Manufacturers looking to drive innovation in partnership with suppliers should consider bringing operations closer to home.
This year’s Global Manufacturing Outlook (GMO) report from KPMG provides insights into how executives at firms all over the world plan to move forward following several years in a tumultuous and fast-paced global economy. “Today, with the global economy stabilizing, the emphasis on caution is shifting more toward a focus on opportunity,” the report says.
Supply chains could play an important role in the new focus. The GMO report analyzes the results of a survey of 335 executives from a wide swath of industries. Half of the respondents said they expect partnering with suppliers to be a key tenet of their drive to increase activities and outputs associated with innovation.
However, nearly half of respondents lacked visibility into their supply chains except with their most important tier 1 vendors. In addition, nearly all said that they lacked sufficient visibility into their supply chains to assess impacts from unforeseen disruptions.
This is not surprising since most communications across the globalized supply chain are still conducted via phone, email or fax, with stand-alone spreadsheets acting as the core for hard data exchanges. Hence, the strategic goal for future innovation in conjunction with supply chain partners seems particularly at odds with the tactical realities of managing existing supply chains with these very same partners.
One way to overcome the discrepancy between strategic direction and the underlying tactical realities is to deploy advanced supply chain planning (SCP) and supply chain execution (SCE) technologies. While the capabilities of SCP and SCE tools have advanced rapidly in recent years, they remain expensive to deploy and manage. In most cases, they’re also rather inflexible. Once the plumbing for these technologies is put in place, it is challenging to alter or reinvent them as business realities shift.
Another way to address the challenges of a broad-based supply chain spread across a network of global suppliers is to shrink the supply chain itself. This includes aligning manufacturing operations closer to the customer populations that they serve, as well as sourcing with suppliers that are closer to those manufacturing operations.
On the surface, this approach may seem to be at odds with the relentless drive to seek the lowest-cost alternative in any decision affecting organizational assets or sourced material resources. However, this lowest-cost view may not be the most advantageous from a total benefits standpoint.
Consider the recently publicized findings by General Electric Co. regarding unforeseen benefits when it chose to bring manufacturing for its newest line of water heaters back to the U.S. from China. Chief among those benefits was the enhanced ability of innovators (the engineers) to work with makers (the production workers) to come up with radically new and better ways to design and build the product. In the final analysis, the savings captured from this enhanced ability to innovate more than offset the added labor costs of producing these products in the U.S. compared to China.
Also consider the recent findings by a group of MIT researchers in a soon-to-be-published book called “Production in the Innovation Economy.” In that book, researchers discovered that some of the most powerful innovation in the manufacturing sector today is emerging from clusters of disparate but co-located organizations in public, academic and for-profit manufacturing arenas. These clusters were pooling research, training and commercialization activities to drive new product innovation, while limiting the overall risk associated with innovation via sharing ideas, processes and resources.
Apparently, these findings are not lost on the respondents to the KPMG study. As noted in the book, “Fifty-eight percent of respondents say they will regionalize/localize supply chains to improve the management of their supply chain risk.”
So, perhaps the real answer to the challenge of increasing the ability to innovate with suppliers is to reduce the complexity of supply chains by sourcing closer to home. In fact, this may also enhance the ability to strategically innovate with those suppliers, as both manufacturers and suppliers gain deeper understanding of their shared products, capabilities, knowledge and risks.
Findings from a research project to be released later this year will provide insight into the past, present and future state of production in the U.S. Massachusetts Institute of Technology’s Production in the Innovation Economy (PIE) project aims to show how the U.S. can build upon its pillars in innovation to develop new production opportunities. MIT recently released a preview of the findings on its website. Here are five highlights from the PIE team’s report.
1.Many of the great new American companies of the past 30 years — like Dell, Cisco, Apple and Qualcomm — have kept little or no manufacturing in-house. Of the causes cited, the most important driver of this shift away from internally held verticalized manufacturing operations in the 1980s came from financial markets that chose to reward firms that had reorganized around less asset intensive “core competencies.”
