Posts Tagged ‘manufacturing’

In a recent article from Trends eMagazine entitled “China’s Day Never Came” editors there make the point that, despite a 2017 report from PwC projecting that China will become the world’s largest economy “by a significant margin” by 2050, it all depends on how you measure.

PwC uses a measure called “DGP at PPP,” or Gross Domestic Product at Purchasing Power Parity to adjust for price level differences across countries, thus providing what they believe to be a better measure of the volume of goods and services produced.  But Trends argues that according to a different measure that includes market exchange rates, the U.S. economy will still be twice as large as China’s by 2050.

Without drilling down into the economic arcana, and the abstruse nature of Chinese economic data to begin with, it’s interesting to note Trends’ very different conclusions about the growth of the U.S. vis a vis China and others.  In a nutshell, they point to the accelerated return of the U.S. manufacturing sector as among four critical reasons why the U.S. will hold its own in the decades ahead:

  • China’s key advantages – the size of its population and low cost of labor – will erode by the end of the next decade. Thanks in part to the one-child edict of the 1970s, population will begin to decline in 2030.  Meanwhile, wages will continue to rise, and China’s low-cost-leader position will become ever more difficult to maintain.  Already wages in China average about five times those in India, and more elsewhere, according to a recent report by CNBC.
  • Automation will accelerate the return of the U.S. manufacturing industry while causing the decline of China’s manufacturing. This is a big one, according to Trends’ editors.  Robotics and additive (or 3-D) manufacturing are making the U.S. competitive in high-value goods.  Lower costs of distribution from shorter transportation distances and cheap fuel means U.S. companies can now manufacture products for domestic consumption at prices competitive to imports.
  • China’s birth rate will fall while its elderly population will expand. By 2030, one-fifth of Chinese will be over 65.  Consumer spending will lack its expected potential given only one child to support both elderly parents as well as their own families, even with rising wages, putting increased competitive pressure on the Chinese economy.
  • The wealthiest Chinese won’t boost their homeland’s economy, but will move assets to other countries instead. It’s already happening.  In fact, The Wall Street Journal reported in 2014 that nearly two-thirds of ‘high net worth individuals’ polled were already emigrating or planning to do so.

These trends bode well for the strength of the U.S. economy and particularly our manufacturing sector in a global competitive environment.  Once again, automation is helping to lead the way, and if history is any guide, that will only open up still more jobs, not fewer, in the decades ahead.

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… of jobs being lost to the new wave of automation, robots and artificial intelligence, total aggregate employment in our nation continues to increase relentlessly, even with bumps along the way.  In other words, robots are not going to steal all our jobs.

With Elon Musk recently warning that robots will “do everything better than us,” and a 2013 paper from the Oxford Martin School claiming that 47% of all jobs are at high risk of falling to computerization in the coming decades, the fact is that jobs are constantly changing, shifting and evolving.  It’s nothing new, and it’s nothing that we – especially those involved in U.S. manufacturing – need panic over.

A recent analysis by the Information Technology & Innovation Foundation quantified the rate of job destruction and creation for every decade going back to 1850, based on census data.  Among other things the report showed that 57% of jobs that workers did as recently as 1960 no longer exist today (adjusted for workforce size).  The largest losses were suffered among office clerks, secretaries and telephone operators.  That’s a lot of Mad Men era folks out of work, right?   And let’s not forget elevator operations, bowling pin setters and gas station attendants.

The point is, we have a long tradition of losing jobs due to automation, but invariably we see new jobs take their places.  More often than not today, robots, artificial intelligence (AI) and the like are often automating discrete tasks more than they are jobs.  By 2055, McKinsey predicts, more than 50% of all work-related tasks will be subject to automation.

So why, with this long history of job attrition, do some continue to insist that the sky is falling, or that this time is different… that we are headed to some jobless future of mass unemployment?

The gist of the doomsayers’ argument voiced by many futurists and experts, according to a recent article in the Wall Street Journal (7-22-17) seems to be that the new wave of AI computers and robots can “do virtually any job that humans can do, so everyone’s job is on the chopping block.”  AI is getting so intelligent, the logic goes, that it’s smart enough to recognize cats, drive cars, identify cancers and translate across languages, notes the Journal.  So won’t it soon be capable of doing anything a person can?

Not so fast.  What these tasks have in common mostly is finding patterns within large data sets.  It would be a mistake to extrapolate from this big data analysis some giant leap in duplicating human intelligence.  Today’s AI is often just straining through massive bits of data, whether it’s recognizing a face or putting bunny ears on your selfie.  They are no more a threat to “human primacy” says the Journal, than “automatic looms, phonographs and calculators, all of which were greeted by astonishment and trepidation by the workers they replaced when first introduced.”

