posted on 11.06.14

Need to Know . . .

• Analysts believe that the current disruptive epoch of technological advancement has brought U.S. manufacturing to the cusp of a new chapter
• As promising as recent new technologies are, they nonetheless need the support of lean production practices to maximize their impact on operational performance
• Recent findings demonstrate a synergistic relationship between manufacturing technologies and lean processes

Introduction: Goods Production in the News
Few economic entities have been grabbing as many headlines in recent years as the factory. Increasingly human-like robots, self-replicating 3D printers, and software programs that are directing complex supply chains have all been in the news. Reactions have been varied, with some worrying about employment implications and others sensing the possibility of a new era of U.S. industrial might.

Given the global reach of manufacturing and the intensifying policy focus that the factory sector has enjoyed in recent years, it is critical for the public, manufacturing executives, and governments to gain perspective on what some are dubbing a “new industrial revolution.”

The Root of Revolution: Competitive Pressures
Globalization challenges goods producers along many dimensions. Large low-cost labor pools in the developing world have created increasing pressure to accelerate labor productivity gains in advanced nations. A global market and the evolution of truly worldwide supply chains require successful manufacturing companies to be nimble and quick. Efficiency, time-to-market, inventory planning, and quality are all pressured more than ever.

As if this were not enough, manufacturers are also confronting growing constraints on labor supply and human capital. Retirement waves; a shortage of critical science, engineering, and math skills; and a sense that workforce entrants are biased against manufacturing careers add to the challenge of producing in often unforgiving markets—and at a difficult time for the world economy.

Meeting the Challenge
The response to such a challenge is innovation, which drives change. For the U.S. factory sector it is arguable that this change has come in two waves: the implementation of lean manufacturing processes (and lean culture) and the emergence of new process technologies whose implications are just beginning to be understood.

“Lean” is a term whose meaning has evolved in the last 15 or 20 years. In the early going it was seen as a set of process management techniques aimed at efficiency, speed, and elimination of waste, with the latter including inventory optimization. The high-impact thought leaders in lean were the Ford Motor Company of the 1900s and Toyota of the 1990s. While there is debate on the appropriate metrics for gauging the effects on individual companies, manufacturers appreciate the fact that lean journeys produce “hard,” quantifiable results.

There is also debate as to whether lean investments have diminishing returns. If so, then manufacturers need to think about the next competitiveness breakthrough. For this purpose, recent technological advancements have been a veritable treasure trove. The Internet of Things (IoT), additive technology, advanced robotics, computer-led factory processes, and more are all meeting up with increasingly lean production processes to open the door to a U.S. manufacturing sector that looks—and performs—very differently.

Respected analysts believe that this disruptive epoch of technological advancement has brought U.S. manufacturing to the cusp of a new chapter. A recent paper by two economists at the influential Brookings Institution noted that “The future of American manufacturing will largely be determined by the extent to which it can take advantage of various new technologies that will influence the structure of manufacturing in future years.” The authors go further, hinting that there will be a fundamental transformation of what manufacturing actually does. With the rising commercial use of 3D printing, for example, they assert that companies may be able to sell product designs on the web instead of selling products directly. The life of the innovator, the factory manager, the supply chain manager, the marketing manager, and the customer will all change in fundamental and still unforeseen ways.

The Wall Street Journal referred to a “new industrial revolution.” The Journal and other sources have argued that this technological wave will be a positive stimulus to much-needed entrepreneurship. Falling prices make improved manufacturing and design tools accessible to the smaller company and even the startup. The Journal quoted one prominent manufacturing executive as saying that the future is not going to be about “stretched-out global supply chains connected to a web of distant giant factories.” Rather, it will be about small nimble manufacturing operations using highly sophisticated tools and materials.

How Does the Lean Paradigm Fit Into the Technological Revolution?
Should manufacturing executives see lean and new technologies as alternatives or is there a more complex optimization solution?

MAPI members engaged in a lively debate on this question at a recent joint session of the MAPI Manufacturing and Information Systems Management Councils, and a recent research paper addressed the topic in a rigorous manner.  The study tested the interactive effects of manufacturing technologies and lean practices on four dimensions of operational performance: quality, lead-time, flexibility, and cost. Consistent with previous research, the authors used the manufacturing plant as the unit of analysis. They selected Thailand as the study country, given that it has a large, diversified manufacturing base. They randomly drew 1,327 companies from a database provided by the Department of Industrial Works, Ministry of Thailand and sent a questionnaire to each company, requesting that it be completed by a senior manager who has major operations responsibility. The researchers received 186 usable responses, a 14% response rate.

Analysis of the survey responses shows that both manufacturing technologies and lean practices are associated with the four dimensions of operational performance. More importantly, the findings demonstrate the synergisticrelationship between manufacturing technologies and lean. The combined impacts exceed the sum of the individual effects. It would appear that manufacturing technologies need support from lean in maximizing their influence on operational performance.

Concluding Comments: The Physical and Conceptual Reshaping of Manufacturing
Lean production practices and remarkable new technologies will continue to reshape the factory and fundamentally transform the very nature of what manufacturing does and can do. Factories are beginning to look like engineering labs, with a variety of strange new machines. Optimal U.S. competitiveness demands that both public and private sectors are educated in the change.

Article written by Cliff Waldman, Senior Economist from the Manufacturers Alliance for Productivity and Innovation.