Production as a Service (PaaS) & “Flexible Factories” Explained (+Stock Picks!)
A relatively new concept is set to transform factory production as we know it!
It’s time we get familiar with flexible factories. Just like many of us are subscribed to Netflix and Spotify, manufacturers from automotive to health care may soon subscribe to a flexible, or “flex,” factory model.
Several industries want to onshore their production (produce more locally). And companies see factory sharing as a possible solution.
According to Boston Consulting Group (BCG), flex factories mean:
Instead of owning facilities that manufacture its products, a producer pays a usage fee to share a highly flexible factory with other companies. To make the arrangement financially attractive, third-party investors own the assets. In a nutshell, this is the concept called “Production as a Service” (PaaS).
I believe PaaS is a fascinating concept. That’s why I’ve researched and found three special companies that may benefit from the move to PaaS — and the flex factory revolution.
Annual investments in production assets for the PaaS model could reach $100 billion globally!
How PaaS & Flexible Factories Are Revamping Production Manufacturing
I’ve talked about Software as a Service (SaaS), which many companies are using to streamline expenses on software licensing, enhance their digital security and make their businesses more scalable on an IT level.
Production as a Service achieves the same thing — just on a manufacturing level. Take a look at this chart below for the breakdown of how PaaS works:
The Benefits of Production as a Service (PaaS)
- Increases productivity.
- Generates consistent revenue (even during volatile markets).
- Helps meet consumer demand.
- Increases automation processes.
- Ultimately saves time, money and company resources.
Flexible factories, using the PaaS system of production manufacturing, have been able to deliver products faster and become more efficient. This is why more companies (in and outside the U.S.) are hopping on the flex bandwagon.
And Who Is Using Flexible Factories?
A 2022 survey by BCG asked 1,513 global companies if they were willing to use flex factories.
Forty-three percent of study participants said they plan to increase their global supply chain network resilience by reshoring.
So these companies are deciding to return their manufacturing plants and factories closer to home — within their country of origin — and “closer to their core markets.”
For example, Walmart has committed to spend an additional $350 billion through 2030 on items made, grown or assembled in the United States.
The study also found:
Producers need a new value proposition to meet rising consumer demand, especially among millennials, for highly customized products. Such demand is evident across industries and products ranging from cars to watches to cosmetics.
Producers recognize the need for more flexible production systems: 77% of study participants said that they plan to design their next production setup for greater flexibility so they can be more responsive to market demands.
But if you want to know what companies actually use the flex factory concept, here’s a big one: Porsche!
Porsche has developed a multiproduct, highly flexible production line for assembling car bodies’ frames. This operates with minimum changeover times.
In BCG’s words: “The company can reduce production cost per assembled part by up to 20%, depending on the mix of production projects.”
However, I will admit that PaaS is not perfect (yet). There are some challenges in making the system (and flexible factories) work.
- Technical/logistical difficulties.
- Finding the right companies to share production with one another.
- Safeguarding intellectual property.
But once the solutions are worked out for these issues, the annual investments in production assets for the PaaS model could reach approximately $70 billion to $100 billion globally!
Meanwhile, the annual manufacturing value added by PaaS setups could reach approximately $720 billion to $900 billion!
That’s why I found three promising companies that stand to profit from the potential growth of flex factory PaaS.
3 Stock Picks for the Flex Factory Rise
Rockwell Automation (NYSE: ROK) is a global leader in digital transformation and industrial automation.
This past June, at ROKLive 2022 in Orlando, Florida, the company revealed a special announcement.
Cytiva, a life sciences and therapeutics developer/manufacturer, built its modular and integrated Flex Factory system on Rockwell Automation’s solutions.
Cytiva can now quickly ramp up its therapeutics production, develop and produce new medicines, and then optimize production for both.
(From Rockwell Automation.)
In fact, Cytiva recently achieved a 10% increase in throughput and employee efficiency. That’s thanks to integrating Rockwell Automation’s digital technologies and scalable automation.
3D Systems (NYSE: DDD) develops, manufactures and markets 3D devices. This includes:
- Printers and scanners.
- Print materials.
- Haptic devices.
- Virtual surgical simulators.
Their 3D printer, the DMP Flex 350, generates precise, quality parts from a broad range of metallic alloys.
This 3D printer can accelerate production while lowering costs — which is ideal for flex factory and PaaS products.
Finally, UiPath (NYSE: PATH) is a leading company in robotic process automation (RPA) software. This means it designs and develops RPA software to build, manage, run, engage, measure and govern automations across departments within a company.
Earlier this year, UiPath announced that it has become a builder sponsor of The Smart Factory @ Wichita, a new Industry 4.0 immersive experience center by Deloitte.
(And when I say “Industry 4.0,” that’s short for the Fourth Industrial Revolution.)
The 60,000 square-foot center is located on Wichita State University’s Innovation Campus.
Robotic Process Automation is a key component in the new age of manufacturing excellence. It will enable smart factories to scale processes from the factory floor to C-level decision making.
RPA removes the burden of mundane, repetitive work from people so that they can focus on dynamic, creative endeavors.
As a leader in enterprise RPA, UiPath brings extensive knowledge in automating processes for the greatest impact on business outcomes in their manufacturing operations. We are excited to collaborate with UiPath in the Smart Factory @ Wichita and help companies explore the art of the possible.
Industry 4.0 Is Coming to Production Manufacturing
Just like SaaS and RPA, flex factories and PaaS are markets to watch. They’re changing the way companies are structuring the production aspect of their businesses — from offshoring to reshoring.
Just so you know, 75% of managers surveyed said they want to make production more flexible. Meanwhile, 1-in-4 traditional factories will be underutilized in the next three years. But this just opens the door for production as a service.
PaaS was created to make building and delivering your products more efficient. And flex factories can further streamline that process for every company in the world.
If you want more hand-picked stock recommendations that could benefit from an industry 4.0 future, please check out my colleague Ian King’s Strategic Fortunes financial research service.
In Strategic Fortunes, you’ll get access to his exclusive four-step system for finding “tipping-point trends” in the most cutting-edge tech markets!
Until next time,
Director of Investment Research, Strategic Fortunes
Disclaimer: We will not track any stocks in Winning Investor Daily. We are just sharing our opinions, not advice. If you want access to the stocks in our model portfolio with tracking, updates and buy/sell guidance, please check out Strategic Fortunes.