Global Trends are Transforming the Manufacturing Industry

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Manufacturing is once again going through a transformation, but this its time focused not on costs, but innovation.

A recent Harvard Business School (HBS) survey found manufacturing companies were the businesses most active in undertaking programs and initiatives to boost U.S. competitiveness.

According to the survey, among manufacturers:
•86% are engaged in internal training
•59% are undertaking regional initiatives
•40% are offering apprenticeships
•47% have community college or other external training partnerships
•54% are sourcing locally for supplies
•45% are supplier mentoring.

The survey also showed that manufacturers rank near the top in participation in collaborative research initiatives, with 63% involved in this activity.

That’s great progress by U.S. manufacturers in embracing innovation and change in their pursuit of growth and profits. But this is not about national pride or an “us versus them” article – this is all about how modern manufacturing companies in the U.S., Europe or Asia can not only survive but thrive.

The storyline of the past few years has frequently defaulted to the idea that manufacturers around the world were pursuing lower costs at the expense of everything else. That’s no way to drive growth.

A mid-summer 2012 opinion piece in Forbes summed this up perfectly:

“Product companies and original equipment manufacturers (OEM’s) are expected to protect and grow their market share in addition to making profits for their shareholders. They get rewarded by producing great products and consistently producing solid business fundamentals. They are not rewarded for patriotism.”

A Seeking Alpha article on the state of manufacturing by Joseph Garson summed up what’s required to move beyond cost cutting:

“We expect U.S. manufacturers to increase their share of GDP, from a low of 13% in the past decade, to about 20% within 10 years. For this to happen, manufacturers must continue to invest in new products and innovative technology. In January, non-defense capital goods orders — a proxy for manufacturing investment — surged by 6.3%. This is a good sign that U.S. manufacturers know what needs to be done to stay ahead in a tough global marketplace.”

Craig Barner, writing for Merger Markets in Forbes also noted this push for innovation, with the Reshoring Initiative, a project, based in Kildeer, Illinois, that aims to bring manufacturing jobs back to the U.S.:

“A key element is to assist companies in assessing their total cost of offshoring and ‘shift collective thinking from ‘offshoring is cheaper’ to ‘local reduces the total cost of ownership,’ according to the RI’s mission statement.”

About 60 percent of manufacturers apply a ‘rudimentary’ model to assess the total cost of manufacturing products abroad, according to Harry Moser, the Initiative’s president and an engineer who trained at the Massachusetts Institute of Technology. Those organizations ignore 20 percent or more of the total cost for offshoring.

Business Insider taking a slightly different view, highlighted something similar:

“Companies see the synergies of keeping their R&D operations close to their production facilities. U.S. entities own more than one third of all global patents. Most people don’t
realize that intellectual property-intensive industries account for nearly $6 trillion, or 40% of U.S. gross domestic product and directly or indirectly support 40 million, or 30%, or all U.S. jobs. And that number continues to grow. Today, 16 of the world’s top 20 universities are in the U.S. and 70% of all Nobel Prize winners are employed here. ”

Let’s examine the key points – innovate through process and core R&D, evaluate TCO including where and how you allocate CapEx and OpEx, focus on total business value not just lowest cost production, collaborate and empower the dynamic supplier network and thereby change the face of modern manufacturing. Manufacturing is not a “fire and forget” business – at least not for the best in class manufacturers. It’s about a full product life cycle from concept, to production, to sales and customer intimacy, to product upgrades, upsells, and of course service (whether through warranty, MRO, or value-add services). There are amazing opportunities for global manufacturing companies who
focus on these values. Just look at what innovative start-ups like MakerBot or Leap
Motion have accomplished! And it’s not just small, innovative companies that are transforming themselves, it is great big companies such as Siemens as well.

As Reuters noted:

“The major reason why U.S. manufacturing is so well positioned for a renaissance is software that can bring the real and virtual worlds together in a way that erases all boundaries between the two. It connects everyone involved in product design and execution to the same network, sharing the same sets of data, to improve collaboration
and decision-making.This is nothing less than a paradigm shift in industry: The real manufacturing world is converging with the digital manufacturing world so that organizations can digitally plan and project the life cycles of products and production facilities.”

Global manufacturing industry is going through a transformation phase to emerge more innovative, more dynamic, more value-focused, it’s going to be awesome!

-Roman Bukary – AVP of Manufacturing and Wholesale & Distribution

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