacy systems they're operating under, and perhaps some organizational resistance.

Sharon Lindstrom

If there were three broad categories, it's the ones that we talk about all the time: people, process, technology. That captures them all. If we start from the people standpoint, this is a mindset change. You're talking about a traditional approach to manufacturing: You did long-term planning, you focused on predictability. As Dave mentioned, at 6:05, that goes out the window. There's chaos. So there is this point of looking at shorter-term in your planning-horizons adaptability. That is a mindset change. We cannot underestimate the organizational change management needed to get comfortable with that chaos. That's a big thing around the people - the mindset change. And that can be a roadblock - People are hesitant to change.

The second thing about process is - and Robert touched on this - being agile means that you've got cross-functional collaboration and flexibility, and it's that cross-functional piece. You have to look across your functional areas, across your operations, from product design and prototyping to procurement and vendor management to production and shipping, and understand how those link together to get the collaboration. You can't build agility in a silo. That can be a roadblock - you want to make sure that what you're doing is specific for what you're trying to achieve. But it is a cross-functional collaboration. You have to look across processes.

And then, that last piece we've touched on quite a bit, that technology, you've got to overcome very old, aging pieces of infrastructure. As we know, manufacturing companies typically operate in multiple countries, can have hundreds of factories. It's the alphabet soup of systems, databases, my favorite data structure. It's not easy to have one source of the truth with complex reporting. And as Dave mentioned early on, there are too many spreadsheets being used to synthesize and manage the data.

An agile factory is able to make data-driven decisions, and you can do that faster to bring more order to the chaos. There are a lot of tools out there, and as we've mentioned, you can base those in the cloud as well. There are a lot of roadblocks, and people may throw those up as far as why we can't start. But as Robert mentioned, we need to start somewhere. How do you eat an elephant? One bite at a time. We've got to start somewhere to see how we can help achieve some of our strategic objectives.

David Petrucci

And Sharon, one of the things that we're seeing a lot of manufacturers do is, the local facilities are realizing that the big infrastructure decisions, the MES environments, that's going to be a corporate decision. It's going to take a long time for things to happen. This concept of low-code and citizen development has taken off in the manufacturing world. It's that self-fulfilling prophecy for the local facilities of, can I still somewhat systemize the spreadsheets that I'm running, and do this in a more organized fashion and a more structured fashion?

We've seen this huge adoption of low-code or citizen development hitting the manufacturing plants to fill the gaps where corporate IT just isn't delivering, or it was too small a project, and the payback of custom development and corporate IT, the math didn't work out. We're seeing this as a huge opportunity, and it fills a lot of gaps that get customers going, or companies going, forward - why some of the longer, bigger strategic decisions are being made. But it allows them to execute with that local mindset as well. With every manufacturing plant, every plant manager, plant director, that's always what you hear: Corporate, it doesn't know my business, doesn't know my plant. And this whole concept of low-code or citizen development in the plants puts it back into your control, your power.

And there's still some upskilling to be able to do that citizen development. There's still a governance model around that at some level, a lighter-weight level. But this is a way we're seeing many improve the flexibility, agility, of their plants in a very short period of time without having to go and fight the big corporate motherhood there. That's something that we're seeing happen quite often right now.

Kevin Donahue

Robert, I want to ask you to expand on the people side of the equation in all of this. What are some of the skill sets required to transform into an agile factory, or, better stated, support that transformation? Just as important, how can management best prepare their current teams for these changes?

Robert Giacobbe

That may be the single biggest obstacle or hindrance to agility - what Sharon was saying a few minutes ago about the ability to do cross-functional planning and integration and collaboration internally and things like that. To be honest about the industries where I've done work - rail, for example, oil and gas, energy and utilities, pharma, even, some of the industrial product companies - they are as unagile as you could possibly get from a descriptive standpoint. And they're like that from the culture inside the company. The management and the leadership, they internally do not collaborate. They don't share. There's not a lot of cross-functional collaboration. Shared metrics is a forever forgotten thing that's never been introduced. Data sharing across those functions is not that common, and it's just a fact.

You do have companies in the CPG space where supply chain is a lot more endemic to what they do. They're more open to those kinds of things, but more traditional, more conservative industries, again, like rail and energy and utilities, it's a new concept. For those companies to talk about being agile, they have a huge cultural thing they have to go out and solve and address and fix. They have to put in place specifically things like cross-functional collaboration metrics, shared scorecards. They have to think about multiskilling down at the job-design level and things like that that they just haven't thought about before.

