Implications for ‘On-Demand’ Manufacturing

When asked if they were considering pulling their manufacturing facilities out of China, 45% of US-based CEO’s interviewed in a recent Boston Consulting Group survey, said the idea was under serious consideration. Has manufacturing in China become too expensive for American companies or has new tooling technologies and processes eliminated the need for China’s cheap labor? If the trend for US companies is to return to the US or ‘reshore’, what will the new industrial landscape look like in the next few years?  How should CEO’s, government officials and job seekers prepare? 

With more machines replacing workers, China’s appeal as a global manufacturing base is wearing thin. According to an MIT Forum on Supply Chain Innovation (supplychain.mit.edu) held on July 25, US firms are taking a closer look at the Total Cost of Ownership (TCO) and have discovered a slew of hidden costs that ‘cheap labor’ has been masking all along. For instance, US firms that outsource their manufacturing to China are often forced to absorb 100% of a product’s liabilities, since China’s legal system is virtually unenforceable. ‘Made in USA’ also translates into increased quality control, which in turn can keep a tighter lid on counterfeits, a chronic issue with Chinese producers.

The US government along with non-profit organizations are pushing awareness-campaign web sites along with evaluation tools to encourage more US CEOs to consider ‘reshoring’ sooner, (reshorenow.org).  Congress believes that ‘reshored’ manufacturing plants in the US will help create sustainable jobs in economically depressed regions, while providing much needed positive news for unemployed voters.

Contrasting policies: US vs China
While the US is ‘reshoring’ its operations to setup state-of-the-art manufacturing facilities back home, China is aggressively retooling its existing facilities to replace many of their low-wage workers. Foxconn Technology Group (foxconn.com), also assemblers for Apple products, recently announced plans to replace two-thirds of its work force with one million robots by 2013. These robots will be made in China, courtesy of the many US-trained Chinese engineers who have been forced by the US government to return immediately after graduation. US firms such as Boeing, iRobotics, and IBM have lobbied heavily in Congress to prevent this unnecessary ‘brain drain’ by requesting the issuance of work permits and extended visas with fewer restrictions to encourage qualified foreign students to remain in the US longer.

A glimpse at the future…
The implications of the US’s ‘reshoring’ and China’s retooling is starting to lay down the foundations for ‘on demand’ manufacturing where products are produced not only on an as-needed basis but also to a buyer’s specification at the time the order is placed.  Shipments would arrive either immediately (i.e. at a retail outlet) or on the same day.  A glimpse into the future shows how this phenomenon could be achieved using clusters of networked mini-plants and warehouse facilities.  A possible rendition of this concept follows:

In the not so distant future, tooling companies will eventually perfect the design of a fully automated manufacturing facility that can fit and operate inside a 20 or 40 foot container for easy transport and installation anywhere in the world. These modular containers would be networked together, stacked to meet seasonal demand, and monitored remotely. They would be as mobile as laptops are to professionals today offering unprecedented agility and optimal efficiencies based on a multitude of input and output variables.  Hence, if the price of raw material were to suddenly drop below a certain level in one part of the world or a market preference demand spike in another, mini-plants would be moved accordingly to take advantage of the opportunity arbitrage.

Mini-plants moved from one location to another would plug in the same way a voip phone (VOice of IP) operates today.  Once plugged into the network, the plant would operate as though it were located in the same office as the employees hired to operate it.  A comprehensive network of plant modules would optimize order flow by producing products closest to the buyer, hence, reducing or eliminating both inventory and transportation costs. Plant capacity would vary from as little as one unit using 3-D printing technology, for example, to multiple custom units using a network of local machines. (3Dsystems.com). Eventually smaller, faster, and safer machines will enable new industries such as urban factories that would locate mini-plants adjacent to designated retail outlets.

If evaluated in pieces, this futuristic vision is already in play today. Beginning with the recent landing of Curiosity on the planet Mars, one can be certain that remote operations of large machinery is on course to improve with time. The ‘on-demand’ manufacturing idea is currently being tested at a large grocery chain in New Jersey where vegetable produce is grown indoors, one floor above the retail space using hydroponic farms, (city-hydroponics.com).  The mini-plant/warehouse combination is a soon-to-be reality at Amazon as it responds to a recent sales tax levy.  Amazon plans to setup smaller warehouse operations in all 50 States to offer same day delivery for their most popular items.  It would be only a matter of time before they decide to manufacture some of these items under their own brand at these same sites.

