A Message from the President
In an opinion piece published in Le Monde Économie on 28–29 January 2017, Xavier Dennery explores the impact of offshoring in the service sector and the role of digital transformation in reshaping business models.
​Digital Disruption as a Response to Offshoring in the Service Sector
The offshoring of consumer goods production has led to the decline of industrial France over the past 30 years; we have now entered a second phase, which is currently affecting the service sector: banking, IT services, professional services, certification, and laboratories.
From Manufacturing to Services: Increasing Pressure on Processes
Consumer goods production has been almost entirely outsourced
The production of the most common consumer goods—such as textiles, clothing, toys, electrical and electronic products, and more—has been almost entirely outsourced (televisions are no longer manufactured in France) to countries with ever-lower costs: China, Vietnam, Cambodia, Ethiopia, and others.
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In the service sector, the multitude of interactions between the company and its customers on the one hand, and between the company’s various departments on the other, grow exponentially with business activity—simply due to the cumulative effect—and this exponential burden weighs heavily on administrative processes (customer support, order processing, planning, regulatory compliance, etc.).
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Unable to manage these processes—whose labor costs are skyrocketing—managers are tempted to cut them back drastically and simplistically, and often—ultimately—to outsource them at the expense of the customer and service quality. Is this inevitable? No!
From the Automotive Industry to the Transformation of Service Models
When Trump tweets urging Ford not to move production to Mexico, it’s also a sign that one very iconic consumer good has held its ground: the automobile. In France, 1.5 million vehicles are still produced each year, compared to 2.3 million purchased annually. Why does France still have an automotive manufacturing industry? It’s because 30 years ago, automakers were able to meet consumers’ ultimate expectations by cutting production times and costs by a factor of 2 to 3 while improving quality.
Real-Time Control of Production Flows
The answer came from a highly refined mastery of the production process: real-time management of the component flow driven by consumer demand (Toyota) replaced assembly-line manufacturing of components pushed from one inventory to another (Ford). It is the consumer’s choice (vehicle type, color, options) that drives—in real time—the entire supply chain and ensures quality at every stage.
The Digital Revolution and the Data Supply Chain
It was the simultaneous advent of the microcomputer and CAPM (Computer-Aided Production Management, the predecessor of ERP systems) that made it possible to implement this “supply chain” concept, which defines—starting from the finished product—all the basic components, quantities, and steps required to produce a given vehicle model; and “pulls” them by adapting in real time to unforeseen circumstances and an ever-increasing variety of customer choices.
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Ultimately, despite fierce competition and increasingly demanding consumers, the reduction of production lead times by a factor of 2 to 3—and thus also of production costs with a constant workforce—has made it possible to keep the bulk of automotive production in the West, with outsourced production intended for local emerging markets (China, Brazil, etc.).
The Data Supply Chain and the Digital Revolution in Services
While the automotive industry sells cars, the service industry sells information: data, reports, analysis results, certificates, solutions, and more. Thus, the “data supply chain” can replace the automotive industry’s physical supply chain.
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And it is the digital revolution on smartphones that enables data flows within the data supply chain: easier data entry by customers themselves, the elimination of paper, the shift from servers to the cloud, free micro-apps, the setup of databases in a matter of hours, the rental of “off-the-shelf” agile tools, and more.
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Thus, the data supply chain and the digital revolution make it possible to deliver the right information—correct the first time—to the right person at the right time; reduce lead times, production costs, and quality defects by a factor of 2 to 3—the ultimate expectations of service consumers; and provide a solution to the exponential interaction costs that lead to offshoring.
Digital Disruption as a Catalyst for New Business Models
While this transformation can lead to massive gains in market share, the digital transformation is, above all, about real-time interaction between a company and its customers—which enables the development of new business models and new sources of revenue, ultimately increasing employment rather than reducing it.
A collective goal within reach
The good news is that, for example, in fields such as certification, inspection, or laboratory testing, it is possible to reduce the time required to deliver results by a factor of 2 to 3, and in doing so—with a constant production workforce—to lower production costs; to improve the quality of services and employees’ quality of life; and avoid offshoring entire segments of administrative—and sometimes operational—processes.
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This requires a great deal of “non-offshorable” intelligence, as well as the determination not to succumb to passing trends that equate offshoring with sound management.
Xavier DENNERY