Is your workplace home to its own ‘hidden factory’? In many complex and interdependent workflows between OEMs and tier suppliers, a proportion of work is conducted via a formal process. But as you will know, plenty of work is also conducted through informal channels, workarounds and through personal relationships. This second category of informal activity represents the ‘hidden factory’ in your workplace.

What is a ‘hidden factory’?

A ‘hidden factory’ is a way of describing the informal and unofficial processes that take place between OEMs and tier suppliers that have complex and inter-dependent workflows. While approved working practices define how processes should systematically flow between individuals and organisations, often routine practice, personal relationships and ‘workarounds’ mean that a significant degree of work is conducted outside of these formal policies and processes.

This unseen work that is invisible to formal processes constitutes the ‘hidden factory’. By its very nature, it is difficult to assess precisely how much work falls into the category of ‘hidden factory’ activity, but enforced changes caused by Covid-19 have revealed more informal work processes that most organisations believed to be the case.

What does ‘hidden factory’ cost mean?

Hidden factories can be caused by either a reduction in quality or delivery within an operation that is allowed to continue (often as it isn’t visible) or by wasted output.

Wasted output refers to processes that are often not adhered to, routes to reach an end product or goal are not followed, creating a large amount of ‘work-around’. Huge amounts of time and therefore costs are buried with hidden factories, and this waste equals untapped capacity – what could be delivered if hidden factories were eliminated.

Companies are either not aware of this, and if they are then either don’t have an understanding of this cost or the ability or willingness to deal with it.

As this wasted output is ‘hidden’ and the cost not visible, a lot of companies don’t do anything about this apart from continuing to waste this output resulting in being either uncompetitive or not sufficiently profitable.

Inside the Hidden Factory

What does a Hidden factory look like? Well, it's invisible but it works like this. Imagine we have a supplier who has an established professional relationship with an engineer at an OEM. Because of this, the interchange between the two becomes informal and data is shared directly without reference to other key members of the team – and, more importantly, bypassing the central hubs (most OEMs use PLM or Product Lifecycle Management tools) that keep a project on brief.

Imagine those email conversations multiplied across thousands of departments and OEMs. That is the hidden factory – an informal workflow where data can be lost, no audit trail exists and project progression cannot be measured. This is what is indirectly responsible for slowing down development and increasing cost.

Having worked with leading OEMs and many tier suppliers for more than two decades, we’ve always been anecdotally aware of the existence of ‘hidden factories’. But we had a sense that something was changing rapidly when the Covid-19 pandemic hit. Several thousand OEM engineers were put on furlough…and instantly there was a massive breakdown in the hidden factory communications chain, with suppliers losing their key contacts overnight. While both sides lost a whole raft of data and project progression.

Stay tuned for part two of our Hidden Factories blog series, where we will be discussing the impact of COVID on Hidden Factories and the results from our research – the results are illuminating!