Moreover, as wealth continues to increase (as it historically always has) those consumers are likely to allot a growing share of their income to personal services, the very sector where face-to-face interactions are critical to the value delivered.  Says the article’s author, Stanford AI Professor Jerry Kaplan, “the irony of the coming wave of artificial intelligence may be that it heralds a whole new era of personal service.”

And that means: plenty of jobs.  After all, once over 90% of us were farmers; today it’s 3%.  And unemployment is near an all-time low, while employment is at an all-time high.  Meanwhile, standards of living around the world continue to improve as we shuffle jobs from one category to another in the familiar cycle of creation and destruction.

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In our prior post we suggested how additive manufacturing, also known as 3D printing, will be a major consideration in the customized world of the factory of the future.  We’ll wrap up the line of thought today with a few observations on why, and the economic impact, with some help from editors at The Economist (7-1-17).

Manufacturers often start production either by building small runs of prototypes, or sometimes by making small numbers of high-value items for special applications or markets, before tooling up to larger production runs on more mass-market items.

One British company called Domin Fluid Power is using 3D printing to change the equation.  When this design service company decided to start making its own products, they picked high-performance hydraulic pumps and servo-valves, devices that control fluids in a variety of applications from aviation and aerospace to factory plant floors.  The question they faced was which market to go after.  The answers are revealing.

While aerospace offers good profits from high margins, it’s a low-volume business, fraught with time delays, layers of prototyping and costly risks.  The industrial and general equipment markets are generally broader and arguably easier to enter, and they can help companies get up to volume production quickly; however, they’re price sensitive, with inherently lower profits and margins.

Domin had acquired a 3D metal printer from a German firm, and realized that economies of scale were different with 3D.  Changing designs meant only software modifications, not wholesale shop floor retooling.  Operationally then, unit costs were roughly the same whether they made five of an item, or 500 or 5,000.

And importantly, manufacturing with 3D requires less material.  Unlike traditional methods that require removing excess materials, as well as burnishing, abrading, cutting and drilling… 3D products can emerge fully formed with little or no waste.  Over time – and production volumes – that adds up to significant savings, and a reduced cost of goods.

An analysis done by Domin revealed that, as always, reduced product weights held value to varying degrees across applications.  For instance, saving a couple pounds of weight when building a Formula One racecar might be worth over $100,000 relative to the value of a win in a world of tight tolerances.  (“A kilo saved is a trophy won.”)  In spacecraft, they calculated the value at about $25,000, in aircraft, from $1,200 to $13,000, in automotive from $20 to $600, and finally, in factory equipment, from zero to perhaps $6 per two pounds of weigh saved.

All this makes for lighter, less expensive (i.e., less material) and often more valuable end products.  And with 3D printing, the costs per unit were essentially the same across any size product run.  In Domin’s case, the analysis led them to decide to enter the low-end of the market first with a competitively priced servo-valve.  But since essentially the same valve could be used in mobile hydraulics in tractors and trucks, they can move up the profit scale at little added cost.  And in fact, they’ve found aerospace applications for which they hope to qualify, and with some modification, they say they can crack the racecar market too, thus opening the way to automotive.

3D printing opened all these markets to them, and is making them competitive on the low-end and capable at the high end, all while managing production at lower costs very effectively.

The benefits of 3D will spread throughout industry, as Domin illustrates.  And weight reduction and cost reduction will always have the manufacturing marketplace advantage.


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We return again to the growing importance of additive manufacturing, commonly known as 3-D printing, as its impact upon our country’s industrial base continues to expand.

3-D printing will prove to be one of those “manufacturing revolutions” that, like others before, take time to be transformed – and transformational.  As The Economist notes in a recent (7-1-17) article on the matter, way back in 1733 a fellow by the name of John Kay, a British weaver, invented the “flying shuttle” which allowed for the production of wider pieces of cloth than previously possible.  Because it could be mechanized, it was one of those innovations that displaced workers and gradually paved the way for the Industrial Revolution.  In the early 1900s Ransom Olds came up with the idea of an assembly line to speed up production of the Olds Curved Dash – a decade ahead of Henry Ford.

Fast forward to the 1980s and Taiichi Ohno’s Toyota Production System had a similarly profound effect on modern automotive production, with its “curious methods,” (to quote The Economist), like just-in-time parts delivery and continuous material flow procedures that presaged today’s lean thinking.

