The proximity of manufacturing increases the rate of R&D efficiencies

March 15, 2017
The proximity of manufacturing increases the rate of R&D efficiencies
3D printer. Credit: Aalto University

According to a recent research, companies should always manufacture technologically demanding products close to the product development. On the other hand, the more standardised the production is, the further it can be moved, even on short notice. Thus, there are more factors than just price that affect the choice of the manufacturing location; often the choice is about the interdependence of the company's operations.

'If the proximity of the market or product development are important aspects for a company, the are most likely manufactured in the company's home country, or at least very close to it', estimates Postdoctoral Researcher Timo Seppälä from Aalto University and The Research Institute of the Finnish Economy, Etla.

The research analysed the choice of manufacturing location from the viewpoints of , interdependence of operations and their proximity.

Standard products can generally be manufactured almost anywhere. Each season's production can be auctioned to the contract manufacturer with the most affordable price.

'Grocery stores' own brands are good examples of consumer products that are very often produced with the auction model, and for which the price is really the only meaningful factor', adds Seppälä.

The production models of Helkama and Ponsse

The research analysed the Finnish bicycle producer Helkama's choice of manufacturing country. The classic model Kaunotar was manufactured in the Baltic countries for a year, then the production was moved to Indonesia for a partner, with which Helkama collaborated for several years. The offered colour options or other types of demand's fast fluctuations are not very important factors for Kaunotar, unlike for another popular Helkama model, Jopo. Therefore, the manufacturing location of the standardised product could be changed quickly.

'About half of Helkama's production takes place abroad. We don't invite producers for tender annually. Instead, we search for partners who meet our demands for both quality and security of supply. We manufacture special bicycles and all products in the Jopo-family domestically. This way we can flexibly react to the demand for different colour options for Jopo products with our own domestic production', tells Satu Helkama, CEO of the Helkama Emotor Oy.

Forest machine producer Ponsse's technologies and use of digital technology are so advanced, that it is reasonable to place both the manufacturing and the product testing under the same roof in Vieremä. Therefore, Ponsse has a technological edge over its competitors. For the same reason, the company's cycle is also remarkably faster than that of companies which have decentralised their production. Ponsse's centralised operations model, which is similar to Helkama's Jopo production, keeps most of the product's added value in Finland.

'Many companies choose to manufacture their products in China, because everything is so affordable there. President Trump's policy, on the other hand, aims at returning all production back to the United States. In the light of this research, however, things aren't always so simple', contemplates Seppälä.

Explore further: Manufacturing system may stem cost effects

More information: Mikko Ketokivi et al. Why locate manufacturing in a high-cost country? A case study of 35 production location decisions, Journal of Operations Management (2017). DOI: 10.1016/j.jom.2016.12.005

Related Stories

Manufacturing system may stem cost effects

March 7, 2017

High costs of production and labor, combined with high rates of technological change, often cause manufacturers in developed countries to take their production offshore to lower-cost sources.

Crowdsourcing provides remarkable benefits for companies

August 16, 2016

According to a new study from the University of Vaasa "Generic Crowdsourcing Model for Holistic Innovation Management" organizations should be more customer focused in innovation production. The study indicates that crowdsourcing ...

Keeping the supply chain moving smoothly

January 10, 2012

Too much, or... too little! Many companies need to work on improving their supply chains. EPFL researchers have analyzed the best strategies and proven that good supply chain coordination can result in significant savings.

Consumers care about carbon footprint

February 26, 2016

How much do consumers care about the carbon footprint of the products they buy? Would they care more if the goods were labeled with emissions data? Does it matter at which stage in the lifecycle of a product the carbon is ...

Intelligent machines for tomorrow's factory

June 5, 2014

Mass production of industrial goods, such as furniture, clothing or ball pens, is inexpensive. In the future, even small series of individualized products might be manufactured rapidly and efficiently by means of intelligent ...

Recommended for you

Wireless power could enable ingestible electronics

April 27, 2017

Researchers at MIT, Brigham and Women's Hospital, and the Charles Stark Draper Laboratory have devised a way to wirelessly power small electronic devices that can linger in the digestive tract indefinitely after being swallowed. ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.