Implications…
Consumers may love the idea of some day ordering exactly what they want, when they want it and to receive all of this exceptional service at an affordable price, since supply chain cost would have been significantly reduced. However, these technological advancements have a darker side.  They come at a steep social cost because they eliminate more jobs than they create, an issue that can no longer be ignored as unemployment continues to rise globally.  This serious dilemma leads to the second part of this article by asking the following question.

If technology advancements, which continue to grow at an exponential pace, are eliminating more jobs than they can create, what, then, can CEOs, government leaders, and job seekers do to rebalance this trend?  

There really is no one answer or silver bullet that will solve this problem.  Part of the reason is that the benefits from adapting new technology today can easily reach a global population at exponential rates.  As greater numbers demand more for less (and in a shorter time period than ever before), technology continues to advance at an unstoppable pace stripping our planet of its precious resources, while also eliminating jobs.

Has the pursuit for new technology become a runaway train?  If so, the only antidote to counter its job loss effects would be to integrate innovative thinking at every level of society and at a global scale.  With this new initiative, every breathing individual would partake in some form of innovation group exercises regularly, to build upon experiences, new ideas, and ultimately unveil breakthrough solutions.

A few ideas so far…
Chile’s government has taken a bold move. They have been offering a no-questions-asked stipend of forty thousand dollars to any young, unproven web entrepreneurs with a good idea, if the approved candidate agrees to spend six months working on their new startup in a newly established innovation incubator located in Santiago, (startupchile.org). This initiative has inspired Chile’s young adult population to start their own companies, while being mentored by some of the best entrepreneurs and developers on the planet. A simple but powerful idea, Chile has created a valuable global supply chain for its own innovation needs.

Chile is not alone.  Many countries have developed innovation centers too and support regular networking events for techies and entrepreneurs.  For example, New York City has Gary’s Guide (garysguide.com), a weekly calendar of informal discussions and gatherings.  There anyone who may be testing the waters can share ideas, look for partners, and attract funding. Many of the gatherings listed are free or cost less than $25 to attend. Also, Boston offers Mass Innovation Nights (innovationnights.com) where startups compete and vote for funding among their peers.

At the corporate level, Facebook offers a good example for CEOs with their ‘hackathons’. Each week, a group of programmers spend an evening, developing new application ideas that are later presented and voted upon the following day. Ideas are implemented, tested and ranked.  Those ideas that come out on top can usually point to a long trail of previous ‘hackathon’ events and results that led them to an optimal solution.

Job seekers should seek ways to update their skills by taking advantage of some of the many free online courses being offered this Fall through various top universities including Harvard/MIT (edx.org). These are not accredited courses, yet, but do an excellent job of teaching current and relevant materials.  Another good source to brush up on high school and college basics is Khan Academy (KhanAcademy.org). If learning a new computer language such as Java or HTML5 is on your to-do list, consider signing up for a free trial at Safari Books Online (safaribooksonline.com) where they offer access to current libraries of technology books. Many more options are available through your favorite search engine.

A Call-to-Action!
To maintain our economic drivers going forward, the balance between new technology and job creation will require the efforts and contributions of every living person including YOU. That is because no one person or company has the answer.

Regardless if you are a CEO, a politician, or a job seeker, sitting on the sidelines with the hopes that this economic storm will soon blow over may not be your best choice. Instead, consider moving away from the receiving end of innovation and partake in its creation. You can start by participating in any one of the rapidly evolving community-based initiatives located near you. As you learn more, keep in mind that this new era of ‘on-demand’ manufacturing is as much about producing products more efficiently as it is about stimulating innovative thinking. One cannot survive without the other.

If you are looking for ideas to integrate an innovation culture among your staff or team, please contact me directly at tom@researchpays.net

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One Response to Implications for ‘On-Demand’ Manufacturing

  1. Ron Jacques says:

    Dear Tom:
    Great article. As a Continuous Improvement, Six Sigma and OpEx professional with over 25 years in manufacturing, I never did agree with off-shoring as I always saw the “hidden” costs. The cost and time associated with off-shoring years ago and the associated loss of “skilled” talent will challenge many companies who choose to come back to be closer to their consumers.

    I only hope that it happens at an accelerated pace for the sake of the US economy. Those with economic backgrounds realize that an economy founded upon a manufacturing base is infinitely stronger than one based solely on services. The number of turns associated with each dollar of sales is that much greater. All hail the return of manufacturing.

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