In 1983, a fellow named Chuck Hull invented something called stereo lithography.  He’s the founder of 3D Systems, a producer of 3D printers.  We’ve written of these machines’ capabilities before.  They allow a product to be designed CAD-like on a computer screen, and then “printed” as solid objects by building up successive layers of material.  Hull’s invention is just one of many approaches to additive manufacturing.

3D print technology has become popular for producing one-off prototypes since users can tweak their software to create new prototypes, rather than fuss with expensive tooling on the shop floor.  3D printing has proven great at making lightweight, complex shapes in high-value products like planes and autos.  It’s worth noting that GE has spent $1.5 billion on the technology to make jet parts.

To date, 3D printing has been ideal for low-volume production, but less for high-volume, where the technology has been deemed too slow to compete at higher volumes.  Except that’s going to change too.

Recently, shoe manufacturer Adidas has started to use a form of 3D printing called “digital light synthesis” to produce shoe soles, pulling them fully formed from a vat of liquid polymer, note the authors.  Adidas plans to use the technology in two highly-automated new factories to bring a million pairs of shoes to market annually.  So much for low-volume production.

Metal printing is also being affected.   A new technique called “bound-metal deposition” can build metal objects at a rate of 500 cubic inches per hour, compared to the 1 or 2 cubic inches using a typical laser-based metal printer today.

The rise of this technology is only a matter of time.  With increasing wage pressures even in China, the demand from factories is already there.  3D printing is spreading to production lines around the world.  As global supply chains shorten, additive printing a la 3D will be used to customize and tailor a range of products to local tastes and customer demands.  And Mr. Hull and others like him are likely to get a lot better known in the not too distant future.


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By 2020 the U.S will overtake China to earn the top spot for the most competitive nation in the world.  At least, that’s according to predictions from Industry Week, whose stated mission is “advancing the business of manufacturing.”

According to Deloitte and the U.S. Council on Competitiveness this is due largely to America’s investments “in research, technology and innovation.”  “Manufacturing competitiveness, increasingly propelled by advanced technologies, is converging the digital and physical worlds, within and beyond the factory to both customers and suppliers, creating a highly responsive, innovative, and competitive global manufacturing landscape,” says Craig Giffi, co-author of the report.

Last year, Industry Week ranked their predictions of who would be the top manufacturing nations in their 2016 Global Manufacturing Competitiveness Index, noting that the top 11 will remain consistent through 2020 though some will trade places in the rankings.  Their listing showed the following global leaders in manufacturing by 2020:

  1. United States – Research, technology and innovation. Not to mention, access to capital.
  2. China – But of course, although slipping to number 2.
  3. Germany – Industrial production, research & development… a growing lead in advanced mfg.
  4. Japan – Manufacturing is almost 20% of Japan’s GDP… from autos to aviation
  5. India – Engineering, software, lots of factory workers gave rise to a jump from #11
  6. South Korea – Biopharmaceuticals are a major contributor… and then there’s Samsung
  7. Mexico – Electronics manufacturing is stronger than ever
  8. Taiwan – Optoelectronics (think: flat screens) and hi def color displays
  9. Canada – Montreal is the world’s 4th leading center for aerospace manufacturing
  10. Singapore – Big in biomedical sciences

It’s a bold prediction, and to make it happen will require continued innovation here in the U.S., along with advanced manufacturing, access to broad capital markets, access to world trade markets, and the continued research and developments efforts that have long ensured America’s place in the top tier of global manufacturing.

But others are not standing still, and nothing is ever assured.

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There is much debate today about what constitutes manufacturing and “the good jobs” in this country.  Many naively believe that more factories will cure the trade deficit and create jobs (in an economy already around full employment or, here in the Midwest, with jobs going unfilled).

“Die-hard conviction remains among many Americans that the more an economy manufactures, the stronger it is,” notes Michael Schuman a global business writer for several publications, quoted here recently in Bloomberg BusinessWeek magazine.

So with the help of Bloomberg and some recent studies, let’s set the record straight here.

First, while manufacturing is critically important (we may be biased as purveyors of manufacturing consulting and software, but it’s no less true), it now constitutes just 12% of GDP, versus more than double that 50 years ago.  But the idea that “we don’t make anything anymore” as recently touted by the President himself, is simply a fallacy.  The U.S. is a global manufacturing powerhouse, accounting for just under one-fifth of all production worldwide.  While that lags China’s 25%, it exceeds the shares of Japan and Germany combined.  We’re still highly competitive, particularly in the tech sector, and in hard to make products like jetliners and medical equipment, to name a few.

