Re-shoring Advanced Manufacturing

Featured speaker William L. Strang, senior vice president of operations, TOTO USA told a crowd at MODEX in Atlanta that TOTO has substantially moved manufacturing of products destined for the US market from Asia to the US. “Seventy percent of the products sold in the US today are made in the US.  As few as seven years ago, 63% of product we made in China was destined for the US.  We are incentivized at this point to make product domestically in the U.S. rather than procure from our factories in China.”  Mr. Strang went on to explain that keeping design close to the customer base and getting product to market faster is a win-win.  What about a third “win?”  The environment.  The move reduced the company’s carbon footprint: fifty percent of all the power TOTO USA buys to power its Georgia manufacturing facility comes from Georgia Power Green Energy.

Many other companies are examining re-shoring as a tool for effectiveness and efficiency.  Work we completed for the American Society for Quality reinforced the finding that companies routinely view manufacturing processes as ecosystems to be optimized from supply base to consumer. Companies are weighing proximity to demand and proximity to innovation as key drivers for manufacturing-location decisions.  Sometimes there is a clear trade-off, and sometimes there is no tension between proximity to demand and proximity to innovation.  We saw alignment of innovation and demand in GE’s R&D efforts in India: the development of low-cost diagnostic devices robust enough to be carried into rural villages and inexpensive enough to be marketable.

Robotics and automation reinforce effectiveness/efficiency. Recent work Geo Strategy did in the field of robotics points to dropping equipment costs and faster ROIs.  Manufacturers’ ability to move operations to high-cost locations adjacent demand fulfills the premium on shortened supply chains without significant cost impact.  Companies like Tesla, Apple, Flextronics and Lenovo are creating jobs in the US- jobs that  once may have gone to China, Mexico, or Poland. 

Automation is the great equalizer.  Automation allows us to take products and move them to other places in the world - places like Fort Worth, TX. - Mike Dennison, President, Flextronics’ High Velocity Solutions

Those plants will be more automated than vacated plants so the workforce must be skilled.  Talent must rise to the challenge, which means educational institutions and government entities become part of the ecosystem supporting the re-shoring of viable advanced manufacturing.

A Tale of Two Companies...

Early last year, two studies brought us face to face with Petrobras and PEMEX.   Both market opportunity projects were commissioned by global OEMs interested in selling product into the oil & gas industry.  In Brazil, we green-lighted the opportunity and highlighted strategies most likely to result in sales success with Petrobras: (unique and differentiated product, an understanding of local content laws  and local business practices, climate considerations, regions incenting investment and exploration, etc.).  The bid process in Mexico looked reasonable on paper.

But the reality was not reasonable, not simple, and typically resulted in failure.  Barriers erected to keep global companies out and PEMEX’s failure to invest in energy infrastructure resulted in serious underperformance of the Mexican energy sector.  We suggested to our client that liberalization of Mexico’s energy sector needed to occur before concerted efforts were warranted.  A national effort to open energy markets to foreign investment, a new level of transparency in bid process & procedures, and a detangling of the norms and standards and sales practices that effectively barred foreign participation  would create a sea change in Mexico. 

Fast forward six months to December 2013. Mexican President Enrique Peña Nieto signed legislation enabling foreign companies to drill for Mexican oil in partnership with Pemex.   

Then, in July 2014, Mexico's Senate voted in favor of a new Electricity Industry Act.  Background:  the Federal Electricity Commission (CFE), a state-owned utility, required private generators to sell all their output to CFE: a system that handed  the government control of electricity pricing. The new law (which is still working its way through the system) creates a National Center for Energy Control and requires that generation and sale of electricity services are to be provided within "a system of free competition."

Who’s excited? 

Siemens

AES Corp.

GE

Schlumberger

This is a win for oil & gas and energy sector manufacturers/service companies, and  for Mexico.

The party is just getting rolling... 