2.Decentralization of the complementary resources around the research and engineering functions of U.S. manufacturing firms resulted in an innovation chasm. This was cited as being in marked contrast to other industrialized centers of the world such as Germany, where manufacturers are “embedded in dense networks of trade associations, suppliers, technical schools, and applied research centers all within easy reach,” according to the report.
3.New research investigated by the PIE team suggests that “it’s the co-located interdependencies among complementary activities, not narrowly specialized clusters, that produce higher rates of growth and job creation, and they do so across a broad range of industries, not just in high-tech or advanced manufacturing.”
4.Responding to this finding, the PIE team notes that a key for future manufacturing innovation in the U.S. to drive enhanced global competitiveness is to situate these firms “in a diverse industrial ecosystem that offers many complementary resources, such as training and opportunities for collaborative research.”
5.Such collaborative efforts could take the form of what the report calls a “convening function,” where a private firm or public institution creates new resources that others can build on and contribute to.
Several examples of this were noted in the report, including New York State’s collaboration with the industrial semiconductor consortium SEMATECH and the establishment by Timken Company of a new lab at the University of Akron in which multiple firms, as well as academic researchers, can work.
Other examples include the Research Triangle Park in North Carolina and biotech in the Northeast centered on the expansive university infrastructure. Those are all assembly points or spark plugs for innovation and eventually new products that lead to new companies and entirely new industries.
On the other hand, industrial equipment manufacturing typically is more localized, meaning there are fewer collaborative hubs in a specific location. Due to the size and scale of the equipment, it’s very expensive to ship, and so it makes more sense for companies to build closer to the markets they’re serving. Plus, labor costs are starting to balance out across the U.S. There’s no huge difference in labor costs anymore between most regions, meaning it doesn’t make sense to build equipment in one location and then transport it 3,000 miles.
MIT currently expects final information generated under the PIE project to be released this fall in two books: “Making in America, From Innovation to Market” and “Production in the Innovation Economy.” A copy of the full copy of the report preview can be accessed here.
Source: Massachusetts Institute of Technology, February 2013
Innovation shouldn’t be thought of as a constant progression of technology, but it’s a mistake to think that all the good ideas have been exhausted. Innovation hasn’t gone away. Rather, it occurs in spurts. There’s a wave pattern to it.
An article on the Innovation Excellence website highlights an ongoing debate about whether innovation has already seen its heyday with mankind reaching a plateau of sorts after making such great leaps forward.
The article makes the argument that there generally are times in history where innovation flourishes. Then the rest of world catches up to those spurts, forms another base of intellectual capital and another spurt launches the next leg up in the evolutionary ladder of innovation.
If you believe there is a pattern to innovation where it occurs in time over a stair-step approach, then we’re just in the formation stage of another spurt. Areas like robotics, 3D printing and the Industrial Internet would be the potential drivers of the next spurt.
3D printing has the potential to be a transformative technology for industrial equipment manufacturers once it reaches commercial scale. The nature of industrial equipment manufacturing (IEM) is that it does nonrepetitive work. Manufacturers are creating pieces of equipment that often are customized. They might build it once and never build it again.
3D printing offers manufacturers the ability to go in and prototype a part from scratch from a base raw material. That presents a huge opportunity to reduce lead times and costs. Manufacturers don’t have to spend an inordinate amount of time and money designing and producing products to be used in production once and then put on a shelf to gather dust. 3D printing can help accelerate what’s going on both in economies of production and in lead time to production. It allows manufacturers to print a part over the course of several days rather than spending weeks or months with today’s processes and technologies.
It’s true that, historically, equipment manufacturers have been laggards when it comes to adopting IT. That’s just part of the philosophical underpinning of IEM. Since it’s an engineered, make-to-order kind of environment, manufacturers never have the opportunity to go to scale and mass produce anything. If they’re only making a handful of different products over the lifespan of a particular piece of innovation, it doesn’t give them much of a chance to amortize their investment well.
