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Ripping the Roof Off the Factory

These forces have also ripped the roof off the factory. Since Henry Ford set up his famous assembly line near Detroit, the most efficient way to run a factory traditionally was to put everything under one roof. Then companies such as Toyota opened the front doors of the factory and put their suppliers just outside the gates. This created Toyota City. The suppliers were still geographically colocated on the same campus, but they were separate companies outside the factory. Companies such as Dell then engaged in global sourcing, purchasing computer chips and other technology from Asia.

As global logistics and coordination have improved, these suppliers can now be virtually anywhere. They do not have to be right outside the factory gates. In fact, "right outside" the factory gates now means anywhere on the planet. Boeing's 777 jet is assembled from three million parts from more than 900 suppliers in 17 countries around the world.7 As Figure 1-1 shows, Boeing primarily produces the wings and fuselage, and assembles the aircraft (as shown in black in the figure). Most of the plane's components are outsourced around the globe. For its 787, the company is also outsourcing systems for collision avoidance and landing in zero visibility to Indian engineers at HCL Technologies outside New Delhi. This not only allows the company to find best-in-class providers for each component, but it also gives each of these nations a vested interest in the success of the aircraft. This, of course, helps in spreading risk and making global sales.

Figure 1-1

Figure 1-1 Boeing's global supply chain

Companies realized that the supply chain could be broken up and spread across the globe. They not only ripped the doors off the factory, but they ripped the roof off as well. They could do more than source products or components from other parts of the world. They could put stages of the supply chain in different parts of the world and coordinate them centrally. This meant breaking up the processes of the supply chain, farming them out to different companies in different locations, and then managing these dispersed processes. This is what John Hagel and John Seely Brown have referred to as "process orchestration."8 A shirt could be designed in New York, be cut and assembled in Bangladesh with cotton woven in China, and be shipped to consumers in the United States. This was often the best way to optimize the overall supply chain to deliver the right product to the right place at the right time at the right price.

The modularization of the manufacturing process meant that different parts of the manufacturing process could be handled in pieces and coordinated across factories. Henry Ford's factory was built on the principle of division of labor. The new principle was dispersion of labor. Ford's factory was based on large operations that offered economies of scale, while orchestration was based on assembling armies of small and medium business that could act as one.

Dispersed manufacturing came to Hong Kong in the 1970s, when the rise of other Asian tigers made Hong Kong a less competitive location for manufacturing. For example, the transistor radio business migrated to Taiwan and Korea. At the same time, the reopening of China in 1979 after the death of Mao Zedong and the end of the "bamboo curtain" led to the creation of special economic zones in the south. Hong Kong companies could now send work to low-cost factories on the Chinese mainland for the labor-intensive parts of production. To compete with Taiwan, Hong Kong transistor radio manufacturers packed parts for radios into small kits, shipped them to the mainland for low-cost assembly, and returned the finished goods to Hong Kong for testing and inspection.

Similarly, 10-inch plastic molded dolls (such as Mattel's Barbie and Hasbro's GI Joe) became too expensive to make entirely in Hong Kong. The parts were molded in Hong Kong, whose factories had expertise in molding; shipped to the Chinese mainland, where they were assembled, painted, and clothed; and then were shipped back to Hong Kong for packaging. Eventually, as Chinese factories gained skills, the plastic molding and packaging were moved out of Hong Kong to the mainland.

Dispersed manufacturing is different from global sourcing. There have always been a set of suppliers that fed various inputs into the factory. Some of these suppliers, such as Johnson Controls, which makes entire interior assemblies for automobiles, have become very sophisticated and handle large pieces of the final assembly. But dispersed manufacturing is not just sourcing inputs, but rather spreading different parts of the manufacturing process around the world. For example, using global sourcing, doll clothing might have been bought from the Chinese mainland for dolls in Hong Kong. But the new model was not merely to import production inputs, but to move stages of the manufacturing process to the mainland. In effect, the factory started in Hong Kong, where the molding was completed; went to the Chinese mainland for assembly, painting, and clothing in different factories there; and then returned to Hong Kong for final packaging and export. No single factory was used; all of these partners acting together added up to a factory. This dispersed manufacturing requires designing the overall supply chain, optimizing it, and managing the processes across the chain. The new dispersed enterprise required a new skill: network orchestration.

When the systems were in place to move parts of the process to China, the process could be moved to almost anywhere in the world. The old under-one-roof factory was broken wide open. The world was the factory.

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