Unilever’s nano-factory and the future of FMCG manufacturing in Africa
Unilever engineers have created a prototype nano factory capable of fitting in a 40ft container. The prototype can take raw materials, process them, package and label them. It is currently being trialled in the Netherlands, producing liquid bouillon.
Unilever says that its nano factory will be especially useful when producing smaller volumes of products, testing new products and responding rapidly to changes in consumer demand. It means that Unilever can build flexibility and scaleability into its supply chain. These use cases closely fit market dynamics in many African markets.
The nano factory is programmed and controlled remotely by a centralised “super user”. To operate, it requires just 3 local site staff. Unilever is looking at the use of nano factories to produce mayonnaise and ice cream. This development follows on from an initiative launched in 2019, where Unilever built virtual versions of its factories, and uses data streamed from its machines to track the conditions measured by the machines’ sensors and make operational changes.
Localised versus centralised manufacturing
The tension in African markets is between the respective risks and benefits of manufacturing locally vs the risks and benefits of centralised production. Centralisation offers scale, consistency, sophistication and economies of scale. Local manufacturing offers proximity, tariff benefits, local resilience and flexibility and cost benefits for certain types of products. Local manufacturing sites are harder to manage, typically less efficient/productive and create several dependencies on local market conditions (such as reliability of power supply or availability of raw materials). But relying on imported products carries risks around tariffs, protectionism and complexities such as currency and availability of fx.
For most of Africa’s 54 markets, Unilever prefers centralisation around a small number of hubs. Unilever has major production facilities in Europe and South Africa and also has factories in Egypt, Kenya, Côte d’Ivoire, Ghana and Nigeria. In practice this means that most African markets are serviced through imports. When products are exported within a trading bloc, such as from Kenya to Uganda, a regional hub factory can work well.
Often it doesn’t. For example, it is expensive and onerous to move goods by land from Kenya to Ethiopia. Often it is cheaper to ship products in from more distant markets. Similarly, although Nigeria and Senegal are both within the ECOWAS trading bloc, Nigeria is not a production hub for Senegal.
Higher value, more complex or more niche products always come from the main factories.
The case for nano factories in an African context
Nano factories are not a permanent solution. They cannot offer the same economies of scale as a larger factory. Nor are they supposed to.
Nano factories can perform three roles:
- Rapid, low cost deployment
- Small scale production
- Operational learnings
By far the most important of these three roles is the third one. Nano factories generate important learnings for how to scale and manage factories for less complicated products such as mayonnaise, margarine, ice cream, soap, shampoo and conditioner and laundry detergent.
Unilever doesn’t want to install nano-factories across Africa. It wants to understand how it can centralise factory management, modularise production, and de-risk deployment. In doing so, it is adapting the rapid, scaleable and internet-connected deployment doctrine of the US military.
Once the deployment of a factory can be de-risked, business decisions can be made quickly. Should Unilever build a factory in DRC? Has it picked the correct site? Is it manufacturing the right products? Is it too big or too small? The prospect of rapidly deployed, modularised production solves some of these problems and is particularly attractive for high growth African markets.
The risks of setting up new factories in African markets
Firstly, decision making data for many African markets can be poor and unreliable, and not just in sub-Saharan Africa. This makes planners nervous. Secondly, market conditions change. Demand may fluctuate if poverty levels rise or fall. Political risk and instability is a feature of many markets. Thirdly, the economics of new factories are largely unknown. Cost inputs can vary widely. Productivity is hard to estimate. Demand can fluctuate.
In 2009, Nestlé set up an important factory in DRC to produce its Maggi stock cubes. In 2017, it closed it. Nestlé blamed rising poverty and political risk. It also said that it had overestimated the size of the middle class. At the time, when “Africa Rising” was a common narrative, serious economists circulated wildly optimistic and often misleading data on the African middle class.
In 2014, P&G opened a large new factory in Agbara, at the industrial estate favoured by several multinational manufacturers as a base to service products destined for Lagos. In 2018 it closed the factory, shifting production back to its existing operations in Ibadan. We have been told informally that the move cost P&G around $200m. P&G didn’t elaborate on what went wrong but hinted that the factory was expensive, inefficient and provided too much capacity.
Adapting a new doctrine for factory installation in Africa potentially means mitigating some of these risks. It does not completely avoid them: there is still cost and risk attached to a rapidly deployed, modularised factory. Also, in the long term Unilever would want to build a “proper” factory, even if that factory used successful elements from the nano-factory model (modularisation, centralised control).
Solutions for small markets
Nano-factories (or larger versions of them) help provide a new route to market expansion for Unilever.
A recurring problem for smaller markets is cost and complexity. By the time you’ve shipped a jar of mayonnaise or a bottle of shampoo 1000km from factory to market, cleared it at the border, your master distributor has added their margin and the product has landed on the shelf it will almost certainly be more expensive than a local product. Then you have a second issue: making sure that a product bought by the consumer in local currency can be paid for in dollars or another hard currency. The weeks it takes for products to travel from factory to market ties up cash. Cash tied up means cost and risk, which is ultimately paid for by consumers.
As agribusiness supply chains improve, which they are doing across Africa, the attractiveness of local sourcing also improves. However, the various risks we have outlined still exist. Allowing Unilever (or P&G or Nestlé) to limit their exposure when building new factory sites could be a game changer. It radically alters the balance of risk and cost with opportunity. It also offers the kind of localised, low cost/high quality market-oriented products that consumers are screaming for.