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The great re-make: The great re-make: Manufacturing for modern times Manufacturing for modern times Manufacturing June 2017 Manufacturing Practice June 2017 Copyright © McKinsey & Company Design contact Sydney Design Studio www.mckinsey.com @mckinsey_mfg This McKinsey publication meets the Forest Stewardship Council® (FSC®) chain-of-custody standards. The paper used in this publication is certified as being produced in an environmentally responsible, socially beneficial, and economically viable way. Printed in the United States of America. The great re-make: Manufacturing for modern times Editorial Board Head of Editorial Operations Erin Blackwell, Rajat Dhawan, Venetia Simcock Tony Gambell (Chair), Katy George, Varun Marya, Kunwar Singh, Christoph Schmitz Art Direction, Design and Production Therese Khoury, Nicole White Manufacturing Practice Manager Erin Blackwell Illustration Bill Butcher Manufacturing Practice Coordinator Kathie Sjodin Editorial Production Liz Brown, Heather Byer, Roger Draper, Editorial Directors Torea Frey, Paromita Ghosh, Heather Hanselman, Christian Johnson, Ron Stach Gwyn Herbein, Katya Petriwsky, John Sanchez, Dana Sand, Sneha Vats, Belinda Yu Contributing Editors David Klein, Geoff Lewis, Dan Penrice, Distribution Jonathan Ward Debra Petritsch To learn more about our manufacturing practice, please visit: www.mckinsey.com/business-functions/operations/how-we-help-clients/manufacturing © Copyright 2017 McKinsey & Company. All rights reserved. No part of this publication may be copied or redistributed in any form without the prior written consent of McKinsey & Company. This compendium reflects the collective experience of McKinsey’s Global Manufacturing Practice. It is based on our extensive work with more than 650 client organizations over the past five years across all industries. McKinsey also has broad experience serving these clients on matters related to commercial strategy, risk, emerging-market growth, the use of big data, and a wide range of other critical business challenges—reflecting the collective knowledge of our entire organization. Our global presence and the knowledge we generate from our work in other industries enable us to deliver deep expertise to our clients. With our cutting-edge tools and leading practitioners, we offer a customized approach tailored to organizations’ local, regional, and global aspirations. We are committed to partnering with our clients to solve their biggest challenges. At the heart of our practice is a group of passionate and experienced leaders who seek to transform the world of manufacturing. We welcome your comments, questions, or inquires. Please contact us at [email protected]. Inside 6 10 26 Introduction Modern times Modern vision What does “great” operational Disruptive change is creating How do we think about excellence look like and how new requirements in our manufacturing excellence in do we get there? vision and parameters. the 21st century. Featured article: Featured articles: Featured articles: — The great re-make: — Global growth, local roots: — Manufacturing network strategy in Manufacturing for The shift toward a world of unprecedented change modern times emerging markets — How the Internet of Things will — We are living in a digitally reshape future production systems disrupted world — Optimizing production in the age — Same song, different tempo of the machine — The evolution of quality: Higher quality output, lower cost of quality — Seven rules for spinning analytics straw into golden results 86 Modern 124 practices Conclusion Change management Embracing the new normal and how to scale and of operational excellence. sustain change. Featured articles: Featured articles: — Additive manufacturing: — A better fit: Tailoring the — Don’t burn the ships: A long-term game changer deployment model to suit Sail for a new world of for manufacturers the organization manufacturing performance — Automation, robotics, and the — Deployment models: factory of the future How mature are your operational practices? — Leadership in innovation needs innovation in leadership — Secrets of successful change implementation — Human + machine: A new era of automation in manufacturing — Advancing manufacturing leadership — Performance management: Why keeping score is so important, and so hard — To make a transformation succeed, invest in capability building — Extended lean toolkit for total productivity Introduction 6 The great re-make: Manufacturing for modern times The great re-make: Manufacturing for modern times Erin Blackwell, Tony Gambell, Varun Marya, and Christoph Schmitz A little more than 80 years ago, Charlie keep up as it was for Charlie Chaplin. Chaplin’s classic movie Modern Times was Today’s modern times have brought released. The scene in which he tries to keep unprecedented demands, and not only up with the assembly line with his arms for the perennial goal of more product for flailing as he twists wrenches in each hand, less money. They have increased customer is one of the best-known in film, and it’s and regulatory scrutiny, in the name of still what many people (at least those who frictionless convenience and flawless haven’t worked in factories) think of when quality. They have enabled advances in they think of manufacturing. the availability, storage, and use of data in manufacturing. They have exacerbated But those who know factories know how product and demand complexity. And as much they have changed since then: think a result, they have compelled managers of the differences between the factory of toward ever-greater productivity 2017 and 1937. Or 1977. Or even 2007. Think improvements, whether through of the advances in automation, robotics, operational or structural transformations. sensors, the Internet of Things, analytics, big data, artificial intelligence, and design As a result, we believe we are also on the methodologies. How much more will cusp of a great re-make in manufacturing. manufacturing change by 2027? By 2037? We expect some companies and even whole industries to accelerate toward this How do manufacturing organizations keep future, largely based on two factors: first, up with this pace of change—and what will the level and speed at which modern times you, as a manufacturing leader, need to do to require change and second, the degree change with it? to which new digital advances will unlock opportunities. We believe we have entered a new era of manufacturing for modern times, where In the end, however, we believe that it’s at least as hard for organizations to successful manufacturing companies will Introduction 7 both embrace new advances, while staying true to Consequently, the need to understand demand— enduring beliefs: that the foundational elements and how, where, and when to produce—has of manufacturing performance that were true become even more critical. As digital capabilities in the industrial revolution, that were true for become more attainable and understandable, the Henry Ford in the early 1900s, and that were adoption of these technologies will drive levels true for Toyota in the 1980s remain true for all of competitiveness and enable faster and more manufacturers today. agile production systems. However, the basics of operational excellence will remain the foundation With that in mind, we expect you’ll find some of an organization’s transformation and journey topics in this compendium that are intriguing, into the future. some that are challenging, and others that provide further support to your current practices and Modern vision capabilities, with material that is relevant from the C-suite to the front line. We hope that you For organizations to remain competitive, they and your colleagues find this compendium a must think about the value chain from beginning valuable resource as you aspire to a new era in to end, through all aspects of production. In this manufacturing leadership. next section, we dive deep into specific topics that we think are important for companies to consider. We present this compendium of all new articles Some are technical concepts, such as advanced organized around three themes relevant to manufacturing, network optimization, and manufacturing companies today: advanced analytics, while others focus on crucial mind-sets and behaviors, such as leadership and Modern times the workforce of the future. In this first section, we explore the changing Modern practices landscape of manufacturing across sectors. Over the next decade or so, global consumption With all of the concepts and theory for leaders to is forecast to increase by about $23 trillion, and think about, it is often daunting to think about the the consuming class by about 1.8 billion people. actions necessary to make change happen. Trying Over the next decade or so, global consumption is forecast to increase by about $23 trillion, and the consuming class by about 1.8 billion people. 8 The great re-make: Manufacturing for modern times to make everything happen at once can often lead to failure, while going too slow wastes an impossible- to-replace competitive advantage. In this section, we address some of the tactical steps needed to steer an organization on the right path forward. If you are a COO or other member of the C-suite, we hope you will pay special attention to the section on where manufacturing is going, to help you think about your strategic imperative and the future of your business. We hope the perspectives in this book prove to be both intriguing and instructional. Our aspirations are to help executive

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