Disposable Factories

Disposable Factories

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Disposable Factories

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    In This Article
    • What should a company do when the required capacity does not exist at the time, place, and price needed to capture a business opportunity?
    • Disposable factories can be the right choice in a number of situations.
    • The disposable factory approach is not so much a new paradigm as a lost—or at least underappreciated—art.

    Since the 1980s, we have invested billions of dollars in flexible automation. But what may need to be flexible is not our plants but our companies. Accept that premise and you may want to consider another alternative for your manufacturing network: inflexible and disposable manufacturing.

    As much by necessity as by design, many companies based in rapidly developing economies (RDEs) have learned to compete without access to the capital and technology that make flexible automation possible. Instead, they have adapted to market challenges by building short-lived, or disposable, plants—labor-intensive, dedicated facilities designed for temporary mass production. In doing so, they have developed the skills to optimize production within a low-cost, high-throughput paradigm. They have learned to manufacture with fixed, specific capacity rather than to adjust capacity to a range of products. They have learned to build only for the future they can see. In taking this approach, RDE competitors have engineered a low-risk means of jumping in and out of fast-moving markets. They have achieved flexibility through inflexibility.

    In process industries such as chemicals and pharmaceuticals, this approach means building plants that are hard-plumbed for a specific product and batch size. In machining and assembly, it means using dedicated tooling. In all these areas, it means sourcing equipment locally rather than importing complex automated systems. Plants built along these lines are simple to operate and maintain, and they don’t cost much if they are closed. While they remain in operation, they are extremely lean when it comes to capital.

    The cost differences between a disposable factory and one built for flexibility are dramatic. A facility designed along the disposable model can be built for as little as 20 to 30 percent of the cost of a U.S. plant designed for flexible automation. And, in addition to cutting capital investment, this approach is fast. With vastly reduced engineering content, modest financial risk, and simpler construction, it can slash the 24 to 36 months that approvals and construction would take in the United States or Europe to as little as 6 months from idea to output. And adopting this approach does not necessarily mean lowering quality standards or relaxing environmental and safety precautions. In fact, designing to meet such standards can be easier because disposable factories are simpler than factories built for flexibility and have few start-stop irregularities resulting from changeovers.

    Everything Old Is New Again

    The disposable factory approach is not so much a new paradigm as a lost—or at least underappreciated—art. While temporary mass production sounds at first like an oxymoron, the phenomenon has long been common in project-oriented settings. Examples include concrete plants adjacent to large engineering works, field messes on movie sets, and matériel factories in wartime. Temporary plants appear where there is great uncertainty coupled with large volumes of a product that must be manufactured quickly. Historically, these conditions were combined mainly in a handful of highrisk, project-based industries such as oil and gas, filmmaking, and aerospace.

    Today, given the pace of competition, more of the world operates on a wildcatting model more often. Production that would once have been conceived as a long-term proposition can now be seen as a short-term project: get in fast, turn on a dime, and move on to the next opportunity as tastes or technologies change. Outsourcing can be an option for meeting this need. But what should a company do when the required capacity does not exist at the time, place, and price needed to capture a business opportunity?

    How Disposable Factories Reduce Risks

    In engineering for flexible production, companies have developed inflexible cost structures. Operating plants with 30-year life cycles, they need to keep millions of dollars of equipment busy. Yes, flexible automation buys the option to shift the use of a plant. But it does so at significant expense—and even the most flexible plant can make only a limited range of products. Such a plant remains a substantial bet on the longevity of a product category and a company’s position in that category.

    Ironically, by designing simple, inflexible plants, RDE-based competitors can be more flexible in going to market. With little at risk, a company operating a disposable factory can move on, whereas a company with a “state of the art,” capital-intensive plant that becomes obsolete must either carry it or write it off—at much higher cost.

    The disposable factory strategy is therefore also a risk management strategy. In choosing among craft, batch, and mass modes of manufacturing, a company weighs the value of scale against the potential for market failure: How certain can we be that a particular volume of product X will find a market within time period Y? As the expected rate of profitable production rises, the answer shifts from small-scale, one-at-a-time craft production to batch production and ultimately to mass production. (See Exhibit 1.)

    This scaling is necessarily tempered by assessments of uncertainty. Mass production, for example, makes sense only if risks from capital exposure or market volatility are sufficiently low to justify longterm commitments to plants and tooling. Indeed, quantifying the dollar value of the disposable factory approach requires assessing the option value of the flexibility it provides, given the risks of both nearterm demand variability and long-term market viability. (See Exhibit 2, page 8.) Such factors are necessarily specific to a product, the alternative production methods available, and the potential costs of exiting the market. Under the right circumstances, building a throwaway plant can allow a company to compete profitably in markets in which it would otherwise lose.

    When Disposable Factories Make Sense

    Disposable factories can be the right choice in a number of situations:

    • When speed, risk, and the need for particular assets make alternatives uneconomical

    • When there is uncertainty because of a dynamic, competitive market or the potential for disruptive innovation

    • When high-throughput, low-changeover production can reduce costs

    • When a first-mover advantage can significantly affect gaining market share

    • When ramping up production and testing markets are necessary while permanent facilities are still on the drawing board

    • When the size of an opportunity is not clear

    There may be different levels of application: disposable work centers, setups, or plants. And disposable production may not work in all countries and under all conditions. But it is an option that companies from all countries will need to consider.

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