Munich, June 7, 2022 - To make their supply chains more resilient, 43 percent of industrial companies worldwide want to produce more regionally. This is shown in the study Boosting Resilience with Production as a Service. The Boston Consulting Group (BCG), together with FlexFactory GmbH, and WHU - Otto Beisheim School of Management surveyed more than 1,500 executives from various industries worldwide. The focus was on the companies' priorities in manufacturing and the organization of their supply chains. According to the survey, three quarters of the surveyed managers would like to be able to adapt production more flexibly to demand changes in the future.
For Dr. Kristian Kuhlmann, BCG partner and co-author of the study, the biggest challenges in manufacturing today are resilience and value proposition, in addition to sustainability: "The war in Ukraine and the COVID-19 pandemic have highlighted the vulnerability of global supply chains. As a result, many companies are looking to regionalize, but this is reducing the volumes produced per site." One in four production facilities may not be operating at efficient capacity in the next three years, according to the survey. At the same time, cost pressure is one of the biggest concerns for almost half of the companies.
Production as a Service as a possible solution
Production as a Service (PaaS) offers a possible answer to the challenges. Dr. Phillipp Hypko, Managing Director of FlexFactory and co-author of the study, sees great potential for manufacturing in PaaS, which is already established in other industries: "In the IT sector, for example, companies today often no longer buy software, but take out a subscription and pay according to use. The basic idea is also transferable to manufacturing." In PaaS, for example, several companies share highly flexible factories owned by external investors. There, a large number of products or variants can be efficiently manufactured as needed and in the desired quantity.
Another advantage is that by decoupling the use of the production lines from ownership, the user's expenses are shifted from high fixed costs to variable operating costs. This means that the external investor assumes part of the risk, for example in the event of technical breakdowns or low capacity utilization. In return, the investor is paid a risk premium by the user and, if necessary, guaranteed a certain purchase quantity. "If both parties find the right balance of collateral and risk, then the supply chain is much more efficient and resilient," says Prof. Dr. Arnd Huchzermeier, holder of the Chair of Production Management at WHU and co-author of the study.
Industries that produce specialized products in small quantities with high variance and require asset-intensive production are particularly well suited for PaaS, such as premium vehicles, injection-molded products, or packaging for the pharmaceutical industry. Depending on the industry sector, up to 15 percent of production sites could be set up as PaaS models. This corresponds to a global market potential of up to 900 billion US dollars annually in manufacturing value-add. In Germany, the potential is around 80 billion US dollars.
German industry less open than global average
Almost two-thirds of the executives surveyed worldwide can imagine sharing existing production sites with other companies. In the case of a new plant, as many as 85 percent would be willing to do so. Just under a quarter are considering new financing concepts to fund required investments in machines and equipment through external investors. In Germany, 60 percent of respondents would share existing facilities within their group of companies or externally. In the case of new production facilities, however, approval in Germany is 17 percentage points below the global average at 68 percent. German companies are also still reluctant to finance their productions through new PaaS concepts. So far, one in five companies would have production facilities financed by external investors. "However, the quest for more resilience and financial security should motivate German companies to consider PaaS concepts more in the next few years," Kuhlmann said.
Globally, 52 percent of respondents cited technical reasons as the biggest challenges to PaaS, while 45 percent feared the difficulty of finding suitable sharing partners. For 40 percent, intellectual property protection is a hurdle. However, Kuhlmann sees solutions to all concerns: "Technical problems can be solved, for example, by using IoT applications and digital twins. Suitable sharing partners can be found if the operator of the flexible factory defines binding quality standards," he explains. The protection of intellectual property established in existing supplier relationships could also be transferred to PaaS models. "Innovative industrial companies that rethink their manufacturing, financing and business models can use Production as a Service to master today's most pressing challenges," Kuhlmann concludes.
The study is available for download
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.
Find out more:
About FlexFactory by MHP | Munich Re | Porsche
FlexFactory is a joint venture of MHP, Munich Re, and Porsche that offers multiple services by bundling expertise in digital value chain, flexible production, and financial transformation. The company serves as a business enabler and incubator to set up a highly flexible factory owned by third-party investors and shared by multiple users. This is what we call Production as a Service (PaaS). PaaS comes with its own complexity and challenges. FlexFactory thereby acts as an orchestrator and trusted advisor that connects the necessary stakeholders and designs a business model which is valuable for all parties. Based on a highly flexible production and viable business model, our offering further transforms a new factory into an investable asset.
Find out more:
About WHU - Otto Beisheim School of Management
The Chair of Production Management is a department at WHU – Otto Beisheim School of Management. Its main research areas include supply chain risk management and mixed-model assembly lines using variable takt. In 1996, the Chair cofounded with INSEAD the Industrial Excellence Award. This renowned competition annually rewards top-down and bottom-up innovations in digital enterprise strategy in a wide variety of industries. It is supported by 15 leading business schools in 12 European countries. The Chair also cosponsors with the state of Rhineland-Palatinate an award for corporate digital responsibility.
Find out more: