Post on 05-Dec-2014
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Chuck Pharris Manufacturing Solutions Marketing
Future of Manufacturing 20+ Years
We should all be concerned about the future because we will have to spend the rest of our lives there."
-- Charles F. Kettering
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Future of Manufacturing? 50 years of predictions*
Fifties n Improvements in mass production developed during World War II n Computerization and quality processes are future
* Advanced Technology and the Future of U.S. Manufacturing Georgia Tech Policy Project on Industrial Modernization 2004 ** Automation: Its Impact on Business and People, Walter Buckingham (1961) *** Pavitt, Keith (1973), Technology, International Competition, and Economic Growth: Some Lessons and Perspectives, World Politics, Vol. 25, No. 2. (Jan., 1973)
Sixties n Focused on automation and its limitations. n Emphasis on globalization and the future proliferation of multinational corporations. n ** “Automation could actually increase operating expenses due to loss of flexibility, increased risks,
and time-consuming changeovers.”
Seventies n Rise of the microprocessor on shop floor. Debate - “deskill the workforce or result in more creative and complex work”. n Labor-intensive nature of software development costs predicted to increase with absolute costs of software. n *** Multinational firms moved manufacturing and assembly to less developed countries for lower labor costs.
60’s
Eighties n Rise of strong Europe and even stronger Japan n Foreign competition moved from low cost labor to technology adoption and manufacturing techniques n New materials, computerization of shop floor, computer integrated manufacturing (CIM), quality based practices
Nineties n http://www n Race to adopt Japanese management notions into new business and product alternatives n Technology taxonomies, manufacturing unit processes, industrial ecosystems, corporate merger strategies, outsourced/
contracted R&D, and off-shore workforce tactics.
2000’s n Globalization, geo-political n Low-cost competition drove technological forecasts n New product development technologies, sustainable manufacturing, knowledge management practices, nanotechnology
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20+ Years
Economics & Manufacturing
Economics = production, distribution, and consumption of goods and services.
Macro – Employment, Interest, and Money < ------ > Micro – Economic behavior of agents
Adam Smith David Ricardo John M. Keynes Milton Friedman
Production of Income Land vs
Labor & Capital Investment Needed Shortage of Money Different
Agriculture Mercantile Services Industrial
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Micro-Economics & Manufacturing
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
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Raw Materials - Historical
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Key determinant of national wealth
n Drove colonialism, mercantilism, and wars n Only source of wealth of undeveloped countries
Historical Perspective
Factors of Production
n All new potential wealth, the foundation of all prosperity, comes from the earth. You can either harvest something or mine something to create new potential wealth.
n Human labor produces raw materials to create jobs and incomes. This consolidation of human labor producing raw materials enables the economic cycle that manifests new wealth.
n The economic cycle emerges through the structure of trade. This structure of trade must manifest a sufficient level of wealth to afford all finished goods and services or it becomes unsustainable due to growing debt.
Economics of Raw Materials
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Raw Materials - Trends
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Intangibles – Intangible value exceeds tangible n Sustainability Focus n Energy – China surpassed US (< per capita)
Current Trends
Intangible vs Tangible Value
Source: Global Intangible Tracker – 2007, BrandFinance WSJ – China Tops US in Energy – July 18, 2010
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Raw Materials - Future
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Hoarding – China acquisitions (Canada/Ven/Russia/Australia) n Localization – Saudi Arabia diversification – naphtha, aluminum n Money – Factor of Production? (end of mainstream economics?)
n Geo-politics – Afghanistan minerals
Case for Traditional Role
Hoarding Localization
Money - FOP
Self-sufficiency New materials Intangibles (+)
n Self sufficiency n New Materials n Increase in non-natural resource wealth creation (services,
intangibles)
Case for New Role
n Strategic risk role of procurement n Increased emphasis on manufacturing innovation/product design n Drives localization of manufacturing capability vs mass transfers
n Crude oil valued as raw material vs energy furthering pressure on shift of transportation fuels
Conclusions: Impact on Manufacturing
Per Commodity
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Machinery
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Enabled industrial revolution n Key to increased productivity in agriculture and industry
Historical
n Self Assembly n Nanotechnology n Bio-inspired manufacturing
n Opto-electronic materials n Specialized synthetic membranes
Future – Dramatic Revolution in Mfg Machinery
Genetically Engineered Materials
n Multi-disciplined – not just engineering n Reduce need for scale / micro-factories / make to order n Manufacturing production machinery will become increasingly agile,
flexible, and sophisticated. n Need for international standards in new production machinery.
