A few decades ago, manufacturing was fleeing to Asia, mainly to China — the globalization of the 1990’s and early 2000’s was much about manufacturing offshoring, particularly in the US. This is not the case anymore. There is a manufacturing revival across the world, including and specially in advanced economies.

What is behind that? What transformations can be expected in manufacturing? What should companies be cautious about? How are countries positioning themselves in this new manufacturing era?

Technology and talent availability enable future manufacturing

This new manufacturing era is undoubtedly powered by science and technology. A series of studies and surveys like the Global Manufacturing Competitiveness Index make it very clear: CEOs understand that advanced economies are gaining competitiveness in manufacturing. The key driver for that is talent, particularly in the context of advanced or technology intensive manufacturing. As manufacturing becomes increasingly intensive in technology, it requires new and advanced skills. The availability of world-class scientific and technology talent simultaneously enables innovation in manufacturing and the deployment of manufacturing operations.

A better understanding on the linkages with innovation also contributes to a renewed interest on manufacturing, as a GE case reveals. Short product development and market introduction cycles require smooth and agile interactions across business functions. In product areas like electronics, manufacturing knowledge and physical proximity enable fast prototyping and iteration with clients. This is one of the main factors behind the emergence of Shenzhen as the hottest place for hardware entrepreneurs in the globe.

Technology is the common thread linking all these cases. We have reached a point in which things deemed as science fiction a few decades or years ago are now reality or at least possible — as of today, you can print a hamburger, have your own TV channel, edit your son’s DNA, have a fluid and thoughtful conversation with a computer/algorithm and much more. Manufacturing is particularly influenced by technology and its acceleration in all domains — this is happening not just in computation.

It is clear at this point: the manufacturing scenario and the international economic landscape will be reshaped by technology growth in decades to come. Several initiatives are emerging around the globe as a response to this trend.

Industrie 4.0 and beyond: not just digital and IoT

Governments, consultancy companies, industry, think-tanks and policy organizations are writing, talking about and professing this new surge in manufacturing. Terms such as “advanced manufacturing”, “industry 4.0” and “4th industrial revolution” have proliferated and are making the headlines. I bet you can find a news piece using at least one of these terms in today’s edition of your favorite newspaper — check it out!

The Industrie 4.0 concept, coined by the German Government in coordination with industry, is probably the most successful in the market so far — I can assure you that concepts, brands and narratives are very important, as the global competition for dominance in industrial hardware and software ramps up. The political coalition in power in Germany in 2013 identified the industry 4.0 initiative as essential for the Country’s competitiveness in mechanical engineering, providing support and funds to the Platform Industrie 4.0. Siemens took the lead among German companies and has been positioning itself as a global technology provider for industry 4.0. Its approach is strongly focused on the digitalization of manufacturing.

In the United States, the Obama Administration launched the Advanced Manufacturing Partnership and conceptualized a network of advanced manufacturing centers, which was approved by the Congress and launched in 2014. The initiative resulted in the establishment of 14 public-private manufacturing institutes (the original plan was to implement 15 centers) all across the US. Due to such achievements, President Obama was recognized by S&T experts as “…the first president to create a national strategy for promoting manufacturing innovation…”. The Trump Administration continued such efforts, connecting programs, integrating information in platforms such as Manufacturing.gov, emphasizing the commercialization of federally funded R&D and launching a new Strategy for American Leadership in Advanced Manufacturing.

Differently from the German case, the initiatives in the US have a broader scope, including and emphasizing advanced materials, nanotechnology, biomaterials, fabrication techniques and energy. It also explicitly crosses traditional sectorial borders — manufacturing is connected with agriculture, services and beyond. In fact, this broader perspective is reflected in several recent studies and reports.