It’s non-repetitive work, so why invest a great deal of time and capital to install complex business administration systems like ERP? As long as the company had adequate systems to handle engineering and financial management functions, spreadsheets and tribal knowledge were adequate for just about everything else
However, that paradigm is shifting as everyone else around them is implementing advanced IT technologies. It’s pulling them into that space. They’re starting to realize that to be productive, innovative and competitive – the keys to their financial future – they have to get on board with IT at least at the same rate as other industries, if not faster.
IEMs are now dependent on global collaboration and a global supply chain. Their customers and suppliers are spread out across the world and they can’t compete in globalized markets without advanced technologies. The marketplace has left IEMs with no choice but to embrace advanced information technologies.
Source: Innovation Excellence, March 2013
New research shows that manufacturers are leading the way in trying to keep the U.S. competitive, but they could use a hand from policymakers.
In a report by the Harvard Business School (HBS), entitled “Competitiveness at a Crossroads,” HBS faculty and researchers surveyed almost 7,000 graduates of the school worldwide in addition to more than 1,000 U.S. citizens. The results show manufacturers to be “the most likely to act to improve competitiveness” among all businesses.
Respondents were polled as to what actions their businesses take to increase competitiveness, including cluster initiatives, internal training, apprenticeships, research collaborations and reshoring manufacturing to the U.S. For the manufacturing industry, the average across all noted actions was 50 percent, the highest among all industry sectors represented in the survey. The most prevalent actions being taken by manufacturers were internal training programs (86 percent) and research collaborations (63 percent).
This relates to the old adage of help those who help themselves. Manufacturers are willing to take actions more so than other industries. They’re more likely to leverage funds, programs or policies geared toward improving competitiveness. Trade policies are a good example. As we’ve gone through various cycles of tightening and loosening such policies, manufacturers are always the pioneers in trying to adopt the new trade policies to drive their ability to compete overseas.
The report outlines recent socio-political circumstances in which politics trumped common sense and solutions, causing businesses to make shortsighted decisions that were detrimental to themselves, their competitors and the U.S. economy.
“However, there is another, far better path suggested by our work. On this path, policymakers put their long-term fiscal house in order, invest in infrastructure, and enact a handful of policies to make America a great place to do business,” the HBS report explains.
Below are four steps businesses can take to put the U.S. on top of global competition.
1.Develop a skilled workforce: Businesses must train workers without waiting for the government or educational institutions to do this for them.
2.Help local suppliers: For manufacturers, this means improving your suppliers’ ability to do business with you.
3.Improve regional strength: Manufacturing hubs (referred to as cluster initiatives in the study) such as the Research Triangle in North Carolina are driving regional growth and are competition engines.
4.Foster innovation: This area has seen considerable momentum over the past 18 months. Some of it ties back to recent efforts to create advanced manufacturing hubs, the first of which being the 3-D printing facility that opened in Youngstown, Ohio. It’s a good example of business and government collaborating to drive U.S. competitiveness together.
Source: Harvard Business School, February 2013
The Industrial Internet holds great potential as it’s applied to the manufacturing industry. Of many potential uses, it can be used to monitor equipment allowing machines to guide other machines, to catch production problems early, and to improve the servicing and maintenance of production equipment which drives reduced production downtime.
An article on the IndustryWeek website says the Industrial Internet can create value by connecting people, data and industrial systems. The article likens it to the change in the health care industry that occurred when the focus shifted from “reactively prescribing medications to advancing the field of proactive advanced diagnostics.”
However, one thing that’s absent from most discussions about the Industrial Internet is a “vision” component using industrialized versions of devices available today, such as Microsoft Kinect. Sensors based on vision with pattern recognition and interpretation capabilities would add an important dimension to the data collection process.
