Why Manufacturing Doesn’t Matter

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We all know the factors that have led to economic success in the industrial era: access to land, labor, raw materials, capital, machinery, and (in many cases, anyway) a good idea.

Today, all of those traditional advantages are falling away except one: the good idea. We are leaving the industrial era and entering the innovation economy, where manufacturing is amodity and the idea, a.k.a. intellectual property, trumps all.

And those ideas won’t just be limited to the products or services that you sell. Amazon’s 1-click idea (now patented) has nothing to do with the products it sells, only with how they are delivered. Indeed, managing innovation throughout the value chain – from research and design to delivery and aftermarket service – has be the key to success.

Companies that own and take advantage of the rights to innovations – more than those that manufacture, sell, or distribute them – will be the most highly valued.

Reorganize Around Innovation

Think of how that shakes up the status quo.

Take raw materials, historically the key determinant of the wealth of nations, for a start. Non-natural materials, like services and intangibles, are increasingly the source of prosperity.

And labor? China’s labor costs have more than doubled since 2007, according to Ernst Young. Desperately seeking the next cheapest source of offshore resources isn’t a long-term strategy.

Even capital investment, a traditional advantage for bigpanies with deep pockets, will matter less when massive, multi-million dollar pieces of machinery are replaced by cost-effective 3-D printers that can fit in a home office.

What Does This Mean for Manufacturing?

All of this leaves traditional manufacturers in a tough spot. It’s no longer enough to simply make things well or inexpensively or with high quality (though those are all still important). In order for manufacturers to shift their focus on the primary driver of value – the idea – they must successfully manage a number of key trends:

  • Track ideas, not parts. When customers buy ideas instead of products, the systems manufacturers have used to track things throughout the supply chain will instead need to monitor IP in a highly distributed value chain. Who’s using your idea will matter as much as who’s got the parts to make it.
  • Exploit intangibles. As things like talent, brands, relationships, business processes, and corporate culture eclipse physical and financial assets in value,panies must learn to track, measure, and manage them they way they have with capital investments.
  • Manage for maximum efficiency. With the focus shifting to the innovation process and the intangibles that fuel it, manufacturers must continue to focus on lean, squeezing every bit of productivity out of machines, people, and processes they can and outsourcing when the objectives of cost, quality, and speed are better achieved by others.
  • Keep manufacturing local and innovation global. Resources, labor and manufacturing executives will go local, in order to get closer to the customer, while innovation processes will be collaborative and global.
  • Shrink product life cycle times. Manufacturers will harness their global innovation processes to deliver IP to the customer—whether in the form of a finished product or something that’s 3-D printed—as quickly as possible.

What do you think? Are the value of things like “Designed in California” going to turn out to be a lot of hype in the long run? Will manufacturing retain its value? I look forward to yourments.

This post originally appeared on the SAP Community Network

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