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Posts Tagged ‘manufacturing’

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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Industrial automation continues to progress, and nowhere is that happening at a faster clip now than in China.

Robots are making rapid headway in many plants around the world.  Currently South Korea leads in adoption with some 531 robots per 10,000 workers in 2015, followed by Germany at 301, and the U.S. at 176.  At 49 per 10,000, China lags, but is determined to catch up and surpass other nations.  For the first time, in 2013 more robots were sold in China than anywhere else in the world.  Last year, 90,000 robots were installed in China, fully one-third of the world’s total – all in an accelerating effort to counter higher labor costs.

The same fervor that made China a leader in solar panels and high speed rail is now embraced by its planners in the adoption of robots in factories.  And everyone should be concerned.

China has an aging workforce and increasing labor costs, and industrial automation there is crucial.  But as John Roemisch, a VP at robot manufacturer Fanuc America Corp. says, “There’s nothing keeping them from coming after our market.”  As the CEO of IRobot adds, “China has a great history of being an effective fast follower… The question will be, can they innovate?”  To that end, China has three enormous advantages: scale, growth momentum and money, according to a May 7th article in Bloomberg BusinessWeek.

Through a sweeping proposal released in China dubbed “Made in China 2025,” Beijing will focus on automating key sectors of the economy that include car manufacturing, electronics, appliances, logistics and food production.  At the same time, they plan to increase their own production of robots to over 50% of total Chinese sales by 2020.

A Chinese start-up named E-Deodar has developed proprietary technology that allows it to create $15,000 factory robots, a cost about one-third cheaper than foreign ones.  It has mastered technology for servomotors, drivers and control panels to gain a proprietary competitive advantage, and is said to act much like a Silicon Valley startup.  Says it’s General Manager Max Chu, “People ask me, how long can you make robots?” he says. “I say it’s simple, we will make robots until there’s no more people in factories.”

The U.S. is not sitting idle.  We’ve all seen the Roomba vacuums that promise to make domestic life a bit easier.  China and others nations are now collaborating on building them for the global market.   But while building vacuum cleaners is one thing — the industrial goal is here is much bigger.  Amazon, for instance, hopes to build logistics systems that create near-humanless warehouses with packages delivered by drones or driverless vehicles.  JD.com is rushing to automate its business in the quest to replace tens of thousands of warehouse workers and deliverymen.  It’s currently testing drones to deliver packages in rural regions and experimenting with robots to deliver on college campuses, according to Bloomberg.

As its Chief Technology Officer said recently, it’s all about “who can learn… who can get better faster.  We are all just starting out.”

But while this might be the most disconcerting part of all for today’s low-skill worker, an interesting — and completely opposite — counterpoint has been voiced by Wall Street Journal editor Greg Ip.  We’ll provide Ip’s counterpoint in our next and concluding post on the ascendance of robots. Stay tuned…

 

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As software providers, we focus largely on manufacturing (and distribution) clients, and so as a service to all we like to periodically report on trends and developments in the manufacturing sector, such as today’s post about a jobs program that helps Americans get back into manufacturing in a practical, no-nonsense kind of way.

A good start can be found at a workforce initiative in Louisville, Kentucky, called KentuckianaWorks, funded by several entities including local and federal agencies, along with JPMorgan Chase.  Recognizing that “manufacturing jobs are here and growing in numbers” but that unskilled assembly-line work has been replaced by advanced manufacturing jobs, KentuckianaWorks made a large commitment to support training for manufacturing (and other) jobs by designing a five-week “Certified Production Technician” training program, along with a two-week variation, for displaced workers aged 18-60.  Only a bit over half stick around to completion, but those who do find jobs quickly.  The program has already placed nearly a thousand graduates at an average of about $13 per hour.

The skills programs focus on computing and technical skills, as well as basic math and problem-solving – in other words, just want manufacturing managers say they are looking for today.  Meanwhile, over 80% of U.S. executives said in a recent survey that the skills gap will affect their ability to meet customer demand, and nearly as many claimed it would “make it more difficult for them to use new technologies and increase productivity,” according to a recent article in Bloomberg Businessweek.

Over the next decade, well over 3 million manufacturing jobs are expected to become available as boomers retire and economic growth spurs work opportunities.  Those figures come from the Manufacturing Institute in Washington D.C. Yet a “skills gap” means that about 2 million of those jobs could go unfilled.

The KentuckyianaWorks program works with local manufacturers to help design their two courses.  Companies who have worked with KW graduates say that their basic training “sets them apart from other entry-level candidates,” so that once hired, employers can help employees expand their knowledge and increase the likelihood of continued employment and promotions.  Recruiters say that while not every hire works out, the success rate with these trainees is higher than with other hires.

In an era of increasing and often unrealistic clamor and hype about bringing back jobs, it’s programs like these that are helping to make manufacturing hiring a reality, and closing the gap between needed hires and the skills gaps too often found in potential hires.

 

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multiplierBeing that we are providers of business software and consulting solutions predominantly to manufacturers and distributors throughout the Midwest, we have a presumed (and accurately so) bias towards manufacturing.