The Industrial Internet will be based on machine-to-machine communications. That means, for instance, a Kinect device could watch a piece of equipment and would know based on how it’s been programmed to look for certain characteristics. For example, if the arm on a robot starts to move a few centimeters out from its prescribed arc, that’s an early warning sign. Vision sensors would surely pick up an anomaly like that. In turn, that would allow for preventative maintenance before the machine drifts farther or breaks and starts making bad parts.
The No. 1 driver of the Industrial Internet is the equipment manufacturing community. General Electric is at the top of the heap. It’s the pioneer of the Industrial Internet. In fact, GE already has adopted a version of the Industrial Internet to observe its jet engines through their lifespan and to send telemetry information back on those engines. That way, if an engine is cruising along at 36,000 feet and a sensor starts picking up an anomaly, it’s broadcasting that information through the Industrial Internet back to GE and to the company that runs the jet.
What kind of impact does GE expect the Industrial Internet to have? Consider this: Jeff Immelt, the company’s chairman and CEO, believes the Industrial Internet revolution will add $15 trillion — yes, trillion — to the global economy by 2030. As the IndustryWeek article notes, that’s “the equivalent of adding another U.S. economy to the world.”
Source: Industry Week, April 2013
A number of global economic factors are coming together to add up to good news for the U.S. manufacturing industry.
Although the overall U.S. economy remains tepid, manufacturing is hot. Half a million jobs were created in the past three years, hitting an important milestone in terms of employment in the industry. An article on Time.com notes that during that time, manufacturing grew faster in the U.S. than other developed countries, and it’s the only time in more than 10 years that factory employment has increased.
Some economists believe the growth is an ordinary part of the business cycle and is not indicative of a “sustainable recovery in the sector.” But the Time.com article argues that the growth is part of a changing global economy in which cheap domestic energy has helped fuel the manufacturing industry in the U.S.
This much is certain: If the U.S. does not take control of its energy future, there will be no recovery of anything. While the U.S. has been able to enjoy a renaissance due to its ability to manage its own destiny from an energy standpoint, many other manufacturing hubs around the world are not so blessed.
Japan has always been a poster child for this scenario. It has no natural resources to speak of other than its workforce. That means for every dollar of savings the U.S. earns in the form of cheaper oil, Japan is paying twice as much or more for its energy because it has no natural source. That’s obviously a huge leg up for the U.S. to improve its posture in the world competitively.
Another positive development for domestic manufacturing is occurring overseas in countries like China and India, where the days of cheap labor are coming to an end. Meanwhile, organized labor in the U.S. has made concessions to industry, shifting the numbers more in favor of domestic production over offshore.
All of these factors come together to create a different outcome today. Ten years ago companies shipped goods from China or Mexico. Due to changes in demographics and economics, that has changed. Companies want to manufacture in the U.S. to be closer to the consumer and to the actual source of innovation, which are the engineers, technicians, researchers and consumers in the U.S.
As evidence, consider a recent article in The Atlantic magazine. In its December 2012 edition, the publication’s cover story highlighted the reshoring of manufacturing back to the U.S. from China. The story discusses the recent turn of events at General Electric’s “Appliance Park” operations in Louisville, Ky., as evidence of what he is calling the U.S. “insourcing boom.” By allowing the engineers and factory floor personnel to work together on how they would pursue production that had been sourced in Appliance Park rather than in China, GE discovered that the American team was able to come up with product design and manufacturing process changes that made their new generation of water heaters cheaper to produce in the U.S. rather than China, despite the advantage that the Chinese source had in hourly labor costs. Along the way the American approach also promised to yield other benefits such as improved quality and time-to-market.
This means the engineers are able to do a better job because they’re working alongside the people building the product as opposed to someone 3,000 miles away in another country speaking a different language.
Source: Time.com, April 2013
Industrial equipment manufacturers (IEMs) should consider the opportunities that 3-D printing holds to improve global competitiveness and foster innovation.
