The Fourth Industrial Revolution: Does It Matter?

The Current Landscape

If you find yourself wandering the factory floor of FANUC’s 86,000 square-foot production facility in Oshino, Japan, you may find yourself unsettled by the striking seclusion you encounter. Amidst the flurry of activity occurring around the clock to churn out CNC machines and industrial robots, you’ll regularly find the facility staffed by as few as four human employees. You may even find the isolation exhilarating; after all, you could spend a fortune seeking similar levels of solitude on remote island resorts. However, your zeal for this vacation is likely to diminish somewhat when you discover that much of FANUC’s manufacturing operations are performed lights-out, and indeed often without even heat or air conditioning running to control the temperature.

While FANUC is not unique in its ability to run portions of its operations largely unsupervised, it is iconic in its utilization of the very CNC machines and robots it produces in its own production process; bringing us one giant step closer to large-scale, self-replicating technology. The impact of this technological evolution becomes more evident every year- the cost of precision automation is dropping. No longer is cutting-edge automation found exclusively within the vast expanses of automotive assembly lines or the well-funded shops of fortune 500 companies. Increasingly, one finds such technology in a suburban garage, the sole physical asset of a fresh start-up.

As the costs of entry continue to drop, manufacturing has seen a surge of small, varied production enterprises, well poised to compete on a small scale in local markets.  Even the value in economies of scale have begun to fall, as small shops form coops, purchase goods directly from suppliers, insource trivial fabrication, and minimize distribution costs. While most of these small businesses, considered individually, represent no immediate threat to big manufacturing, the proliferation of this business model could lead to death by a thousand cuts for businesses that are unable to adapt to these trends. In fact, a keen eye can quickly identify a variety of trends indicating that the most successful businesses have already begun adapting to the emerging Digital Manufacturing landscape.

The Shifting Nature of Human Capital

One such notable trend is the steady reduction of offshoring efforts. Large corporations once viewed offshoring as a necessary evil; a way to capitalize on the reduced labor costs of developing nations while serving a global customer base. More contemporary wisdom, however, has begun to rethink this paradigm. Executives are weary over losing visibility and control over their supply chain, and shareholders are increasingly averse to the risk of brand-damaging scandal resulting from domestic layoffs, labor exploitation by contractors, and political instability in developing regions. Furthermore, many large businesses have discovered that offshoring efforts have often enabled their competition. As process knowledge and infrastructure enhancements develop overseas, cheaper foreign brands inevitably crop up to compete with the once dominant market players. As the cost of foreign labor rises and the cost of automation falls, manufacturers are increasingly disinclined to seek cost reduction by shipping jobs overseas.

As a less risky alternative to seeking reduced labor costs, many companies have sought reductions in transportation costs and improvements in yield per man-hour. One such example of this tactic is seen in newest production facility built by the Method soap factory, built in Chicago’s south-side Pullman neighborhood. Method chose this location for its proximity to rail distribution centers, and has benefited additionally from invaluable Public Relations capitol resulting from providing jobs in an area that so sorely needed them. Furthermore, their automation efforts have enabled them to produce nearly 4 million gallons of liquid soap products with as few as 15 workers per shift. In a crowded market with little-to-no proprietary technology in the product, Method’s domestic production facility has positioned them to effectively compete with giants like Procter & Gamble, and Colgate-Palmolive.

Cloud Manufacturing

While some production enterprises have become less inclined to seek increasingly nominal reductions in labor costs, still others have sought to re-cast the mold of their manufacturing assets in a more distributed model, viewing their global network of factories as a way to more effectively serve local markets. In the past, offshore factories usually focused on producing a single product family as cheaply and quickly as possible, which would then be distributed to various markets around the world. This had the advantage of allowing businesses to centralize R&D efforts domestically, deploy improvements incrementally, and benefit from a low per-piece production cost. Today, however, businesses with a more diverse product portfolio are often distributing production efforts more evenly between plants, engaging with more local suppliers, and transporting fewer goods across borders. Aside from the savings in transportation costs, this model offers a number of significant benefits. Factories can more effectively compete with small, local competition by offering product variations tuned to the demands of their unique markets. The agility of the enterprise is improved by distributing relationship-building responsibilities in local markets; when supply issues or natural disasters effect one region, resources from neighboring markets can be mobilized to temporarily ease the impact. Process improvements tend to accelerate, as each factory functions as a testbed for incremental enhancements. The success of these new business models is changing the very nature of globalization, and if similar developments in information technology are any indication, this is just the beginning.

Researchers from Georgia Tech have taken this concept to the next level, proposing a business model they refer to as Cloud-Based Design and Manufacturing (CBDM). This model, inspired by cloud computing’s Software as a Service (SaaS) model, seeks to construct an Infrastructure as a Service (IaaS) model wherein production assets are divided into pools of producer services seeking to most efficiently fulfill the needs of a pool of consumer demands. Consumer, in this instance, does not refer to the end customer, but rather institutional resource demands. Resources are divided into intangible soft resources (knowledge, skill, experience, business network, software, etc.) and tangible hard resources (equipment, material, storage, transportation, etc). Every manufacturing activity can be distilled into a list of resources it demands, and can be systematically paired with the most appropriate producer of that resource. The ability to efficiently consume geographically distributed resources is greatly enhanced through the use of contemporary information technology innovations, including cloud-based social collaboration, plant simulation technology, and integration of multi-level plants systems from equipment automation up to product development and resource planning. This model also applies contemporary techniques from Agile methodology to facilitate communication between marketing, sales, development, and production; encourage incremental, iterative planning and execution; and shift decision making from an adaptive to a predictive method.

Conclusion

These are just a few examples of the early effects The Fourth Industrial Revolution is already having on the manufacturing landscape. But what effects are still to come? How will our economy function 20 years from now? The answers to these questions require a great deal of speculation, and even the most insightful among us can only guess at how future events and technological breakthroughs will shape our destiny. The best any of us can do is to take note of current trends and position ourselves to react as quickly as possible to inevitable change.

In manufacturing, businesses are taking a variety of steps to assure the preparedness of their organizations to the coming change:

• Strengthening IT systems to improve the velocity and contextual value of data from all levels of the institution.
• Systematically seeking out and evaluating new automation technology on a regular basis.
• Synchronizing motivations and efforts of sales, marketing, development, and production.
• Strengthening the versatility and adaptability of autonomous, self-organizing units within the organization.

These precautions all seem to focus, with good reason, on the development of information and the flexibility of reaction. Today’s break-neck pace of innovation, disruption, and evolution is unlikely to slow. As we wade into the future, it will become increasingly difficult for businesses to stay ahead of the curve in all aspects. The best we can hope for is to be ahead of the curve in some aspects, and not too far behind in others. Modern technology is so often aggregate in nature; to truly realize the benefits of tomorrow’s innovation, one must have a solid foundation today’s infrastructure. If your business has not already undertaken a concerted effort to future-proof its position, the market won’t long forgive this oversight.