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. 

Reverse Innovation

Just after the dot com economic bubble burst at the turn of the century, surviving CEO’s boasted how well they had managed the ‘reinvention’ of their companies as well as the job descriptions of their employees. Being flexible meant a company was nimble and ready at a moment’s notice to pounce on the next upcoming opportunity, but about 8 years later and shortly after the 2009 economic crisis, everything changed.  ‘Reinvention’ was out, while the new term, ‘Innovation’, was in. What caused this change?  …and how can CEO’s inject this ‘new era of innovation’ into their company cultures?  

In a recent New York Times bestseller titled, “Reverse Innovation”, co-written by Vijay Govindarajan and Chris Trimble, the authors claim that most CEO’s truly do not understand how to leverage innovation in a connected world.  …and for those that do, their corporate culture would have great difficulty supporting innovative ideas that are not incremental to their existing operations.  Almost counterintuitive, the more efficient and successful a firm, the less of a chance it can fully leverage this ‘new era of innovation’.  Why?  The reason for the shortcoming has nothing to do with a firm’s ability to come up with new ideas.  Most of their technicians are smart and well prepared, and yet, herein lies the core of their problem.

Smart people like to become smarter by building upon a previous design or success.  They know how to continuously deliver improvements to a product or service, and as they continue down a preferred experience curve, they tend to innovate within their established comfort zones.  In addition the base of loyal customers that buy their products contingent upon incremental enhancements is dwindling, not growing.  At some point, like in the case of GM prior to its government bailout, either the Research & Development (R&D) team will run out of new ideas or the reduced number of loyal customers who demand more features will become financially unsustainable.

What then should a CEO do when their R&D department reaches a plateau and stops delivering on new and exciting ideas for the majority of their customers?

The CEO could replace the R&D team’s leader with another, but most likely, the new leader will come from a competitor and be just as narrowly focused on features as his predecessor.  There is also the enormous investment in lab and testing equipment that indirectly influences the direction of research and the scope to invent new ideas.  Many labs leverage their knowledge-base with other labs and together could create an even narrower preferred niche for innovation.  Aside from scrapping the department entirely and starting from scratch, a CEO might consider a hybrid solution as highlighted in Vijay’s book on ‘Reverse Innovation’.

In 2008 Vijay’s preliminary work on reverse innovation caught the attention of Jeff Immelt, the CEO of General Electric or GE.  Immelt knew that his super efficient operations at GE were potentially hurting his R&D efforts to innovate new products, company-wide. Over the years his company’s vision to innovate ‘out-of-the-box’ had become myopic in an environment where success was measured by cost reductions rather than sales to new markets. He also knew from his previous experiences in India and China that exporting his goods to emerging markets would have limited success, despite design adjustments to reduce price points.

Immelt felt that if he could somehow harness emerging market intel at a local level and pass it along to his formidable R&D teams located in developed countries, that he would win big.  Not only would he gain valuable insights to new ideas but also offer his R&D team with unprecedented access to ‘live’ laboratories of potential buyers for field testing new ideas and further tweaking of their existing designs. With this plan in mind, Immelt turned to Vijay and his team at Dartmouth to evaluate implementation strategies that could co-exist with GE’s behemoth, efficiency-driven operation. In so doing, Vijay coined the GE initiative the same as the title of his book, “Reverse Innovation”. …which refers to the direction of information flow from a disorganized emerging market to the confines of a sophisticated lab team in a developed country. (Traditionally, innovation begins within the confines of a lab team and their final results exported to emerging markets.)

Vijay’s recommended implementation strategy offered GE’s labs with a rich inventory of field-tested, innovative solutions that could potentially unleash a renewed culture of exciting possibilities, company-wide.  In his book Vijay covers 6 more similar case studies with other organizations and concludes with an open invitation for additional insights. To that end, I have chosen to add my two bits.

An Alternative Approach
Aside from improving an R&D team, a reverse innovation approach could also become a game-changer if applied at a company’s Human Resources level.  Hiring has virtually followed the same process for decades, where recruiters or hiring managers sift through thousands of resumes and are rewarded based on how well they can match candidates with a job description. However, if we apply some of what Immelt and Vijay have taught us so far, hiring just to match a job description may create the same incremental way of thinking that was shown to insulate a group from innovating new ideas.

Perhaps firms should view hiring as a strategic opportunity to inject outsider perspectives that would otherwise never surface among their current employees.  With online training easily accessible, companies should consider hiring based on one’s ability and willingness to expand their knowledge-base so they can participate in meaningful dialogue with multiple department heads.  Similar to the contributions from emerging markets that helped GE grow, these ‘field-tested’ innovations from new hires could trigger a renewed culture of exciting possibilities, company-wide.

What is your opinion?