Three-dimensional printing, or additive manufacturing, has been around for more than two decades, but it’s seen a surge of interest in the past few years. This has been fueled, at least in part, by the creation last year of the National Additive Manufacturing Innovation Institute (NAMII).
Based in Youngstown, Ohio, NAMII is a public-private partnership made up of organizations, businesses and governments representing various sectors, according to its website. President Barack Obama is betting the network will be a boon to manufacturing in the United States.
There is much buzz around the potential for 3-D printing to revolutionize how companies produce goods and how consumers obtain goods, raising questions about intellectual property rights and liabilities. For now, the technology has a long way to go. But it’s not just hype. According to an article on Inc.com, a study by Global Industry Analysts projects 76 percent growth in 3-D printing between 2012 and 2018, to $3 billion in the global market.
Terry Wohlers, president of consulting firm Wohlers Associates, tells Inc.com that the medical device and aerospace industries will drive the growth.
For now, the technology is limited among IEMs to larger companies like General Electric. Among its endeavors, GE is pursuing 3-D printing applications in aerospace.
Most of what’s going on today is on the engineering side of business with prototyping. Three-dimensional printing has yet reached economies of scale capability, where equipment can be moved from the lab to the manufacturing floor for full-scale production.
So, you have to couch 3-D printing in today’s environment as a prototyping tool or design aid, and the benefit of 3-D printing in that regard is you can go straight from a drawing to a solid model. Basically, as soon as you’re finished with your CAD drawing, you can put that in the 3-D printer and have a model that’s ready to test, without going through a series of intermediaries.
It both reduces the costs of design engineering and cuts the lead time required to get from thought to actual physical product. Those by themselves are huge benefits that 3-D printing is able to offer the industrial equipment manufacturing community today.
The next phase in this industrial evolution will surface as economies of scale and higher volume outputs start to manifest in future generations of additive manufacturing tools. With those improvements, 3-D printers will come out onto the manufacturing floor and bring those unique assemblies and unique components directly into the manufacturing process rather than just in the prototype development phase.
A report by CSC’s Leading Edge Forum titled “3D Printing and the Future of Manufacturing” outlines several changes to come as the technology evolves, including a shrinking time to market, superior product capabilities, the proliferation of open design products and customization, and a shift in the economics of overseas production.
Unfortunately, at the moment, there is little or no return on investment with 3-D printing. The problem with any new technology is it almost always has terrible ROI. A lot of times you have to make a leap of faith to get into a technology to say, “This will have ROI for me in the future. It will not have ROI for me immediately. It’s part of a process.”
Industrial equipment manufacturers (IEMs) should consider taking advantage of the benefits of using a hybrid cloud for their computing needs.
A post on the Technet Building Clouds blog discusses three types of clouds: private, public and hosted. A hybrid cloud is a combination of any of those — with the key being they are connected and can send information back and forth securely.
The post makes some good points about the convergence of public and private clouds into a hybrid model. If IEMs are going to move to a cloud, it will more than likely be a hybrid cloud. Some things shouldn’t go off premises, some could readily go to a public cloud and some belong in a private cloud. The convergence of all three forms the magic triad for cloud computing.
The key is that IEMs have to absorb this information to the point where it becomes actionable. That’s where we’re stuck right now. IEMs have become educated about the cloud — including the benefits and the risks — but there hasn’t been a triggering mechanism to force them to redeploy their infrastructure.
The biggest benefits of the cloud are increased flexibility and scalability. With an on-premises model, 80 percent of the money a business spends on IT doesn’t go toward anything that actually improves productivity, increases competitiveness or drives value to the business.
The IT workers are just running around maintaining existing systems. If they’re putting all their time into keeping the plumbing going, then they’re not putting any time into actually doing work that will benefit the business in the future. A cloud model allows a manufacturer to outsource the maintenance work so that its internal IT resources can provide a higher value to the business.
The Technet Building Clouds blog post outlines three benefits to using a hybrid cloud.