In 2014, the MIT launched a book summarizing the results of a multi-year study on Production in the Innovation Economy, which highlighed the expected impacts of key technologies in different stages of manufacturing supply chains. In 2015, McKinsey outlined a digital compass for manufacturing’s next act, emphasizing digital technologies. In 2017, AT Kearney released a report that organizes the technologies shaping the future of production and manufacturing in a “production technology radar” that covers 7 domains: (i) connectivity and computing, (ii) analytics and intelligence, (iii) digital physical transformation, (iv) production philosophies, (v) advanced materials, (vi) advanced production process, (vii) human-machine interfaces.

One of my favorite research/thought pieces in the field is the Council on Competitiveness, Deloitte and Singularity University report on “Exponential Technologies in Manufacturing” — great job Michele, Chad and colleagues! It provides concrete examples and depicts a clear picture on how technologies such as 3DP, advanced analytics, advanced materials, robotics, AI, biotech and biomanufacturing, blockchain, cybersecurity, digital design & simulation, energy storage, high performance computing (HPC), interfaces (AR/VR) and IoT are growing exponentially — the use of some of these technologies are forecasted to grow more than 60% per year (CAGR) in the 2016–2021 period.

All such reports and studies agree in one point: the depth and reach of the transformations in manufacturing will be massive. Technology growth will impact and transform (1) all the individual stages/steps in the flows from raw materials to final products (and the regeneration/recycling stages after that) and (2) the structures of supply and value chains in general. In this context, two aspects are very important to note:

First, this new manufacturing era arises not from the dissemination and adoption of one specific technology but, rather than that, from the convergence and integration of different technologies.
Second, manufacturing is increasingly bundled with services and the flow of materials is inextricably linked to data and information. Industries are becoming blurred and old classifications for sectors and economic activities need to be updated.

In this new technology-enabled manufacturing era, it will be possible to simultaneously improve performance across all competitive dimensions: time, quality, cost, flexibility and novelt

Manufacturing will be faster, better, cheaper, different and new

The Toyota Production System became known in the West in the 1980’s as the most competitive model for manufacturing. Its principles were distilled and systematized in the lean manufacturing body of knowledge, widely disseminated worldwide — as of today, the companies that have not implemented lean manufacturing concepts and techniques are definitely, definitely behind. Simultaneously, the Computer Integrated Manufacturing (CIM) concept was proposed, but remained mostly a promise, due to performance limitations in technology and high costs. Now, the time has come for a new transformation in concepts and paradigms in manufacturing.

Thanks to advancements in technology, we now see the Y-CIM model coming “from vision to implementation”. Such models will be enabled by technology but also leverage the best of manufacturing thinking and management approaches. By default, lean concepts and techniques will be embedded by design in future manufacturing systems.

Transformations in manufacturing will actually happen in several levels, from individual operations to global supply chains. As a synthesis, we can say that technology is the main force behind the changes in course and will make it possible to:

