Future of Manufacturing: Innovation Economy

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Explores how the fundamental economic determinants of materials, machinery, land, labor, and capital are neutralized over time leaving Enterprise or "Innovation" the only remaining competitive advantage resulting in an Innovation Economy.

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  • 1. Chuck PharrisManufacturing Solutions MarketingFuture of Manufacturing 20+ YearsWe should all be concerned about the future because we will have to spend the rest of our lives there."-- Charles F. Kettering
  • 2. Future of Manufacturing? 50 years of predictions* Fifties n Improvements in mass production developed during World War II n Computerization and quality processes are future Sixties 60s n Focused on automation and its limitations. n Emphasis on globalization and the future proliferation of multinational corporations. n ** Automation could actually increase operating expenses due to loss of flexibility, increased risks, and time-consuming changeovers. Seventies n Rise of the microprocessor on shop floor. Debate - deskill the workforce or result in more creative and complex work. n Labor-intensive nature of software development costs predicted to increase with absolute costs of software. n *** Multinational firms moved manufacturing and assembly to less developed countries for lower labor costs. Eighties n Rise of strong Europe and even stronger Japan n Foreign competition moved from low cost labor to technology adoption and manufacturing techniques n New materials, computerization of shop floor, computer integrated manufacturing (CIM), quality based practices Nineties n http://www n Race to adopt Japanese management notions into new business and product alternatives n Technology taxonomies, manufacturing unit processes, industrial ecosystems, corporate merger strategies, outsourced/ contracted R&D, and off-shore workforce tactics. 2000s n Globalization, geo-political n Low-cost competition drove technological forecasts n New product development technologies, sustainable manufacturing, knowledge management practices, nanotechnology * Advanced Technology and the Future of U.S. Manufacturing Georgia Tech Policy Project on Industrial Modernization 2004 ** Automation: Its Impact on Business and People, Walter Buckingham (1961) *** Pavitt, Keith (1973), Technology, International Competition, and Economic Growth: Some Lessons and Perspectives, World Politics, Vol. 25, No. 2. (Jan., 1973) SAP AG 2009. All rights reserved. / Page 2
  • 3. Economics & Manufacturing Economics = production, distribution, and consumption of goods and services. Macro Employment, Interest, and Money < ------ > Micro Economic behavior of agents Adam Smith David Ricardo John M. Keynes Milton Friedman 20+ Years Production of Income Land vs Investment Needed Shortage of Money Different Labor & Capital Agriculture Mercantile Industrial Services SAP AG 2009. All rights reserved. / Page 3
  • 4. Micro-Economics & Manufacturing Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise SAP AG 2009. All rights reserved. / Page 4
  • 5. Raw Materials - Historical Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise Historical Perspective n Key determinant of national wealth n Drove colonialism, mercantilism, and wars n Only source of wealth of undeveloped countries Economics of Raw Materials n All new potential wealth, the foundation of all prosperity, comes from the earth. You can either harvest something or mine something to create new potential wealth. n Human labor produces raw materials to create jobs and incomes. This consolidation of human labor producing raw materials enables the economic cycle that manifests new wealth. n The economic cycle emerges through the structure of trade. This structure of trade must manifest a sufficient level of wealth to afford all finished goods and services or it becomes unsustainable due to growing debt. Factors of Production SAP AG 2009. All rights reserved. / Page 5
  • 6. Raw Materials - Trends Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise Current Trends n Intangibles Intangible value exceeds tangible n Sustainability Focus n Energy China surpassed US (< per capita) Intangible vs Tangible Value WSJ China Tops US in Energy July 18, 2010 Source: Global Intangible Tracker 2007, BrandFinance SAP AG 2009. All rights reserved. / Page 6
  • 7. Raw Materials - Future Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise Case for Traditional Role n Hoarding China acquisitions (Canada/Ven/Russia/Australia) n Localization Saudi Arabia diversification naphtha, aluminum n Money Factor of Production? (end of mainstream economics?) Per Commodity n Geo-politics Afghanistan minerals Case for New Role Hoarding Self-sufficiency n Self sufficiency Localization New materials n New Materials Money - FOP Intangibles (+) n Increase in non-natural resource wealth creation (services, intangibles) Conclusions: Impact on Manufacturing n Strategic risk role of procurement n Increased emphasis on manufacturing innovation/product design n Drives localization of manufacturing capability vs mass transfers n Crude oil valued as raw material vs energy furthering pressure on shift of transportation fuels SAP AG 2009. All rights reserved. / Page 7
  • 8. Machinery Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise Historical n Enabled industrial revolution n Key to increased productivity in agriculture and industry Future Dramatic Revolution in Mfg Machinery n Self Assembly n Nanotechnology n Bio-inspired manufacturing n Opto-electronic materials n Specialized synthetic membranes Conclusions: Impact on Manufacturing n Multi-disciplined not just engineering n Reduce need for scale / micro-factories / make to order n Manufacturing production machinery will become increasingly agile, flexible, and sophisticated. n Need for international standards in new production machinery. Genetically Engineered Materials SAP AG 2009. All rights reserved. / Page 8
  • 9. Labor Outsourcing and offshoring Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise Outsourcing Not Manufacturing Decline Productivity Increases Source: Comparisons & Analysis of U.S. & Global Economic Data and Trends, SRI Intl. - 2004 SAP AG 2009. All rights reserved. / Page 9
  • 10. Labor Productivity Micro Economics = Raw Materials + Machinery + Labor + Capital + Land + Enterprise Productivity and GDP Comparison of labor costs in the clothing industry SAP AG 2009. All rights reserved. / Page 10