Honestly, the internal culture prevents a lot of that. It requires some new leadership that's visionary, and requires those industries to come in and say - and I've done a lot of work in both in freight and passenger rail - "We're going to be agile now. We're going to drive material requirements and capital requirements up and down the supply chain. We're going to procurement aligned with asset management and maintenance" and things like that. That's not in place right now. It will require some visionary leadership to come in there and push these ideas in there and do it in a strong way, because historically, they've not adopted those kinds of things. For certain companies, to get agile, they are going to have to break through that model that they're existing in right now. And culture is a big barrier to that.

Kevin Donahue

Thank you all for your insights. This has been informative, and I imagine agile is seen as a game changer for many or most manufacturing organizations.

I have one more question I'll pose to all of you, and Sharon, I'll have you respond first. If you're presenting to the board of directors with a large global manufacturing organization, and they're resistant to implementing major changes in their factories, what are some of the proof points you would present to convince them of the value of an agile factory model?

Sharon Lindstrom

We could always go in and provide a ton of examples from other companies that have started this journey and the value that they've gotten. But it's such a personal question for each company. And I go back to what Robert was speaking about - I'd want to understand their context first, their strategic objectives. What's at the roots of their hesitation - identify that area, and see how agile could help them. I remember, at least 20 years ago, where the U.K., and then separately, the EU, undertook an initiative to come up with a three-day production cycle in the U.K. and five days in the EU to customize a car specifically to what a customer wanted.

I think of that example now. We've had a lot of disruption. They didn't have the supply chain formulated to support that. But thinking about from your end-customer perspective, if you did x, what would that help you achieve? I'd want to get into that in more detail, to get to the root cause, to help them, with their teams, navigate that change aspect. But I'll turn to my colleagues, Dave and Robert. They might have some more specific proof points.

David Petrucci

The pandemic was the forcing function. Everything broke during the pandemic. And we've said the world of supply chain, the world of manufacturing, has been very fragile for years. And then, we finally got to that breakpoint. And three years later, we're still not fixed. That's the forcing function with most executives right now, that this was always a COO, a VP of manufacturing, issue - they just aren't doing their job. Over the pandemic, this became a board member issue, a CEO issue, a CFO issue, because they couldn't deliver on the revenue plan, because they couldn't produce product, they couldn't move product. And it was because of the inability to produce product, get supply, and they weren't very agile.

Some came and rose to the top and were able to reshift their manufacturing very quickly. But a majority of the manufacturing world couldn't. That's the discussion point we would want to always start with: You know how close you are to the edge. What are you going to do to take a step back or two from that edge?

And every company in the world right now is having a discussion about rightshoring. That doesn't mean onshoring. The concept is rightshoring to what's best for them. And in doing that, that's their opportunity to rethink their manufacturing. That's not just a lift-and-shift from China's very labor-intensive manufacturing process back to the U.S. or back to the EU, and trying to do the same thing. That's rethinking their product. That's rethinking their manufacturing strategy, their technologies that support that, and how we would design a plant to actually enable that?

Between the pandemic and the concept of rightshoring right now, it's almost that perfect storm with board members and senior leaders of manufacturing companies to have these discussions of, "This is a once-in-a-generation opportunity that you're going to have to go make new and right decisions and build that flexibility into your manufacturing process that will be able to adapt and react to the constant disruptions that we have in today's world."

Robert Giacobbe

It's a strategic question, for sure. I think about what Dave was talking about several minutes ago, which I thought was great: If you think about agility in the broad sense of the word, where Dave described it, you have data, that leads you to alternatives. You have the ability to look at these alternatives and come up with the next-best action.

If we talk about agility in that broad sense of the word, it ties to strategy. Our clients go to market usually in one of three areas from a competitive business-strategy standpoint: operational leadership and cost reduction, or leading in customer service or leading in product innovation. In one of those three areas, they're typically going to compete and win in the marketplace around getting customers, keeping customers, and managing service and things like that. With agility, there's probably no other piece out there other than maybe your product-design function that's going to enable your competitive business strategy. From that standpoint, it should be one of the number-one things the C-suite is talking about and optimizing.

Kevin Donahue

My thanks to Sharon, Robert and Dave for their informative insights - some that are sure to be thought-provoking for leaders within manufacturing organizations as they determine how to make their factories more agile. For more information, I encourage you to visit both the Manufacturing and Distribution industry and the Operations pages on Protiviti.com. And as always, I encourage you to please subscribe to our Powerful Insights podcast series and review us wherever you get your podcast content.