1. Change the way through which we create things. CAD systems revolutionized design in the 70’s and the whole trade is being taken to a new level by technologies such as AR/VR, computation, social networks, advanced modeling and simulation, AI. Design and engineering are becoming increasingly collaborative and including customers in the loop. Modularization and AI-enabled CAE solutions are allowing for variety in the market to be decoupled from variety in manufacturing operations. Open innovation platforms such as Innocentive, GE’s Fuse and a variety of others are now available for companies to mobilize design, research and engineering capabilities outside company boundaries. AI and HPC make it possible to test products in virtual environments before they exist physically — this already is the norm in aeronautics and will soon be the standard in various industries. Building on that, we can even expect “designs that would never occur to the human mind…” to emerge — companies like AutoDesk have already implemented generative design into its software suite. Technology also makes possible to design materials from the most fundamental levels, atoms and molecules, and a variety of software solutions are available to model nanostructures and biological entities — proteins, RNA, DNA.
2. Make things, objects and shapes that were physically impossible before. 3D printing allow us to create shapes that were not possible via subtractive manufacturing technologies — die cutting, machining. This advent has unleashed creativity and empowered innovators and manufacturers around the globe — advancements in 3D printing technologies and equipment go hand-in-hand with the expansion of design marketplaces and repositories, like Pinshape. 3D printing is not a far-fetched technology, it has already become an integral element of manufacturing operations. GE is using 3DP to manufacture components for jet engines — the soon-in-the-market Boeing 777X engine has 30–35% of its components 3D printed and this technology has enabled the use special light materials and shapes to be economically used and reduce the engine’s weight. Working in partnership with Oak Ridge National Lab and Cincinnati Incorporate, Local Motors has created the word’s first 3D printed car, back in 2014, due to a combination of developments in materials, 3DP technology and business models. The list of feats in 3D printing continues to grow and companies such as Desktop Metal are introducing new technologies that could simultaneously address two of the main challenges faced by 3D technologies, allowing them to achieve high levels of structural strength for metal parts and high speed in manufacturing processes. Programable matter (or 4D printing) is expected to further expand the boundaries of what is possible to be manufactured.
3. Substantially increase efficiency across supply chains. Flexible and collaborative robots still are in their early days, but already are capable of performing multiple and complex tasks in tandem and work side by side with humans — more videos from Rethink Robotics (more to come on this company, as its case has a lot to say on the current status of technology) are available here. Robots were traditionally applied in manufacturing in hazardous and quality-critical operations, like welding. Now, they are becoming more reliable and cost competitive in a variety of environments and, most importantly, can be ‘programmed’ in new and quick ways, improving flexibility. AR/VR will support workers in executing complex operations — machine operation, quality control, maintenance etc. IoT and blockchain will make it possible to track all assets, goods and transactions across supply chains. Data availability coupled with networks enables the visualization of flows and events (and manager’s prompt intervention) via manufacturing execution systems (as a co-founder of one of the first MES companies in Brazil, efact, it is great to see the progress in the field). Improvements in computation expand the possibilities to use optimization approaches for manufacturing (and supply chain) planning and scheduling and, combined with AI, open new possibilities for companies to use expanded enterprise software suites (such as the ones provided by SAP and Oracle) to better allocate resources and synchronize material flows. 3DP cuts the use of raw materials and reduces the waste in storage and transportation — indirectly, in energy — and has the potential to simplify and speed up the manufacturing complex products (e.g.: rockets), eliminating many manufacturing, transportation, storage, inspection and assembly operations. AI is a major tool powering predictive maintenance, making it possible for companies to reduce downtimes and costs, while increasing assets utilization and reliability. The opportunities are countless and technology growth is simultaneously enabling improvements in what the Japanese Industrial Engineering consultant Shigeo Shingo called “process” (flow of materials overt time and space) and “operation” functions. Technology-enabled efficiency gains are happening (i) in the utilization of all inputs (raw materials, energy, water, air etc.), (ii) in the use of all manufacturing assets (people, machines, vehicles, facilities…) and (iii) systemwide.
4. Reconfigure manufacturing. Powered by technology, adaptive, urban and distributed manufacturing are emerging — in the world’s top innovation hotspot and super hyped Silicon Valley, a Urban Manufacturing Initiative was launched and urban manufacturing is on the rise. These new models mean that transformations are not limited to manufacturing and supply chain operations and processes, but actually have a much broader reach in the economy and society. Futurist Peter Diamandis published a blog post in which he envisions a future in which manufacturing tools are widely available across geographies, inventors are empowered and a new economy emerges. Building on that trend, it can be imagined that the production will become increasingly localized and the “amount of physical stuff moving around the world will peak and begin to decline”, as GFCC fellow Banning Garret wrote. Manufacturing and production will be different in the future.
It is evident that the developments in manufacturing technologies, processes, business models and configuration will have far reaching implications for the global economy and society. Companies and nations will need to keep track of changes and quickly adapt in order to maximize the upside of such transformation, while minimizing its downside. It will be essential for them to have clarity on their goals, the possibilities and limitations of technology at each moment along the way — the road ahead can be bumpy.

Technology is great, but strategy and economics are chief

One of the easiest things to do in moments of rapid transformation like this is to uncritically jump into the tech hype bandwagon. That also is the best shortcut to high costs, poor results and frustration. Two aspects are important to maximize results.

