The coming together of Factory as a Service and nearshoring

12 October 2020 5 min. read

The emergence of Covid-19 has placed agility and digitisation in the spotlight throughout the supply chain, including the manufacturing process itself. spoke with Vasylyna Somok, Associate Director of InterTrade Consulting to understand why the concept of ‘Factory as a Service’ is gaining popularity in response to the coronavirus pandemic.

The growing use of technology in everyday life is changing the traditional way services are delivered inside large organisations across every sector of the economy – not least for factories. Expectations of employees and stakeholders are changing, expecting faster, all-encompassing services, while the outbreak of the coronavirus means that the rate at which manufacturing has digitalised has ramped up notably over 2020.

In order to get ahead of the increasingly digitally savvy competition, Factory as a Service, or FaaS, is rapidly growing in importance. Key features of FaaS include being highly industrialised; for example, implementing standard platforms, tools and procedures allowing for a rapid start-up of operations against new engagements; and leveraging repeatable and measurable processes allowing for improved quality, reliability and predictability of projects outcomes.

Factory as a Service is gaining popularity

Meanwhile, when combined with a robust project portfolio management process, FaaS also allows for high flexibility, along with the ability to scale-up or down to meet peaks and troughs in the demand of resources.

Vasylyna Somok has more than a decade of experience in the field, having helped several companies across France and Eastern Europe with adopting Industry 4.0 technologies and the Factory as a Service concept. Speaking on the agility of many factories during the Covid-19 pandemic, Vasylyna says, “A lot of companies proved that they are able in a very short term to adapt their production lines and start manufacturing other products of the same sector or even completely different ones.”

She points at Louis Vuitton for instance, one of the globe’s most important luxury companies, which started producing masks, medical jackets and even hydro-alcoholic gel. “Another beautiful example is automotive manufacturer PSA Peugeot Citroen, which began production of medical breathing respirators within one month of the lockdown.” 

Indeed, many companies, from textile and automotive sectors, adjusted and adapted their production lines for medical needs during the height of the first wave of Covid-19. According to Vasylyna, all these examples show the ways in which factories can be used as a “service”. Co-manufacturing different types of products can help manufacturers get round the limits of their individual capital expenditures, enabling them to adapt production facilities within a very short term, and respond quickly to sudden demand for certain items.


At the same time, this co-ownership of FaaS production pairs well with externalised “nearshore” practices. Transferring a business operation to a nearby country, especially in preference to a more distant one, is increasingly favoured by companies to deliver a high-quality service. But still lured by lower costs of the Far East, a lot of manufacturing companies are looking to retain this cost advantage. The blend of these two factors is resulting in a growing popularity for hybrid sourcing and production models.

“Nearshoring is a good option to obtain a competitive product,” Vasylyna told, “at the same time, you can reduce production costs and keep an eye on the manufacturing process and supply chain, especially in the current situation with restricted travelling and logistics bottlenecks. For example, the countries of Eastern Europe, such as Ukraine, Russia, Poland, Lithuania, Latvia, Estonia demonstrate a lot of advantages: existing industrial bases, qualified resources, skilled engineers, and so on. Some also have free trade agreements with the EU, meaning there is a simplified supply chain compared to outsourcing to Asia.”

“Once administrative and operational set up are completed, and governance is clearly defined, the financial and economic benefits are huge.”
– Vasylyna Somok, InterTrade Consulting

While all this enables a shorter time to market, however, companies looking to dabble in FaaS nearshoring need to be wary of selecting the right partner and the right location for collaboration. Vasylyna explains that some European companies think about relocation of their production back to the Western Europe – however experience shows that associated costs stay very high: industrial base installation, real estate, energy, HR, salaries, social charges. All these elements have direct impact on cost price and final selling price, so need to be considered upfront.

Sometimes companies may also be obliged to share some investment and risks with partners. In this case, the InterTrade Consulting expert warned, companies adopting FaaS should be careful from the contractual point of view and take into account technology transfer, intellectual property aspect, confidentiality, competition, GDPR and other possible challenges. If companies manage to get this balance right, though, co-production allows to significantly improve many aspects of production.

“You can reduce operational, HR, administrative expenses, to transfer some of your fixed costs into variable ones and share the costs of the industrial facilities exploitation,” Vasylyna concludes. “At the same time, once administrative and operational set up are completed, and the governance is clearly defined, the financial and economic benefits are huge.”