Wake Up Call

Study results recently released by the National Bureau of Economic Research indicate the source of an innovative idea matters.  Authors of The Acquisition and Commercialization of Invention in American Manufacturing: Incidence & Impact1 indicate that “of the 18% of the manufacturing firms that innovated (i.e. had introduced a product that was new to the market) between 2007 and 2009, 49% report that their most important new product originated from an identified outside source.”  Not only that, inventions acquired from customers were less valuable than those acquired from technology specialists (universities, independent inventors, and R&D service firms). The authors infer that if inventive ideas from outside sources were removed, the percentage of innovating firms in the American manufacturing sector drops from 18% to 10%.

US manufacturing needs more efficient tech transfer protocols.  

What better shot in the arm than tech transfer from America’s National Labs?  As currently configured, the National Labs (NLs) are not optimized to contribute to US manufacturing innovation: the system needs to evolve.  This idea is gathering steam in Washington as organizations as diverse as the Information Technology & Innovation Foundation, the Heritage Foundation, and the Center for American Progress, and individuals as diverse as Senators Marco Rubio (R-FL), Mark Kirk (R-IL) and Dick Durbin (D-IL) have lined up behind the American INNOVATES Act (INNOVATES = Implementing New National Opportunities To Vigorously Accelerate Technology, Energy, and Science).  The American INNOVATES Act lays out means for transferring of NL R&D results to the private sector; improving NL operations and performance; developing a coordinated strategy for the NLs in the 21st century; giving NL directors signature authority for cooperative R&D agreements up to $1 million; permitting NL directors to use DOE tech transfer to carry out early-stage and pre-commercial technology demonstration activities.  There are other provisions in the bill’s language that similarly benefit the private sector. https://beta.congress.gov/bill/113th-congress/senate-bill/1973/text

US manufacturers would benefit from this shot in the arm.  Washington, let’s get it done.

1 The Acquisition and Commercialization of Invention in American Manufacturing: Incidence and Impact, by Ashish Arora, Wesley M. Cohen, John P. Walsh, National Bureau of Economic Research, Working Paper No. 20264, June 2014

No Good Secrets

The dawn of the intelligent enterprise has changed manufacturing forever. The ability of the c-suite to have real-time visibility into the enterprise from financial, operations, supply chain, workforce, and sales perspectives has moved from nice-to-have to must-have. The need for intelligence inside and outside the enterprise has created a new generation of business intelligence tools finding their way inside the manufacturing sector.


The manufacturing sector’s early acceptance of six sigma tools, like familiarity with DMAIC (define-measure-analyze-improve-control) exercises, gives most manufacturers a solid basis for intelligent enterprise transformation. Given the level of automation found in many manufacturing plants and the increased use of wireless technology within any given plant, one would think that manufacturers lead the way.

When Alan Mulally arrived at Ford Motor from Boeing, however, he did not find that. A 37-year veteran of an aerospace company known for intelligent large-scale systems integration, Mulally was confronted by a siloed giant containing fiefdoms with a history of hoarding information and sabotaging previous restructuring efforts. The problem was not that the information wasn’t being collected: the problem was that it was not being shared. Mulally instituted a weekly management meeting in which every iota of data was shared with the executive corps in charts that detailed reports of newly-formed product teams and skill teams.

Neutralizing “information hoarders” can be done by a manager like Mulally, but it is even more efficient to take the keys away before hoarding occurs. Next generation BI software, which goes beyond traditional ERP systems, is giving manufacturers the ability not just to collect real-time information on the enterprise, but deliver to management fast, flexible, and scalable reporting solutions. BI provides what every great manager wants: a single version of the truth... and no secrets.

