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Case 09 APRIL 2014 REPRINT R1404J Harvard Business Review r Post THE GLOBE Europe's Solution Factories Manufacturers in the developed world are discovering new ways to compete. by Stephen E. Chick, Arnd Huchzermeier, and Serguei Netessine Do No This document is authorized for educator review use only by Samar Mukhopadhyay, HE OTHER until April 2018. Copying or posting is an infringement of copyright Permissions@hbsp.harvard.edu or 617.783.7860 216-472/795 MANAGING CONNECTED ENTERPRISE Fall 2018 Assignment 3 (Case Assignment) November 8, 2018 Due: November 29, 2018 15 Points This is a group project Your group is assigned a case. You need to do the followings: 1. Read the case thoroughly. 2. Get the main theme of the case. The case may be informative, giving an overview of a concept. It may also describe a problem faced by an organization. Or it may show the application of a concept to a specific management area. 3. Analyze the case theme (see Point 2 above). Explain the theme for a reader who has not read the case and is not familiar with the concept. 4. Write a detailed report of your analysis. 5. Your report should be written as if you are submitting it to a valuable client. (This means professionally formatted, clearly defined concepts etc.) 6. No presentation is required. FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG The Globe Europe's S U Manufacturers in the developed world are discovering new ways to compete. by Stephen E. Chick, Arnd Huchzermeier, and Serguei Netessine ntil about a decade ago, the best Still, manufacturers in Europe have way to make your manufacturing risen to the challenge, as we have observed operations competitive was to ap- since 1995 as judges for Europe's annual In- ply the practices of lean management. But dustrial Excellence Award. Along with col- as those practices have become more uni- leagues at several of Europe's top business versal, they are yielding less differentiation schools, we have analyzed applications in cost and quality. from organizations that deem themselves This presents an acute challenge for "excellent" in manufacturing, and every manufacturers in developed countries in year we visit a handful of factories in each Europe and North America. They cannot participating country-France, Germany, compete on price; plants in large emerg- the Netherlands, Spain, and the United ing economies such as China, Mexico, and Kingdom-as well as sister plants in Eastern Brazil come to the table with significantly Europe. The Western European countries lower labor costs. And many of those low- have some of the world's most stringent cost factories have high quality standards, regulations regarding the use of labor, fa- the ability to produce on a large scale, and cilities, and equipment. Nonetheless, the manufacturing methods as advanced as factories that have won the award have all those anywhere in the world. prospered in highly competitive industries. CAL BASTIEN ABOVE Daimler's Smart car plant in Hambach, France COPYRIGHT © 2014 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. This document is authorized for educator review use only by Samar Mukhopadhyay, HE OTHER until April 2018. Copying or posting is an infringement of copyright. April 2014 Harvard Business Review 2 Permissions@hbsp.harvard.edu or 617.783.7860 THE GLOBE SCHMITZ CARGOBULL The German truck body and trailer manu- facturer has improved its operations s by incorporating sophisticated information technology into its products. 2000 2013 THE PRODUCTION PACE NECESSARY TO MEET CUSTOMER DEMAND DROPPED 12 MINUTES MINUTES 120 AM THE INTERNAL FAILURE RATE FELL ORDED SCHMITZ 25 PER PER SEMITRAILER SEMITRAILER ACCIDENTS DECLINED 85 What explains their success? The award hensive information sharing is a tall order, company uses information technology winners, we have found, use one or more of especially with a new, unknown supplier only where it makes sense; on the produc- four distinct strategies: They leverage data in a low-cost country. Companies are apt to tion line, for instance, workers implement flows to integrate closely with their supply feel safer dealing with suppliers from de statistical quality controls manually rather chain partners; they optimize customer veloped countries, where high standards than rely on an automated system, because value across the whole chain, not just their of quality prevail and intellectual property the company has found that manual con- part of it; they cooperate with suppliers to protection is strong. As a result, smart man- trol improves engagement and job perfor- rapidly improve their manufacturing pro- ufacturers in Europe look for opportunities mance. The decision to introduce telemat- cesses; and they harness their technical ca- to make information sharing part of the ics derived from management's belief that pabilities to offer a high degree of product relationship. the real-time sharing of data would bind customization for their customers. In short, Schmitz Cargobull, a German truck the company more closely to its customers. they work with partners to manufacture body and trailer manufacturer, is a case in That strategy has helped make Schmitz solutions for other partners. point. The company's main customers are Cargobull an industry leader. In 2013 the operators of truck or trailer fleets, mostly company accounted for 82% of the sales of Data-Based Integration with based in Europe. Like many of its competi- semitrailer reefers (refrigerated trailers) in Others in the Supply Chain tors, Schmitz Cargobull derives a growing Germany, and its market share in Europe When all that links two companies in a share of revenue from support services was approximately 50%. Its operational re- value chain are product and financial flows, such as financing, full-service contracts for sults are impressive as well: Takt time (the it is relatively easy to change a supplier: breakdowns and regular maintenance, and production pace necessary to meet cus- You can always look for a cheaper option, spare parts supply. tomer demand) dropped from 120 minutes which will probably lead you to a low- What sets the company apart is its use in 2000 to 12 minutes in 2013 (-90%), the cost country like China or Vietnam. But of telematics (the integrated application of internal failure rate fell from 35 per semi- when two or more companies are linked telecommunications and data) to monitor trailer in 2000 to 3 per semitrailer in 2013 by information flows, what was purely a the current state of any Schmitz Cargobull- (-92%), and accidents declined from 85 in transaction becomes a kind of co-creation produced trailer. Key information is con- 2000 to 5 in 2013 (-95%). fed by trust and loyalty. Like Japanese kei- tinually