new industrialisation in russia and the third industrial ... · client’s project, and demand for...

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New industrialisation in Russia and the third industrial revolution

Aleksandr Idrisov and Mikhail Grigoriev 27 September 2013

© Strategy Partners Group | Конфиденциально

Traditional myths about machine-building:

2


The giant, dirty, loud and dangerous factory, with thousands of workers

The only competition is between products – the most important aspect of business is R&D of a particular product and its entry into mass production

Industrial manufacturing in Russia will never be able to compete with China

The global market is shared between large-scale international players and size / scope plays a key role


The sector is changing rapidly – the third industrial revolution is happening before our eyes

3


Third Industrial RevolutionSecond Industrial Revolution

– invention of the conveyor – birth of mass production

First Industrial Revolution– the change from manual labour

to machines

18th

Century

Start of 20th

CenturyStart of 21st

Century

Key factors:

Changes to dynamics, character and structure of

demand

Appearance of new technologies

Changes to players’ business models

1 2

3


The dynamics, structure and character of demand for industrial products has changed drastically:

4

Changes to the dynamics, structure and character of demand

1 – на примере потребления металлообрабатывающего оборудования в миреИсточники: The economist, открытые источники, Ассоциация «Станкоинструмент», Gardners Publications, аналитика Strategy Partners

Key changes to demand: Examples:

Volatility of demand – demand will never again be stable

Geographical changes – demand is moving to emerging markets in South-East Asia

Requirements for speed – consumers want to constantly receive new products

From mass production to mass customisation – consumers want a ready-made product that is built to their individual specifications

Crowd sourcing – today’s consumer is not only a source of demand, but also of innovations

The small American design studio Quirky, which owns several 3D printers, has made a business from turning other peoples’ ideas into products using the social network Facebook

Over the last year the company Shapeways has printed on a 3D printer 750,000 customised products for a client’s project, and demand for their products continues to grow

Demand for machine-building products is extremely sensitive to economic cycles. During the crisis of 2008 machine-building was one of the sectors that suffered the most: demand fell by 24%1

In 2010 half a million copies of the first edition of the i-Pad were sold within the first four days of its release. When the third edition was released in 2012, three million copies were sold over the same period


New technologies are being introduced…

5

The appearance of new technologies

1 – газотурбинные установки 2 - в когенерационном цикле (комбинированная выработка тепловой и электрической энергии )Источники: The economist, ОАО «Пермский Моторный Завод», открытые источники, аналитика Strategy Partners

3D-printing – is the industrial use of 3D printers

New materials – composite materials and nanotechnologies open up entirely new opportunities for heavy industry

Automation and digitalisation ofmanufacturing – fully robotised production

Energy efficiency and ecological concerns – technologies that drastically reduce energy usage and emissions

Key new technologies Examples

The company Lockheed printed a Polecat scout plane on a 3-D printer

Over the last 12 years, thanks to automated processes, the Nissan plant in Great Britain has increased its production by 77%, while expanding its staff by only 20%.

Airbus and Boeing are using carbon fibres in their production of aeroplane parts. They are as strong as steel but twice as light. Within10 years composite materials will be used in 30% of aeroplane parts

GE has developed a new technology ‘FlexEfficiency’ for the world’s first combined cycle power plant that uses renewable sources of energy, allowing for additional energy to be used without increasing the volume of hazardous emissions


… which completely change the machine-building industry

6

The appearance of new technologies

Источники: The economist, открытые источники, аналитика Strategy Partners

Manufacturing technologies

New materials

Automation and digitalisation of production

Energy efficiency and ecological concerns

Key new technologies Changes to the industry

Less money is now spent on human labour, but the need for qualified personnel has become greater: “new” specialists are in great demandWhen choosing a production site, demand is more important than cost – manufacturing is returning to those countries where production costs are high, but where there is a large domestic marketVolume has become less important – size is no longer and advantageSmall and mid-sized businesses are behind the main development dynamics in modern machine-buildingCrowd sourcing can produce new ideasA new generation of world-class managers is required, to manage IT resources and trustworthy global supply chains


New demand and technologies have led to changes in the competitive environment and players’ business models

7

Changes to the competitive environment and players’ business models

Источники: The economist, открытые источники, аналитика Strategy Partners 1 – химическая компания, производит продукцию в том числе для машиностроения