Tapping Into Innovation

Two years ago, we were tasked with finding out whether corporations were building purpose-built nano research facilities at the same pace as universities were. Dozens of calls were made to corporations, thought leaders, equipment suppliers, architecture and engineering firms and other targets. We concluded that what was happening in the universities bore no resemblance to the way corporations did nano-scale material research. For the most part, companies work with research universities or national labs on basic research- they utilize their equipment, their eminent scholars, their best graduate students. When something shows promise or a solution is imminent, the companies bring the project back in-house for commercialization. The disaggregation of corporations from the capital equipment (scanning or transmission electron microscopes, plasma etchers, oxidation & diffusions furnaces, optical or EUV lithography, etc) that does the heavy lifting is a fairly new phenomenon. Because of the high cost of this equipment, business models have evolved that rely on collaboration to control costs, extend current technologies, and commercial new ones. This pragmatic approach has paid off for corporations.


Proctor and Gamble has embraced disaggregation to the point where they not only don’t need the R&D equipment, they don’t need to own the product development engineer. P&G’s connect + develop initiative has taken the practice of accessing externally developed intellectual property for one’s own business and allowing one’s internally developed assets and know-how to be used by others to a new level. P&G is using MillionBrains in addition to their own portal.

This sort of pragmatic, cost-effective, “coopertition,” will deliver innovation without the cost of R&D equipment or basic product development experts. P&G, a global consumer products company, will continue to delight customers by tapping into innovative idea wherever they might be found.

“When a man is healthy, he has many dreams. When he is sick, he has but one.”

True regardless of socioeconomic status or geographic location. GE, Siemens, and Philips manufacture world-class diagnostic equipment. But one, GE Healthcare, has focused on delivering diagnostic solutions to people at the top and at the bottom of the pyramid.


GE began because Edison, the inventor who eventually held 1,093 US patents, wanted to solve problems for everyday people: problems related to illumination, power, sound, communication, and transportation. He wanted to make life better for the average man and he understood that accessibility to solutions would only happen if the affordability gap was addressed. Edison stated “We will make electricity so cheap that only the rich will burn candles.”

GE Healthcare has R&D facilities in a number of countries, but it was the research team in Bangalore that carried the water to GE corporate in terms of providing affordable diagnostic equipment to doctors and clinics serving India’s poorest. The biggest challenge for the team was not functionality: it was bringing the device to market within a price range that would be accepted by Indian healthcare workers and institutions. While equivalent GE devices could sell for tens of thousands of US dollars, the research team recognized that a diagnostic device developed for this market would have to sell for $500-1000. The research team, with GE approval, developed a value segment. The new value segment focused two things: a) keeping product costs down while keeping quality intact, and b) learning how/if the existing sales/marketing assets could be leveraged to sell to this segment.

They did it. GE’s MAC series has forever altered global accessibility to critical cardiac diagnostics.

Then, in another moment of brilliance, the company realized that with a little reengineering and without substantially cannibalizing sales of high-end products, GE could bring a mobile device, the MAC 800, to the US market. Bloomberg Businessweek titled the trend trickle-up innovation but adds that not all manufacturers are comfortable selling emerging market hand-me-ups in the West.

GE Healthcare. Best in class. Best of show. Deliverer of dreams.

Just in from NAM/IndustryWeek

According to the NAM/IndustryWeek Manufacturing Index — 2nd Quarter 2010, published by the National Association of Manufacturers and IndustryWeek, 74% of manufacturers were optimistic about future prospects in 2Q 2010: a sharp contrast from the 28% who said that in Q1 2009.

Business Outlook (% of firms with a positive business outlook)
2008.1    64%
2008.2    52%
2008.3    41%
2008.4    33%
2009.1    28%
2009.2    42%
2009.3    55%
2009.4    60%
2010.1    70%
2010.2    74%

For a fifth consecutive quarter, the share of respondents with a positive business outlook increased, however the pace of improvement slowed compared to the previous four quarters. Does that mean that the manufacturing recovery will decelerate? Not if Washington reads the signals and holds on regulatory changes that stifle growth. Not if exchange rates hold and US manufacturers continue to find customers in the global marketplace. The biggest challenge will be putting American workers back to work so consumer spending rebounds.