For that reason we are pleased to reprise a few comments made recently by Forbes Magazine “Editor at Large / Global Futurist” Rich Karlgaard, in his column “Innovation Rules.”  In an article criticizing the high cost of regulation to business, he cites current administration proposed reforms that he believes will greatly – disproportionately, even, and “quite intentionally” – help the manufacturing sector, which as noted in our article title he says has “the best wealth- and job- multiplier effect.

In the article, Karlgaard quotes economists Mark and Nicole Crain that “The costs of federal regulations fall disproportionately on manufacturers…[who] pay $19,564 per employee on average to comply with federal regulations, or nearly double the $9,991 per employee costs borne by all firms as a whole.”

Since the era of globalization, notes Karlgaard, “manufacturing as a percentage of the labor force has steadily fallen from a peak of 22% in 1977 to about 8% today.”

And lest one think that’s due solely to automation, he points out that Germany and Japan, both world leaders in robotics and among the most technologically advanced economies in the world still retain healthy percentages of their respective populations in the manufacturing sector – 20% of Germany’s workforce and about 17% of Japan’s work in manufacturing.

And that’s not just T-shirts and plastic toys – we’re talking about high tech manufacturing from autos and chemicals to robots and aerospace, 3-D printing, shipbuilding and the like.

The bottom line: manufacturing still matters.  A lot.  And it could matter even more, as resources are focused, training programs expand and regulations are judiciously refined.

And a final postscript to our manufacturing comments…

Just today, as we write, the Institute for Supply Management published results showing that “U.S. factory activity grew at the fastest pace in 2-1/2 years in February as new orders and production advanced.”  Their supplier indicator showed that manufacturing was in a state of “expansion.”  Their report goes on to state that “17 out of 18 manufacturing sectors reported growth” in the month just ended.  It notes that the economy overall grew for the 93rd consecutive month.

 

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pssi_mfgIt’s always worthwhile hearing what the customers have to say about their technology goals and ambitions, so we’re happy to share results of a recent Crowe-Horwath survey of manufacturers (specifically, metals producers, though the results seem representative of manufacturers in general from what we’ve seen).  The 2016 survey was conducted in collaboration with the American Metal Market to examine the role of information technology and enterprise resource planning (ERP) systems in the global metals industry, and covered over 200 companies in the $50M to $1B markets, including producers, processors and some Tier 1 and 2 automotive suppliers.  As such, we feel the results are probably fairly representative of discrete manufacturers overall.

We think the questions and answers gleaned from their analysis will be informative and interesting to anyone involved in the manufacturing sector.  Among their key findings:

  • Plans for international expansion in the next five years are down about 10%, while plans for new downstream capabilities are up by the same percent, year over year. Almost 30% planned on domestic expansion and over 40% were considering M&A activities.
  • 75% of respondents said that technology was important or very important to their business strategy in the next 3-5 years. And yet, about half did not have a roadmap “that linked technology investments to business results.”
  • The top business factors driving today’s IT budgets were:
    • Customer service (51%)
    • Outdated technology (44%)
    • Outgrown their technology (33%)
    • New production capabilities or requirements (30%)
  • Data privacy and cybersecurity were cited as the number one IT business risk, followed by (among others) “obsolescence” and “losing business because systems can’t keep up.”
  • When asked where companies look for new profitability, 46% start with process improvement, 35% with Notably, and thankfully, only 19% cited technology first – a good indication that companies are learning the importance of analyzing their processes before seeking ways to improve them via technology.
  • Asked to rank the components of their IT budgets from greatest cost to lowest, they were:
    • Software (36%)
    • Hardware (25%)
    • Internal resources (22%)

In our concluding post we’ll look at the types of projects manufacturers are planning to engage in (or already have), along with their thoughts on ERP satisfaction and working with their vendor-partners.  Stay tuned…

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what_nextIn our prior post we looked at some of the data revealed in a recent report by The Economist which highlights the changing complexity of manufacturing, including fewer jobs overall, muddled in part by the ways those jobs are accounted for – or often not accounted for – as we move up the manufacturing supply chain.  We noted that those higher-paying manufacturing jobs in the “rich world” still account for a sizable share of nations’ GDP, and how much of the intellectual property retained by countries like the U.S., Germany and the U.K. continues to account for much of manufacturing’s overall value-add.

Still, keeping those jobs, and the future of manufacturing, are topics ripe for debate.  Today we’ll finish up our two-part post with what a few of the experts think.

For one thing, we can turn manufacturing from a product into a service, as Rolls Royce pioneered in the 1980s by providing its engines, service and maintenance at a fixed price, bundled package, or “power by the hour.”  The result was more stable revenues and more locked-in customers.

More recently, machines are being equipped with internet-connected sensors (the Internet of Things, or IoT, of which we’ve written before), which can gather data on how machines perform in the real world.  The accumulated data provides a trove of knowledge from which manufacturers can sell additional services to clients, and entice new customers as well.