1.Your network can have additional capability without the capital costs typically associated with expansion.
2.A public cloud provider allows for rapid infrastructure expansion capabilities which few companies can match with their internalized information technologies.
3.Resources are accessible on demand, as opposed to waiting weeks for your private network to be developed with expensive equipment.
Source: Technet, February 2013
Could Cloud Robotics Revolutionize Manufacturing?
Strides in cloud computing could revolutionize the field of robotics, potentially bringing significant changes for manufacturers.
A post on the Pursuit of Unorthodox Ideas blog discusses how the cloud is influencing roboticists and leading to the development of what’s called cloud robotics. An especially exciting potential advancement is in design. “It [cloud computing] eliminates design constraints and gives tremendous freedom to robot designers,” the post says.
Robots could also use their “cloud brains” to access large databases. And new discoveries could be immediately available to robots.
The Industrial Internet is already laying the groundwork for this kind of adaptation of cloud computing to industrial robots. This is important because it allows machine-to-machine collaboration at the speed of light. That means machines can be more intelligent, more adaptive and more efficient without human involvement.
The single-biggest negative to this approach is the vulnerability of the cloud itself. You have to assume that periodically you’ll have access problems with the cloud due to networking issues; general Internet problems; or, in the worst-case scenario, a cyber-attack.
The problem is that when you lose your Internet connection, the robots become worthless if they’re too dependent on information in the cloud for command and control processes. In that case, once they lose contact with the cloud, the robots become useless piles of scrap metal.
Still, some of the pioneers in industrial manufacturing, such as General Electric, already are using this adaptation of cloud computing. The biggest obstacle to it becoming pervasive is a lack of standards.
For the Industrial Internet to become a reality, everyone needs to be working on the same standards and communication protocols. That just doesn’t exist today. Multi-scale, multi-layer, multi-domain and multi-system integrated infrastructures will require new foundations in system science and engineering. Engineers will need to work in tandem with computer and information scientists to achieve effective, workable designs. Standards and protocols will be necessary to help ensure that all interfaces between system components are both composable and interoperable, while behaving in a predictable, reliable way. However, it will progress quickly as humans find ways to collaborate with each other to develop such standards. Within the next decade we’ll likely see a real explosion in the Industrial Internet.
How Should Industrial Equipment Manufacturers Define Innovation?
Industrial equipment manufacturers may want innovative solutions to the challenges they face, but they may not be clear on what innovation actually is.
A blog post on the Innovation Excellence website explores this topic and discusses it in terms of technology. Innovation is something that gets talked about a lot, the article says, but there’s confusion about what it is. It raises an interesting question: What is innovation? What is the actual definition?
The article cites Martin Heidegger’s 1949 essay on innovation and technology, in which he contends that “technology both involves uncovering (i.e. bringing forth) and enframing (i.e. putting in context of a particular use).”
However, there are other ways to define it than how Heidegger tackled the question.
One way is to think of new concepts as being associated with cognitive thought or research, and innovation being the process that takes that knowledge and puts it to use. Hence why some people, companies and countries can be poor at generating new knowledge, but rich in the ability to generate innovation.
In other words, innovation is about translating some new piece of knowledge into actual output. Research is not part of the innovation process. Innovation comes into play after the knowledge has been generated — or at least formatted and theorized — and then it is converted into output.
The Innovation Excellence article follows a similar line of thinking with regard to technology, which it says involves taking existing forces and manipulating them for a specific purpose. As the article explains, “if we want to innovate by creating new technologies, we need to first discover things and then figure out how to put them to good use.”
One way to approach innovation is to use the Innovation Management Matrix, an innovation framework that the article’s author developed. This system categorizes innovation in four different ways: breakthrough, sustaining, disruptive and basic research. The article’s author contends that to be optimally successful as an innovator, companies should focus on one area, but also be knowledgeable in the others.
Source: Innovation Excellence, April 2013
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