Why is Manufacturing Flexibility Important?—Part 2
By Alberto Moel, Vice President Strategy and Partnerships, Veo Robotics
Welcome back, dear reader, to Part 2 of our discussion on why manufacturing flexibility is increasingly important and critical to the future of making things. In Part 1, we provided evidence to back up our thesis that mass customization and increased SKU proliferation are two of three trends driving the need for greater flexibility. Today we’ll tackle the third trend, shorter product cycles, before moving on (in subsequent blog posts) to the economic implications of this collision between product demand trends and the current capabilities of manufacturing.
Figure 1. US housing stock and US home remodel market.
To start with, let us again look at household appliances. It’s going to get a bit complex, but bear with us and you’ll see that faster appliance replacement (indicating shorter product cycles) is indeed a trend. Figure 1 shows indexed total US housing stock and indexed market value of the home remodeling and improvement market.1
The US housing stock (effectively the cumulative “stock” of housing growing by the “flow” of housing starts in Figure 1 of Part 1) has risen modestly over the last 20 years,2 while the home remodeling and improvement market has almost doubled. In other words, a higher proportion of the installed housing stock is getting upgraded.
What does an upgrade mean? Well, new kitchens, bathrooms, HVAC systems, furniture, and such. And what happens when you remodel a kitchen or a bathroom? You throw out (or, if you are ecologically minded, recycle) the old appliances and get new ones. In other words, more frequent remodeling of the existing housing stock translates to shorter product cycles for the appliances going into these remodeled homes.
This shortening of product cycles is not limited to durable goods such as household appliances. The same can be seen across many product categories. Figure 2 shows a different cut from the previously referenced Roland Berger report3 on the shortening product life cycles in automotive, machinery, and FMCG.
In 1997, if the life cycle of an “average” car model was 5 years, by 2015, it was down to 4.5 years. In other words, car designers and manufacturers had six fewer months to design, develop, and ramp up manufacturing for that model. Fast moving consumer goods (FMCG) such as toothpaste or shampoo have experienced much more dramatic shrinking of product life cycles. If the lifetime of your favorite Crest Peppermint-Flavored Extra Brightening with Triple Fluoride toothpaste was 2 years in 1997, it would be down to 1.4 years by 2015. This means more product introductions, more frequent product redesigns, and more frequent manufacturing changeovers requiring flexibility.
Figure 2. Product life cycle for automotive, machinery, and FMCG.
Figure 3. Product life cycle for the Volkswagen Golf, 1974-2016.
The data in Figure 2 is only from 1997 to the present, but this trend of shorter product life cycles has been going on for a lot longer. Figure 3 shows the product life cycle for the Volkswagen Golf, first introduced as the Mark I in 1974, and currently on its eighth generation (Mark VIII), introduced in 2019.
Figure 4. Automobile development times 1985-2015.
Obviously, a side effect of shorter product cycles is that product development and commissioning times are also compressed—if you replace models more frequently, you no longer have the luxury of a long development cycle before launch. And if your development and commissioning schedule is compressed, you’ll need even more flexibility, above and beyond that required for increasing product variety. As evidence, Figure 4 shows how average automobile development time has been cut in half from four years down to two over the last few decades.4
The data presented here (and supported by extensive anecdotal evidence in fast fashion and consumer electronics) show that the trend toward shorter product life cycles is for real, and that consumers are more than comfortable with frequent purchases of new variations on existing products. Coupled with mass customization and SKU proliferation, shorter product life cycles force manufacturers to continually shift production profiles very quickly. Stick demands for consistently high-quality products on top and you get the perfect storm.
All of this is to say that manufacturing is changing faster now than it ever has been before. Building flexibility into manufacturing processes is likely to be an existential requirement, and the need for this flexibility is likely to continue to accelerate.
In our next posts we will start to pick apart the implications of these macroeconomic trends driving manufacturing flexibility for the current crisis.
1 If you must know, the indexed total US housing stock comes from FRED at the St. Louis Fed, and is represented by “Housing Inventory Estimate: Total Housing Units for the United States, Thousands of Units, Quarterly, Not Seasonally Adjusted.” The size of the home remodeling and improvement market comes from the report Improving America’s Housing 2019 by Harvard’s Joint Center for Housing Studies, which provides estimates of the dollar value of both homeowner and rental remodeling and improvement expenditures since 2001.
2 Even though we are talking about an average of 1.5 million additional housing units per year, it’s a big country!
3 Mastering Product Complexity, Roland Berger Consultants, Germany. Their research encompassed surveys of over 100 manufacturers in five industry clusters (automotive, machinery, fast moving consumer goods, chemicals, and pharmaceuticals) about the number of end-product and supply chain SKUs over time and product lifetimes.
4 These product life cycle estimates have been well covered in the literature. See, for example, Sabadka, Impacts of shortening product life cycle in the automotive industry (2014), or the 2008 MPRA paper Managing product life-cycle in the auto industry: evaluating carmakers effectiveness. Also note that the automobile development time is different from the automotive product life cycle of Figure 2. But shorter product life cycles means more frequent product introductions with shorter development times.