available to the driver, the freight The water meter manufacturer Itron retsu systems, with their profound buyer- agent, and the customer: They can track, uses information flows in a similar way to supplier links, information-based integra- for example, when maintenance was done, make itself indispensable to its custom- tion allows suppliers to become deeply how much weight has been loaded, what ers. At its research center in Mâcon, France, ingrained in their customers' ecosystems. the cargo temperature is, and where the the company has developed intelligent The difference is that with the latter type of vehicle is on its route. As a result, Schmitz water metering systems in which a wire- integration, data linkages make it unneces- Cargobull customers can better manage less device allows for remote reading. And sary to exchange employees or create mu- their trailer use and minimize the risk of in collaboration with Cisco Systems, the tual ownership, as is common in keiretsu breakdowns. networking equipment provider, Itron is networks. In deploying these telematic tools in working to develop "smart grid” solutions From the customer perspective, creat- its products, Schmitz Cargobull is provid- that provide data about municipal water ing a trusting partnership built on compre- ing tangible benefits, not mere flash. The systems. Harvard Business Review April 2014 This document is authorized for educator review use only by Samar Mukhopadhyay, HE OTHER until April 2018. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860 PHOTOGRAPHY: SCHMITZ CARGOBULL FOR ARTICLE REPRINTS CALL 800-988-0886 OR 617-783-7500, OR VISIT HBR.ORG ASML THE DUTCH COMPANY ASML, A LEADING SUPPLIER OF LITHOGRAPHY SYSTEMS FOR THE SVILUNY STOR RECORD SALES OF OVER €5.6B IN 2011 i ! TECHNIP GROUP, WHICH..ENT TECHNIP'S SUBSEA GAS AND OIL PIPES IN LE TRAIT, FRANCE, SAW REVENUES RISE 36% 360 FROM 2011 TO 2012. OPERATING MARGINS FOR THE GROUP WERE 50% HIGHER THAN FOR THE COMPANY OVERALL Using Itron's metering systems, munici- other ways in which they can create value the oil field services giant Schlumberger, palities can identify leakages and changes for customers; they do not have to base Technip has developed intelligent pipes in water usage patterns so as to help plan their value proposition only on the qual- that can monitor and regulate the tem- maintenance and respond immediately to ity and price of products if they can help perature throughout an oil pipeline. Fluc- water waste and loss by consumers or in customers add worth elsewhere along the tuating temperatures pose a major prob- the water distribution network. The sys- value chain. lem; they cause changes in pipe diameter, tems also support client service, billing, The French manufacturer Markem- which make the flow of oil more variable. and water consumption analysis. Imaje produces industrial printers for mark. This compromises drilling efficiency and is More than 30% of the drinking watering "best by" dates and other information a significant source of costs for oil produc- produced worldwide never reaches the on containers for beverages, food, pharma-ers. Using intelligent pipes not only keeps customer (because of leaks or other rea-ceuticals, and other consumer products. temperatures steadier but also reduces the sons) and thus never generates revenue. Like its competitors, Markem-Imaje has in- complexity of subsea drilling layouts and Even in a developed country such as France, troduced a number of ancillary services to shortens pipe installation times. Technip "lost" water exceeds 20% of the supply. Ef- add value to its products, and it has adapted has reaped clear rewards from implement- ficient metering thus has great potential to its printing and marking technology to en- ing technological solutions such as this reduce the need for expensive initiatives ter new markets, such as postal services one: Subsea group operating margins were to expand water treatment. One project in and large-scale printing of billboards. The 50% higher than those for the company Kalgoorlie, Australia, has reduced water company has also recognized that envi- overall, while revenues for the group in- loss by 10%, thanks to the kinds of prod- ronmental sustainability has become an creased 36% from 2011 to 2012. ucts developed by Itron. In British Colum- important source of value for its custom- bia, Canada, smart water metering is an ers. In partnership with a supplier, Armor's A Cooperative Approach to ticipated to save $1.6 billion over 20 years. Thermal Transfer Industrial Expertise Cen- Improving Manufacturing As a result of successes like these, Itron's tre, it has developed printers that apply a When manufacturers change their product production of communication modules for new solvent-free ink that delivers high print specifications, they may find that faraway, data transfer has increased by a factor of 15 quality while causing minimal environmen- cost-driven parts suppliers are slow to re- since 2000, and production of its water me- tal damage-a combination European cus- spond. Smart European manufacturers, ters has tripled. tomers are willing to pay a premium for. therefore, try to optimize production for Similarly, Technip's Flexi France manu- maximum flexibility. In many cases this Value Creation facturing plant has found innovative ways involves integrating tightly with their sup- Elsewhere in the Chain to add value for customers. The company plier or customer networks to rapidly ad- A distant supplier is unlikely to have insight produces subsea flexible pipes for the oil just the manufacturing process so they can into the exact needs and expenses of buy- and gas industry. Flexi France's traditional meet buyers' changing needs. ers. It can perhaps improve the quality and services include installing, inspecting, ASML, a Dutch company, provides reduce the cost of making the product, but maintaining, and repairing pipes in loca- leading-edge imaging solutions to enable in many situations the direct cost is only a tions around the world, from the Arctic to manufacturing processes in the semicon- fraction of what customers spend. Smart the Arabian Gulf. The company now goes ductor industry. The firm operates in an manufacturers understand that there are a step further. In a collaborative effort with extremely volatile sector: Over the past 30 This document authorized for educator review use only by Samar Mukhopadhyay, HE OTHER until April 2018. Copying or posting is an infringement of copyright April 2014 Harvard Business Review 4 Permissions@hbsp.harvard.edu or 617.783.7860 TECHNIP (LEFT), ASML (RIGHT
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Excellent resource! Really helped me get the gist of things.

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