First, it is necessary to see beyond the hype and develop a solid understanding on manufacturing technologies, processes and economics — an understanding that articulates the micro and macro levels, technology and business, company performance and national policies. Second, players should think and act strategically — strategy is required, at all levels. Needless to say, these two things are utterly connected.

Manufacturing strategic objectives should precede technology, as originally conceptualized by Wickham Skinner in his foundational paper on manufacturing strategy. Based on the clear understanding of their strategic goals and drivers for manufacturing transformation, companies can use different solutions — techniques, methods, approaches and technologies — not the other way round. This is, for instance, the approached suggested in a recent McKinsey report. The novelty is that technology acceleration is constantly reconfiguring the set of strategic options available.

We will simultaneously see the appearance of new manufacturing players and concepts in the market and the transformation of existing companies and industries. Nevertheless, technology penetration will vary from industry to industry, country to country and company to company. Economics is chief, and timing is critical for companies to be able to seize the technology opportunity for manufacturing.

It is worth noting that Tesla, a company known for pushing the limits of what is possible, has recently been at the center of a huge debate about the limits of automation. Wall Street analysts have criticized the company’s approach towards automation and some say it is repeating a mistake that US automakers made in the 1980’s. Elon Musk himself acknowledged that “excessive automation at Tesla was a mistake”. When I write that there is a huge debate around the issue it is not just rhetoric: the financial impacts have been harsh and Tesla has recently announced measures to cut costs, including the layoff of approximately 7% of its headcount.

The journey is challenging not just for manufacturing companies, but also technology providers, as the already-mentioned Rethink Robotics case suggests. The company abruptly shut down in October 2018, when it ran out of cash and a potential takeover deal fell apart. Later, information surfaced about the limitations and the poor performance of its products — the message is clear: hardware is tough and it is hard to make machines truly smart. The good news is that the Germany-based Hahn Group has eventually taken over Rethink’s assets and the technology continues to evolve, now as part of a larger corporate structure. There are no reasons for skepticism: robotics is flourishing and the market for industrial robots grows at a fast pace globally.

What both cases highlight is that the introduction of new manufacturing technologies is hard to execute. It is also well documented that pioneers have a price to pay and actually there is a first mover disadvantage. It need to be acknowledged that automation technology is growing exponentially, even though (still, yet, so far…) it is not capable of doing things that are trivial for human workers — in many use cases, robots have not yet transitioned from deceptive to disruptive. In any scenario, a solid understanding on manufacturing processes and economics needs to come first.

When I and my colleagues published “Production Systems” (it is only available in Portuguese, sorry), more than 10 years ago (maybe the time for a new book has come Junico, Ivan, Pedro and Marcelo), we stressed that companies should understand and invest in their manufacturing systems in light of market and economic conditions. That assertion still holds. At that time, the monthly costs for labor and equipment in a metal mechanics manufacturing cell in Brazil were equivalent — in comparison, labor costs were 9 times higher than equipment costs in the US for the same setting. If cost cutting was the goal, automation (and capital investments) would make more sense in the US than in Brazil. So… next time someone tells you about the wonders of automation and how it will help companies to reduce costs, do the math.

To make things more complex, strategic decisions must consider other dimensions other than costs, companies that compete in global markets follow a rationale not solely dictated by local economies and the exponential nature of technology growth is rapidly changing manufacturing economics. Can you imagine what will happen when the speed of 3D printing processes increases 100x and the time to manufacture a rocket drops from years to months as the cases in this TV show? My take is that the transition to a new manufacturing paradigm will be turbulent and, because of that, knowledge, strategy and adaptability were never so important.

As facts unfold, we should have no doubts about the transformation in course. Although in the beginning, we are already plenty of examples (check a few here) and insights on how specific technologies like 3DP, for example, will potentially reshape industries. Challenges and opportunities for businesses and countries abound. This is why nations around the globe are actively working to position themselves in the new global manufacturing landscape that is emerging. They should do that in a purposeful way, conscious that, as companies, they will need to continuously assess the situation and adapt quickly — there is no room in the age of disruption for policy as usual.