Key changes Examples

From one “super-centre” to global company networks – mutual penetration and effective management of a global network of suppliers are becoming crucial to a company’s success

Size doesn’t matter– small companies have a chance; completely new players are appearing

Clusters are playing a larger role -competition in industrial sectors focusses on regional clusters

Companies’ dynamicity is becoming a key factor – the speed of bringing an idea to the market; flexibility to changes in demand

The Marketing Director of the company Autodeskin Silicon Valley: “Maybe manufacturing in the future will be me sitting at home on my computer”

In China there are over 100 high-tech clusters, which produce about 3.5% of the country’s GDP

Sika AG1 believes that local presence and proximity to consumers is a key factor in a company’s success, so has120 production and trading companies in 76 countries

Cloud technologies on the iPad were on sale just four days after Apple presented this new device in 2010


Russian machine-building is currently extremely uncompetitive, and unable to challenge for leadership on the global market

8

Conclusions for Russian machine-building companies

1Авиационная продукция - включает гражданский и военный сегменты самолетостроения, вертолётостроения, двигателестроения, агрегатостроения и приборостроения, 2011 год2 Данные по России указаны за 2011 годИсточники: Росстат, Eurostat, DECISION, аналитика Strategy Partners

6246

155

388412

650

251313

470

312

784

4836 times9 times

4 times

ElectronicsTransport (not cars)

Automotive manufacturin

g

USARussia2

FranceGermany

Workforce productivity, Thousand dollars per worker, 2010

Russia’s share of the global manufacturing market, 2010, % of billion roubles.

97,8% 94,8% 99,6%

Radio-electronics

0,4%

Aviation manufacturin

g1

5,2%

Automotive manufacturin

g

2,2%

Russia’s share

Russia lags behind leading countries in terms of workforce productivity

Russia’s share of the global manufacturing market is extremely small


Russian machine-building can only become more competitive with a change of business models and corresponding changes to government policy

9


A change in machine-building companies’ business models

Changes to government policy on development of the machine-

building industry

Improving the competitiveness of Russian machine-

building

Distinction between the business models of integrators and component suppliersThe growing importance of the operational modelGlobalisation of the supply systemThe growing role of services and after-sale maintenanceThe growing importance of streamlined operations

Stimulating the development of Russian suppliersStimulating domestic demand and supporting exportsSupport of WTO conditionsIncreasing access to long-term financingChanges in policies for the defence industry:― Price formation at 20+1%― SDO: long-term contracts, imported parts,

changes to construction documentation, committee for changes to MTCs

Changes to the system for staff training


In global machine-building the differences between the business models of OEMs and component suppliers are becoming more pronounced

10


Источники: интервью с экспертами, Strategy Partners

Элементы

и

компоненты

Элементы

и


Элементы

и


Элементы

и


Финальный

интегратор

(O

EM

)

Узлы

Узлы

Узлы

Модули

Модули

3Lev

el 3

-4O

EM

Leve

l 2Le

vel 1

(OE

M)

Узлы

Узлы

Stricter demands on deadlines,

characteristics and prices

Risk transfer, investments

(including into design)

Передача ценового

давления от интеграторов на поставщиков

модулей, узлов, элементов и компонентов,

сырья и материалов

Past Present

Узлы

Component manufacturers

Субинтеграторы

Volatility of demandNecessity to maintain

production volumes of simple components

Growth in investments in R&D and manufacturing of

sophisticated components


The number of suppliers with which an integrator works with is becoming smaller, but the importance of the suppliers’ role is growing

11


1 оценочные данныеИсточник: AT-Kearney, данные компаний, аналитика Strategy Partners

The number of suppliers is decreasing But their importance is growing with their share in products’ added value

Suppliers

OEM (Boeing)

B-787

30%

B-737

50-65%

Breakdown of added value, %1

Aircraft manufacturing

OEM

20101990

Suppliers

15-20%40%

Automotive manufacturing

50

1 000

B-737 B-787

20 раз

240

700

≈3 раза

Ford FocusFord Escort

Number of Level 1 suppliers, %1

Aircraft manufacturing

Automotive manufacturing


The fundamental differences between the business models of integrators and suppliers requires Russian machine-building companies to choose their destination model


Developments, final adjustments, maintenance service Component development and production

