Automation Plus Innovation Wins

By : Jim Pinto,
San Diego, CA.

To achieve sustainable advantage, manufacturing efficiency must be coupled with innovative new products. Companies that go beyond manufacturing low priced commodities and offer improved customer values are the winners in the new global environment.

A version of this article was published by:
Automation World, November 2005

Manufacturing – the transformation of materials into products – is no longer a primary source of prosperity in the U.S. and almost every advanced economy in the last two generations. But for many automation companies it has vital strategic importance.

Productivity improvements through automation have caused the percentage of people employed in manufacturing in the U.S. to decline steadily since the 1960s, from 25% then to less than 10% today. Even China is losing manufacturing jobs – between 1995 and 2002, China lost 15 million manufacturing jobs, compared with just 2 million in the U.S.

Discussing manufacturing strategies in the first decade of the new century is somewhat like discussing agricultural strategies at the start of the last century. Farming used to employ some 35% in the US at that time, and now employs less than 2%, generating a surplus of food and agricultural products. Most of this came through automation – giant tractors, harvester combines and the like.

To follow this time-shifted parallel a bit further, at the turn of this new century, agriculture in the U.S. is all about high-tech, bio-tech, and info-tech. Also there’s increasing vertical integration of production, processing, and distribution at all levels within the global agricultural system. One wonders how much of that is prescient for manufacturing in this century.

Still, limiting our vision to the present decade, many companies are adopting new strategies for manufacturing, which are taking their competitiveness on to new planes. A whole array of initiatives, such as FMS, JIT, TQM, CIM, and MRP II, have been introduced, collectively labeled "new wave manufacturing". It must be recognized that the U.S. doesn’t have a corner on these; they are being proselytized and adopted by all global players.

In this new era, manufacturing strategy can be defined as a set of coordinated objectives applied to manufacturing functions and aimed at securing sustainable advantage. Issues generally addressed include: Manufacturing capacity, production facilities, technology advances, vertical integration, quality, production planning/materials control, organization and personnel. Of course, strategies must be combined with a pragmatic approach to continuous improvement at operational levels to ensure competitiveness in global markets.

A key part of a manufacturing strategy is whether products will continue to be produced at traditional manufacturing sites, or if the cost/benefits offered make it worthwhile to move manufacturing offshore. The respected Boston Consulting Group, among others, has suggested that not considering an offshore strategy is tantamount to giving up on major cost advantages. But even so, the initial rush to offshore manufacturing has given way to a more cautious approach; many companies are taking into account the practical and logistical difficulties and the overall financial implications (beyond just raw labor costs) of setting up and operating facilities in remote countries.

The key overall objectives remain for U.S. manufacturing companies – developing strategies to compete with low-priced competitors in domestic and global markets. What can smaller U.S companies do when their large domestic customers are moving production and assembly operations off shore to take advantage of seemingly irresistible cost advantages?

The answer is to identify customer values that offer advantages beyond just price. Key competitive advantages include fast delivery of non-standard and semi-customized items. Manufacturing strategies and production technologies (programmable automation, advanced robotics, etc.) must be utilized to increase manufacturing flexibility with the capability to respond quickly and cost effectively to demands for product variations and truly customized requirements.

To achieve sustainable advantages, manufacturing efficiency must be coupled with innovative new products. Many successful automation companies have gone from producing and selling widgets to providing more complex services that address usage and total equipment life cycles. Smart products can be designed to capture operating information that increases the customer’s productivity, and then use that information to adapt products and services to improve the customer’s performance even further. With products that interact across open platforms and provide new savings opportunities, the solutions are often more valuable to the customer than the product itself.

Truly innovative companies generate a major segment of their revenue from products designed within the past three to five years. Schneider Electric and ABB are two companies that stand out in this respect. Schneider has approximately 3,000 development engineers across 20 countries. ABB allocates more than 8% its revenue and 20% of its corporate resources to new developments and improvements. Companies that go beyond manufacturing low priced commodities and offer improved customer values are the winners in the new global environment.

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