📷📷Sarah Phillips on Unsplash

Tech meets policy… and changes the game

Besides the US and Germany, mentioned in the beginning of this post, many other countries have recently launched (advanced) manufacturing strategies and policies. Australia, Canada, China, France, Italy, Malaysia, Spain, Sweden, Thailand, the UK and other cases in the European Union are just some of the examples. In general, they all combine focuses on traditional (e.g.: apparel) and emerging (e.g.: biomanufacturing of human organs) manufacturing areas. The logic is simple: upgrade and transform existing industries, build new ones. They all want to leverage the potential of technology to drive innovation, value creation and growth.

There are two main policy goals for this new breed of manufacturing strategies and policies: (1) to accelerate the adoption of advanced manufacturing technologies and business models, raising productivity levels economy-wide and (2) to build an edge in key technology domains and, thus, dominate future global markets in the manufacturing space — like the German Industrie 4.0 platform case exemplifies very well. The balance between the two varies from country to country. Government action is important for counties pursuing the two goals, but particularly in the second case.

The first goal is common to all nations but comes in different flavors for each one, as the level of maturity (and productivity) of manufacturing companies varies greatly from advanced to emerging economies. Technology is increasingly available and accessible, it is not the bottleneck — the main constraint is about skills. In emerging nations, access to capital, market conditions and management expertise should be also considered.

Governments can do many things to accelerate manufacturing transformation: train workers and managers, create incentives, invest in shared infrastructures, disseminate knowledge, catalyze connections and even supply capital (very important in emerging nations). The more advanced economies are, the less government direct action is needed and partnerships with private sector organizations are always an option — a good example comes from the UK, where the Government was the main funder of an online self-assessment tool and nonprofit organizations like GFCC member Centre for Competitiveness provide services to help companies actually improve their strategies, processes and operations, making transformation happen.

The second goal is much more difficult to be accomplished and is where the ‘real competition’ for dominance lies. The question in this case is whether countries will simply use or create the technologies (and the companies) that will shape manufacturing (and the economy) in the 21st Century and beyond. The constraints are essentially and deeply about investments in science and technology and global business structures. This is a premium league game and public sector investment is of upmost relevance.

Countries need to build capabilities and control critical research and business assets in order to be dominant players in advanced manufacturing. As a result of that, it is impossible today to separate manufacturing from innovation, science and technology policies and strategies. The bigger the manufacturing ambitions, the stronger the linkages are.

As seen before, industry boundaries are becoming blurred. The same applies to the different sectors of the economy — services, manufacturing and agriculture are becoming ultra-interdependent and blurred, rendering traditional classifications for economic activities obsolete. A similar logic is valid for government policies and operations. There is a blurring in the policy space.

Manufacturing, science, technology, innovation, digitalization, internationalization, ‘greenification’, development and future growth are all mixed in today’s policy landscape. The recently announced Korea’s ‘Growth Through Innovation’ Plan provides a good example: it includes investments in specific technologies, skills development, manufacturing capacity and a range of application areas. A look at different national AI strategies also reveals lots of intersections with manufacturing and other traditional policy areas. As all those dimensions and perspectives come together, coordination within government structures and between them and society will become more critical.

This new manufacturing era creates opportunities for countries to further develop and grow. They can either leverage technology to transform industries and boost productivity or pursue leadership in key technology areas — one path reinforces the other. Speed will a key attribute for success. Nations will be required to swiftly build consensus on their ambitions and priorities, adapt regulatory frameworks and coordinate policy and strategy efforts.

The tricky thing is that technology grows exponentially but human institutions evolve linearly — this a good topic for a future post, stay tuned. Institutions, mindsets and human built systems are the real constraints for growth when policy meets tech in this new manufacturing era.

This article was originally published by Roberto dos reis alvarez on medium.