Will the “manufacturer” of the future actually produce anything? Or will they simply be design and branding companies, perhaps heavy on supply chain synchronization skills? Will the new model really be for consumer facing companies to simply capture the margin at the consumer level without the heavy capital, fixed costs, and inflexibility burdens of actual plant and equipment?

I’m hardly the first to ask this question. The notion first gained widespread attention both with the growing success of Dell and in the first round of internet mania in the late 1990s, with the promise of using the web to support virtualization of key business processes. That thread cooled a bit during the dot com bust, even as it seemed nearly every company in the high tech and electronics industries moved to a combination of offshoring and contract manufacturing for any production within its home country.

The offshoring/outsourcing thrust has since continued to gain momentum throughout the manufacturing sector, with some exceptions like food and many consumer package goods. What especially caught my eye though were the recently announced plans of Chrysler for production of its Jeep Wrangler series in Toledo, OH. After contentious negotiations with the UAW, Chrysler struck an agreement by which it will be responsible only for final assembly of the Jeep – suppliers will literally pay for and operate three linked manufacturing plants (body-welding, paint shop, and chassis assembly) that will feed via conveyors the main trim and assembly plant that Chrysler will continue to own and operate. As Forbes magazine recently put it: ”Chrysler will outsource 60% of the production responsibility…to its suppliers. Those companies will have to put up the capital for machinery and pay the workers. By enlisting suppliers as partners, Chrysler will shed one-third of the $900 million capital investment for the new Jeep factory.”

So what’s going on? Obviously, brutal global price and cost competition is forcing companies to go where component costs are cheaper, which today often means offshore sources. What’s more, factories require substantial investment of capital, and represent huge fixed costs that are tough to manage when demand slows or market requirements change. We seem to be in a fundamental period of change that if you have brand equity, the manufacturing process, once the primary focus of company operations, may now well be a commodity function.

Just look at the evidence. Soft goods industry firms (Nike, Levi’s, Sara Lee) have largely exited the direct manufacturing arena. Dell dominates the computer industry despite spending a much lower percent of revenues of R&D spending than it’s competitors, relying on the R&D of suppliers. Contract manufacturing continues to grow its share in many industries – BMW and Porsche are among those auto companies that have outsourced the entire production of a model to contractors.

In Chrysler’s case, Forbes, notes, “The idea is based on the premise that when suppliers are left to themselves, they will design, build and operate a factory more cheaply than their customers.”

Last year, when I reviewed the book “Adapt or Die” by SAP executive Claus Heinrich, I was modestly critical of some portions of the book that implied that the only path to success was to outsource everything, and in the timing of the revolution Heinrich predicted. I’m having some second thoughts.

I also think this cost and capital shedding trend will not be confined to manufacturing. Wal-Mart and other retailers might smartly ask why they should tie up money in inventory that their suppliers could just as well own until it’s scanned at point of sale.

Two points, and one question: (1) More than ever, the skills in supply chain will be about synchronizing complex, virtualized supply chain processes. Planning and execution functions will take on vastly different roles. (2) Companies better clearly understand where their supply chain model is going – will you be a leader of your supply chain, or at least parts of it, or are you going to be a cog in someone else’s? Will you make or buy? (3) As companies become heavily dependent on suppliers and outsourcing, will we ever see a reverse in the trend by some companies to gain competitive advantage? Can you ever become a manufacturer again?

I can send you a copy of the Forbes article on Chrysler’s new plan for Jeep production upon request.

Is the model in most industries for the successful “manufacturing” company of the near future, to not actually produce anything themselves? Will we ever see a reversal of the trend? How do you think this will change the practice of supply chain management? 

Let us know your thoughts.