Yet another bright spot will be 3-D manufacturing.  Here, we’re not speaking about creating playful little plastic widgets or toys, but rather complex manufacturing tasks in which design and manufacturing can be tightly coupled to produce things from motorbikes to high fashion.

But the real key, experts agree, lies in education.  Companies who offshore assembly and production work often suffer from reduced product innovation. Opportunities to learn how to do things better on the home front are often lost.  This is the natural synergy of production, where design meets reality, and the shop floor can provide feedback to designers; break that bond, and innovation suffers.  But those high-value design and innovation jobs require skill, adaptability and education.  These jobs will change over the lifetimes of workers, and they will not provide the mass employment of the past.

So it’s important to start with modest expectations, as is noted by James Manyika of the McKinsey Global Institute.  Improved education to ensure engineers are in good supply would be a good start.  A recent Bloomberg BusinessWeek article noted that nearly 75% of U.S. graduate-level advanced degrees in engineering and computer science are now going to non-American graduates.

Vocational training, where Germany proves a world-class model, and retraining programs that create new skills or refurbish current ones among displaced workers, have never been more important.

One way not to benefit manufacturing as a whole, many argue, is to disrupt global supply chains, nor will threatening companies that seek to move jobs overseas or the companies that host them.  We are reminded that it’s not so much foreign nations that have replaced so many of our low-skill manufacturing jobs, but rather, the inexorable march of industrial innovation, just as it’s done for the past 200 years.  Thus, policies favoring line workers over investments in automation will only make our industries less competitive.

Better to focus on the advanced manufacturing opportunities that lie ahead (i.e., 3D, IoT and manufacturing related services, to name three).  Educating our young talent – and providing ongoing education and retraining for new skills – is where our best hopes lie.

The sooner our leaders figure out what our manufacturers already know, the more robust will be our manufacturing prospects in the next generation.

 

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old_mfg_plant“Manufacturing exerts a powerful grip on politicians and policymakers in the rich world.”  So note the editors of the The Economist in a January, 2017 article on the changing face of manufacturing.  Their point is that manufacturing is central to what most national and political leaders across the world believe is what they want, and what their nations need.

Unfortunately, the sentiment gets a bit cloudy when they talk about “bringing back” the jobs of yore.  As Bruce Springsteen once noted, “those jobs are going boys, and they ain’t comin’ back.”

The truth is, as always, a bit more nuanced.

For starters, manufacturing has not really gone away.  But it also hasn’t stood idle.  Indeed, there has been plenty of change in manufacturing – it’s just gotten a lot more sophisticated.  It’s the less skilled jobs that are not going to return.

Manufacturing has long offered among the most desirable wages, and its products often tend to be exports, which make it especially desirable in political circles.  In the early part of the prior century, manufacturing brought lots of good-paying, semi- (or low-) skilled jobs.  That’s all changed, of course.  And as the Economist article points out, those changes included the advance of I.T. and the underlying ability to allow firms to unbundle the different tasks from design to assembly to sales so that “it became possible to coordinate longer and more complicated supply chains, and thus for various activities to be moved to other countries, companies or both.”

In the 1940s, one in three non-farm American jobs were in manufacturing.  Today it’s one in eleven.  Even in manufacturing-intensive Germany, it’s one in five.  Over time, as manufacturing became more productive and prices dropped, its share of GDP fell too.  Over time, more jobs moved overseas – but these were mostly low-skilled jobs, it’s worth noting.  The complicated work stayed home, while the “routine work was easily moved to poor countries,” and cheap labor.

So in a very real sense, the promise to bring jobs back rings hollow.  Low and semi-skilled jobs are not going to return to America, or the most developed nations, because they were not simply shipped abroad.  Rather, they were “destroyed by new ways of boosting productivity and reducing costs” which only served to heighten the distinction between routine labor and the rest of manufacturing.

But here’s the thing: today it is said that one-sixth of all manufacturing jobs are found in “the rich world.”  But those workers produce two-thirds of the final value of today’s manufactured goods.  Most of the low-value work shipped overseas involves final assembly that “adds little to the finish product’s value.”  For example, assembly of Apple iPads in China accounted for just 1.6% of the retail selling price.

In the U.S. the 11.5 million higher-value jobs that officially count as manufacturing jobs were, according to Brookings Institute, outnumbered by two to one by jobs in manufacturing-related services down the supply chain, after accounting for the outsourcing of accounting, logistics, HR and IT services that were once counted as “manufacturing” jobs in an earlier era.  In short: that’s a lot of manufacturing related jobs – the good ones – which we still retain.  That’s about 33 million U.S. “manufacturing” jobs, all told.

So the next time you hear someone bemoan the loss of manufacturing jobs, or herald a new era of returning jobs to America, keep in mind: the best manufacturing jobs continue to remain in the U.S. and other developed countries —  even more so when you count the related supply chain jobs.

But keeping these well paid jobs is the real and continuing task at hand.  And to see what that will take, we’ll add a few opinions, and some Economist commentary, in our next post, as we conclude this look at manufacturing today.  Stay tuned…

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