But in today’s world, the real value in making something, as Schuman and others have noted, is no longer in actually making it.  Companies today know that the real value of a product lies in its research and design elements, in product development, in branding, and in after-the-sale support services.  As an example, a study a few years ago by the Asian Development Bank pointed out that the actual assembly production proportion of an Apple iPhone (mostly performed in Asia) relative to its full retail value was only 3.6%.  The remaining 96.4% went to parts suppliers and to Apple, its creator.

And to that point, Apple’s margins overall are over 21% — from a company that is known for its manufacturing prowess but which, in fact, does virtually no manufacturing of its own.  Meanwhile, a typical offshore manufacturer that Apple contracts with posted just a 3.5% margin on sales.  And by the way, Apple creates lots of jobs without having factories, including 80,000 direct employees in the U.S. alone with plans to add more.

While more factories can, technically, mean more jobs on a local basis, studies show that workers who lose their jobs in plant closings take a long-term hit to their standard of living.  21st century factories won’t create the number of jobs that 20th century plants did.  Automation, advanced manufacturing, robots and the like mean we’re making a lot more with a lot fewer people.  Job displacement is a natural byproduct of technological progress, and has been for centuries.  But as old jobs die, new ones are born.  It’s important to remember that early on in our history, 90% of us were farmers; today it’s 3%.  As long as education and skills are developed with the future in mind, there are always likely to be new jobs to replace the old.  But then, that’s a whole other subject.

Meanwhile, let’s see manufacturing for what it is, and worry less about factory jobs that no longer exist and aren’t coming back, and more about the innovation, design, marketing and 21st century product (and skills) development  — along with a healthy dose of free trade, we might add – that will create the innovative companies (think Apple, Tesla, Facebook) of tomorrow.

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In our prior post, we pointed out that China is on the verge of becoming the world leader in the production, sale and implementation of robots, with a stated goal of producing at least half the nation’s own robots for manufacturing by 2025.  The takeaway from that view, outlined recently in Bloomberg BusinessWeek might be that the world has much to fear from the ascendance of this wave of Chinese bots.

But a recent counterpoint to such a robot apocalypse offered by Greg Ip of the Wall Street Journal suggests that in fact, robots aren’t destroying enough jobs, fast enough.

In short, Ip points out that by enabling society to produce more with the same workers, automation like robots becomes a major driver of rising standards of living – in effect, a productivity boost.  While some say that “this time is different” because the technological change is so profound they fear that millions of workers will be out of work or at best consigned to more menial tasks… Ip says the evidence shows we’re moving in exactly the opposite direction.

He notes that while the U.S. “has many problems, job creation isn’t one of them.”  Job creation has averaged 185,000 per month this year and unemployment is down to a ten year low.  Wage gains are even up, slightly.  Ip says that “if automation were rapidly displacing workers the productivity of the remaining workers ought to be growing rapidly.”  Instead, worker output per hour has been dismal in most sectors, including manufacturing.

When slow-growing occupations are compared to fast-growing ones in data going back to 1850 (a proxy for job creation and destruction driven by ‘technology’), they find that churn relative to total employment today is the lowest on record.

Ip’s point is that the past was, in fact, much more ‘convulsive’ than today’s job churn.  American consumption he notes is gravitating toward goods and services whose production is not easily automated.  Societies increasingly are devoting “a growing share of their income to consumption in sectors where productivity [is] stagnant.”  The idea is that robots can replace fewer things that go into GDP than we think.

As examples he cites medical breakthroughs in new, more expensive treatments rather than cheaper existing treatments, and that child-care work has soared because parents won’t leave kids in the care of a robot.  Over the past decade, “low productivity sectors” including education, health care, social assistance, leisure and hospitality have added nearly 7 million jobs, whereas information and finance, where value added per worker is 5 to 10 times higher, have cut or barely added jobs.

His conclusion: We need a change in priorities.  Instead of worrying about robots destroying jobs, we need to use them more, especially in low-productivity sectors.  While robots may one day replace truck drivers, “it’s more urgent to make existing drivers, now in short supply, more efficient,” and to be more concerned about reducing the labor, and thus the cost of energy, rather than worry about jobs added in areas like solar power.  The alternative, notes Ip, “is a tightening labor market that forces companies to pay ever higher wages that must be passed on as inflation.  And that, he notes, “is a more imminent threat than an army of androids.”


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