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Disruption in manufacturing
Managing unexpected risk for strategic opportunity
Disruption in manufacturing can lead to losses in market share, brand reputation, and more. It can also offer manufacturers opportunities to innovate and evolve.
- Navigating in a “VUCA” world
- Understanding strategic risk management
- Forces driving disruption in manufacturing
- Watch out for game changers
- Seven secrets for addressing strategic risk
Navigating in a “VUCA” world
Unexpected risks are all around us in today’s volatile, uncertain, complex, and ambiguous world (dubbed “VUCA” by the US Army War College). Manufacturers face challenges from powerful forces as technology, social, environmental, economic, and market trends converge, testing the mettle of even the strongest companies.
At the same time, manufacturing companies have an unprecedented opportunity to innovate and evolve. New customers, markets, materials, and technologies await exploration and provide unlimited opportunities for expansion and growth.
By managing strategic risk—the uncertainties and untapped opportunities that directly impact a company’s identified strategic goals—organizations can navigate disruption in manufacturing while supporting business goals and both creating and protecting value. Whether they continue to generate value for stakeholders depends on how well they prepare for and react to strategic risks.
Understanding strategic risk management
Managing strategic risk effectively is much more than protecting value by avoiding potential downsides. Strategic risk can actually help create value by taking advantage of uncertainty and volatility to maximize gains and improve competitive positioning.
Strategic risk forces organizations to react because it:
- Attacks the foundation of competitive advantage and execution of business plans
- Challenges the logic of strategic choices that creates a competitive sustainable advantage
- Threatens an organization’s position relative to competitors
- Undermines a firm’s ability to achieve or maintain exceptional performance
Forces driving disruption in manufacturing
In manufacturing, managing strategic risk takes on an increasing degree of urgency. Changing dynamics in the following areas can lead to disruption in manufacturing, resulting in shifts in a manufacturer’s ability to deliver products, manage the supply chain, and serve customers in the traditional manner.
- Customized demand: Changes in consumer demand require more customization and personalization
- Products: With smart manufacturing and connectivity on the rise, products themselves are changing from “dumb” to “smart.”
- Economics of production: Advanced manufacturing methods are changing the economics of production
- Economics of the value chain: Intelligence and insights enabled by digital manufacturing are revolutionizing the economics of the value chain
Manufacturing companies are also influenced by external factors in the global marketplace that complicates supply chains and costs. Beyond the influences of technology, economics, social, and political factors, manufacturers have learned to keep an eye out for “big bang” disruptors—the unanticipated innovations or moves by competitors that completely change an industry.
Watch out for game-changers
Disruption in manufacturing isn’t an anomaly. Disruptors are rewriting the rules of one industry after another. Therefore, manufacturers would be wise to prepare for the possibility of a game changer.
What might those game-changers be? Deloitte Touche Tohmatsu Limited’s 2016 Global Manufacturing Competitive Index cited four major determinants in global manufacturing competitiveness:
- Availability of talent
- Cost competitiveness
- Workforce productivity
- Supplier network
Add in advanced manufacturing technologies, public policy, and the convergence of the digital and physical manufacturing worlds and it’s clear: Manufacturers must evaluate and prepare for associated risks to remain competitive.
Seven secrets for addressing strategic risk
Addressing strategic risk head on delivers value by helping to increase revenues, decrease expenses, gain efficiencies, lower costs, boost returns, avoid downsides, and capitalize on potential upsides. Forward-thinking companies are implementing strategic risk management programs by developing strategic risk plans and approaches that include a process for identifying, assessing, monitoring, and responding to potential risks.
Here are seven tips for effectively addressing strategic risk:
- Keep an eye out for new and emerging risk
- Align with strategic planning processes
- Know the limits of historical data
- Confront cognitive and institutional biases
- Align risk and strategy
- Assign accountability
- Consider an outside perspective
The future is full of unknowns. Being armed with a strategy for identifying disruptions in manufacturing and managing strategic risk can allow the organization to address it fearlessly.
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