Technical characteristicsPriceMaintenance serviceReputation and brand

Reliable deliveries – quality of systems and processes; reputationPreparedness to invest in the development process (risk sharing)Price

Correct choice of target segmentR&DCompetent management of projects for integration, and creation of global supply chains, alliances and partnershipsQuality of servicesReputation and brand

VolumeWorld-class production systemTechnological leadership (R&D)

12

Supplier (component manufacturer)Process stages

Value to consumers

Key factors in success

Intergrator (OEM)

Источник: Strategy Partners


Changes to Russian machine-building companies’ business models will require optimisation of their operational model

13


The optimal solution is always a combination of these toolsИсточник: Strategy Partners

The necessity of developing competencies while managing

sophisticated supply chainsThe need to harmonise production

capacities with suppliersThe need to satisfy volatile demand

while maintaining production facilities’ effectiveness

Capacities

Preliminary planning of resource volumes during quiet periods, to avoid problems in busy periodsChanges to delivery terms

Main tools for optimising an operational

model

Logistics management

Outsourcing

Expansion or optimisation of existing capacities with the aim of satisfying demand at any time


Russian machine-building companies must analyse whether it is beneficial to outsource a part of their production (make or buy)

14



Is the production stage critical for the enterprise’s non-manipulability?

Is cost fluctuation critical during purchasing?

Can a company speed up its processes, decrease reaction times, and add flexibility?

Are there alternative suppliers on the market?

Can the corporate culture, management style and internal politics adapt to the new production model?

If the answer to all these questions is yes, then a company has NO REASON TO REFUSE TO OUTSOURCE

да

да

да

да

да


They must also find suppliers all over the world: the supply chain is becoming global

15


Источники: данные компаний, Airframer, аналитика Strategy Partners

■ Двигатель ■ Система эвакуации и безопасности

■ Боевая система ■ Топливная система

■ Крылья■ Двери отсека вооружения,секции фюзеляжа

■ Авионика, радары

■ Система наведения

Салон ■ Интерьер кабины■ Кожух коробки передач

■ Балка хвостового винта■ Хвостовой стабилизатор

Кабина экипажа

Топливная система

■ Тормозная система■ Колеса

Двигатель

Гидравлическая система

Suppliers of parts for the fighter plane F-35 Suppliers of parts for the helicopter Sikorsky S-92

The leading machine-building manufacturers actively engage in their work suppliers from all over the world

For example:Advanced logisticsWorking with customs authorities in different countriesPossible certification requirements

Cooperation with foreign suppliers demands specific competencies:


Russian machine-building companies must take steps to strengthen their positions in the services segment

16


1 Оценочные данныеИсточники: данные компаний, аналитика Strategy Partners

Russian machine-builders make comparatively low profits from servicing

Repairs

Foreign companies

10%

Russian companies

1%New aircraft

Share of after-sales service1

Of billion dollars., 2010Civil aviation

Repairs and maintenance

Foreign companies

60%

Russian companies

30%New engines

Manufacturing of motors and engines

The leading companies are widening the scope of services that they provide to their clients

Engineering

Consultation services

Life cycle management

Repairs and technical maintenance

Delivery of spare parts

Staff training

Modernisation

Traditional servicing and repairs by machine-building companies

New services from machine-building companies

IT services

……

……


We can define the following key steps to transforming machine-building companies in order to make them more competitive:

17



Reforming product portfolios1 Optimising the production system2 Operational effectiveness and

optimisation3

Establish the most attractive products in terms of profitability and growth potentialTurn down products with no potential

Conduct analysis of “Make or buy?”Configure a new production system

Modernise key processesCreate initiatives for increasing operational effectiveness

Act

ion

Product 2

Product 3

Product 4

Product 5

Gro

wth

pot

entia

l

Product 1

Profitability

Product 6

Product 9

Product 8

Product 7

Unit 1

Unit 2

Unit 5

Unit 4Unit 3

External supplier

Unit 1

Unit 2

Unit 5

Unit 3 Цех 4

Unit 1+2 Unit 6

Оптимизация

External supplier

Unit 1

Unit 2

Unit 5

Unit 3 Цех 4

Unit 1+2 Unit 6

modernisationliquidation

new industrialisation in russia and the third industrial ... · client’s project, and demand for...

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