Cheaper, Faster, Better

- The Productivity Race

By : Jim Pinto,
San Diego, CA.

Productivity has now become a global race. It’s a fierce, head-to-head competition between regions and nations for the single reason that it is the source of the wealth, the key to improvements in living standards. Those who can make things cheaper, faster, better – win!

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Check out, May 2005

The fundamental purpose of automation is to improve productivity – generate increased output with reduced costs. The intrinsic value of each and every piece of automation equipment is its ability to provide increased productivity for the user.

Technology improves productivity in 5 ways: reduces labor, optimizes use of raw materials, saves energy and waste, improves quality and saves time. When technology is proprietary, it has value and generates wealth. When the knowledge is spread widely, the products become commodities – available from several sources with marginally different features and benefits. The lowest cost producer usually wins market-share.

Global Productivity Race

For most of the past century U.S. and Europe have held the advantage, since most technology originated there. The West had most of the resources, the major centers of learning and research, the business facilities, the infrastructure. Western Universities and Research Centers attracted not only national, but flocks of foreign students. And the students went on to form technology companies, backed by readily available financing from both conventional and burgeoning venture-capital resources.

After the turn of the century, terrorism and the stock-market decline slowed U.S. growth. And simultaneously, global competition accelerated. Foreign labor suddenly became ultra-competitive, and many U.S. and European companies moved quickly to take advantages of significant cost and productivity advantages. It was not just the cheap labor, but also significant productivity advantages brought by diligent labor, plus high local investment in automation and quality procedures. At the same time, foreign knowledge-workers became more accessible through widespread availability of cheap telecommunications, and so development centers began to move offshore.

Foreign students who previously stayed on in the US to work at burgeoning high-tech jobs now found more attractive opportunities in their own countries. In addition, countries like China and India started graduating engineers in numbers that exceed U.S. and European levels.

The long-held U.S and European technology edge is now being threatened as product design and manufacturing process knowledge spreads worldwide. And the productivity race is speeding up – every company and country is looking for advantage through whatever means are available.

Automation productivity gains

For a long time, everyone thought that automation brought productivity improvements through reductions in labor. But, at least initially, the results simply did not emerge. Head-counts were not reduced sufficiently to keep pace with the additional costs of automation equipment – the original investment, plus operator training, maintenance, upgrades, etc. And wage inflation all but nullified productivity results.

In past decades, automation investments were typically calculated to break-even in several years, by which time the hardware and software were often outdated. In the meantime, things like operator training and procedural changes took several years to implement, and the time-delays caused performance delays. Adaptation to changes simply did not occur fast enough. As a result, in the 70’s and 80’s, after the start of widespread automation in the US, productivity inched up slowly, perhaps 1-2% annually – too slowly to be significant.

But productivity improvements have now caught up, and the drive for real-time operations and services is reshaping business and industry today. The resulting productivity boost is generating startling results. Indeed, this is perhaps the key factor behind the so-called jobless recovery. It’s not jobs being eliminated by automation, or jobs going offshore. It’s just that many jobs have simply disappeared, eliminated by productivity improvements.

Business Week estimates that 1% productivity improvement can eliminate up to 1.3 million jobs. With U.S. productivity growing at an annual rate of 3-5%, the reason for the jobs shortfall becomes clear. According to Forrester Research, of the 2.7 million jobs lost over the three years, only 300,000 have been from outsourcing.

Dick Morley explains it with his usual colorful flair, “Jobs are going down the silicon hole, not the outsourcing hole.” And the figures support this contention. Productivity resulting from industrial automation—not outsourcing—is the biggest culprit behind most manufacturing job losses. All industrialized countries are losing manufacturing jobs too – including China.

Real-time makes a difference

In the late 90’s, productivity growth rates started to move ahead and productivity has improved steadily – as much as 3-5% and more – since the start of the new century. The difference is significant. And it comes, not just from manufacturing automation, but from inexpensive and effective information technology – the ability to operate in real-time.

Today, real-time applications are becoming widespread. Web services allow integration and delivery of real-time information to all parts of the enterprise. Low-cost, effective applications are available that allow cooperating suppliers and users to monitor, analyze, optimize and adjust business processes in real-time.

Real-time enterprise applications are cutting through several layers of previous inefficiency, allowing all segments of a business to interact in ways that were previously unthinkable. The goal of the real-time enterprise is to act on events as they happen. It is all the old concepts of customer-driven marketing, on-line process automation, just in time delivery, and tactical business adaptation all rolled into one. It's about getting information in and out quickly, monitoring the business as it happens, and making quick, effective, agile decisions.

At operations level, the primary benefits of real-time capabilities are improved customer service, reduced inventory, risk reduction and lower processing costs. At the executive levels, the clear benefits are faster exploitation of emerging opportunities, less damage when things go wrong and increased agility when dealing change. At the leadership level real-time operations allow faster implementation of plans that must adapt to meet new opportunities and threats.

Management challenges

The best results come from completely re-thinking the business and organization in the light of real-time capabilities. Productivity comes from automating routine decisions, while giving workers the information (and the authority) needed to make on-the-spot decisions, in real-time. The most successful are those who combine understanding of overall objectives with the ability to implement information-technology solutions to meet always-changing needs.

To sustain this productivity surge, today’s managers must develop incentives that encourage people – from design engineers, to manufacturing process planners to production workers – to be more creative, adaptable, willing to change.

The challenge for today’s managers is to use real-time operations and services as a means to generate a spirit of change and innovation throughout the organization. It’s no use going only partly through the process, using new systems to automate functions in the home base, while chasing cost-reductions through offshore production.

Inevitably, routine jobs that call for simply following policies and procedures will simply be shunted offshore, where cheaper labor is all that is required. But, it’s an innovation-driven workforce that will continue to generate productivity growth. The companies that succeed in this new age will be those that understand how to combine and coordinate new organization and new thinking in the real-time environment.

The concept of real-time has been a dream for a long time. But now, technology has evolved and penetrated to a level of usage where it is inexpensive, effective, practical and generating immediate results. Now, that’s productivity!

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Copyright 2003 : Jim Pinto, San Diego, CA, USA