Conclusions: Impact on Manufacturing
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Labor Outsourcing and offshoring
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
Outsourcing – Not Manufacturing Decline
Source: Comparisons & Analysis of U.S. & Global Economic Data and Trends, SRI Intl. - 2004
Productivity Increases
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Labor Productivity
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
Productivity and GDP
Comparison of labor costs in the clothing industry
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Labor
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Low cost labor IS current key competitive differentiator of manufacturing n Automation perceived/concerned as de-skilling n Full employment is key economic goal
Historical
n Current developing countries reach relative parity n Specialization increases as productivity increases n Geographic diversity increases as knowledge component increases
Future
n Increased manufacturing productivity in developing countries is correlated in increased personal income levels which drives increased education and skills
n Localization of manufacturing returns without cost advantage
n Value focused on IP vs ‘brute force make’ – shifting skills n Outsourcing productivity benefits replicate in larger role of componentization
n Instead of deskilling, automation continues to retain productivity with shift of resource focus
Conclusions: Impact on Manufacturing
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n Customer capital (brands, customer relationships, relationships with marketing and distribution partners etc.), other business partner capital (supplier relationships / supplier network, contract manufacturers etc.)
Capital
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Employees’ individual professional expertise and skills, social skills, entrepreneurial engagement, ability to innovate and respond to changes
Human Capital
Relationship Capital
n Business infrastructure/processes, working methods, information systems, databases, intellectual property (patents, copyrights, trademarks), organizational design, location advantages, corporate culture
Structural Capital
What Are Intangibles?
n Deleveraging – Growth in Int’l Equity -> Shifts availability to developing countries
n Equity is more fluid, but more volatile -> caps multi-national consolidation growth
n Equity capital follows innovation (Apple vs Msoft).
Future
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Land
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Drove migration, geopolitics, and wars n Thomas Malthius - ‘population checked by famine, disease, and widespread
mortality’
Historical
n Absolute scarcity of land won’t change – § Other types of ‘land’ (e.g. frequency spectrums, orbital patterns) can be
enhanced through technology and substitution (e.g. digital TV)
§ Demand decreases with increased productivity and technology § Scarcity is not in absolute terms but in secondary usage resources; water,
access, environmental capacity.
Future
n Sustainability reaches rapid adoption due to fundamental inherent scarcity n Continued marginalization of importance of raw land due to shifts in economy (ag->ind->svcs) enabled by technology
sustaining and increasing productivity levels
n Enables developing countries to accelerate parity with diminished importance on land as scarce item. Enables them to find competitive differentiator without this inherent constraint weighing on them.
Conclusions: Impact on Manufacturing
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Enterprise – (Entrepreneurism)
Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise
n Rapid pace of innovation/design n Globalization – In innovation vs financial n Componentization/Specialization
Future
1. There are innovations that sustain things that already exist: they make things better, they make business models stronger.
2. Then there are innovations that disrupt what is there: they create markets that didn't exist or they transform markets that do exist by doing things fundamentally differently.
Innovation
Korea Patents Awarded n Globalization (failed from financial point of view), but continues to thrive from the
innovation point of view. Big push for diversity in large corporations is trying to capture this (not EEOC).
n Increased product cycle times and make to order capability n Close integration with customer to realize innovation
n Must capture value of human, relationship, and structural capital
Impact on Manufacturing
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Summary Global Parity Shifting Competitive Differentiators
Traditional Competitive Differentiator Future Trend
n Raw material export for wealth creation n Shift to intangibles n Sustainability n Consumed internally
n Machinery • IP & Capital were barrier • Mass production/scale
n Fluid equity markets n Manufacturing microtization n Make to order (mass customization)
n Low cost unskilled labor in underdeveloped countries
n Educational and per capita income parity n Collaborative knowledge worker n Increased specialization
n Capital availability n Fluid equity markets n Equity capital follows innovation (intangibles)
n Land – ultimate scarce item n Marginalization of land with technology n Global sustainability is required
n Globalization & multi-national consolidation necessary for growth
n Globalization is now in innovation n Parity, microtization, and componentization drive localization n Componentization and specialization de-emphasize scale
n Innovation • Restricted access to IP
n Developing countries established R&D n Realization of intangible value (IP/brands) n Componentization enables de-scaling and localization of
manufacturing n Consumer driven innovation
© SAP AG 2009. All rights reserved. / Page 16
Summary New Innovation Economy
Agriculture Mercantile Services Industrial Innovation Economy
n Hybrid mix of products and services n Hybrid manufacturing process focused on componentization n Rapid product design, delivery, and make to order
n Core competency of manufacturing: To capitalize on competitive differentiation of innovation economy:
n Exploitation of Intangibles….human, relationship, and structural
n Return to physical localization of resources, labor, and manufacturing execution, but still globalized in innovation processes
n Focus on innovation and customer/consumer intimacy neutralizes dependency on efficiency of scale in corporate size and geographical consolidation of manufacturing types.
Characterized by
“I can make a whole lot more money skillfully managing intangible assets than managing tangible assets”
Warren Buffet, CEO Berkshire Hathaway
For this vision,… second the successful launching of new business models by optimizing intangible assets at the maximum level; …
Hwang Doo-yul Vice Chairman & Executive Officer of SK Corporation Korean Refiner – 45B Assets, #51 of Platts Top 250
Why Humans Succeed: Collective Intelligence
WSJ – May 22, 2010
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