New technology needs new models

According to the WEF – World Economic Forum – manufacturing executives today are confronted with an enormous variety of promising new technologies, ranging from artificial intelligence to connected machinery to 3D printing, all of them offering some combination of cost savings, quality improvements and increased flexibility

They then say it’s tempting to think that a manufacturer could modernise itself simply by replacing its old processes with new ones that feature these technologies – but the historical record suggests that isn’t enough

N.B. The following text reproduces most of the interesting detail in a recent WEF article

ELECTRIFICATION

For an analogy, consider the late 19th century when managers rushed to electrify their factories – electrification seemed an obvious productivity boost but it failed to produce any notable gains for more than three decades – just before 1920, that began to change; gains from electrification accelerated, and it accounted for half of all productivity growth in manufacturing during the 1920s

The Stanford economist Paul David found that managers at first simply overlaid “one technical system upon a preexisting stratum” – factories of the late 19th century used “group drive” systems, with a waterwheel or steam engine driving large groups of machines through systems of pulleys and belts – in the first wave of electrification, managers simply replaced the old power sources with new electric motors, which continued to drive large groups of machines through these pulley systems – they enjoyed modest cost savings on fuel as well as slightly improved control, but their factories continued to function exactly as before

A new generation of factories in the early 20th century began to use electrification differently – rather than instal centralised motors that drove machines through rotating shafts, they began to use “unit drive”, in which a single electric motor is installed in every machine, driving it independently – the advantages of electrification turned out to be profound in ways that early electrifiers hadn’t imagined

Because group-drive shafts lost energy to friction quickly over distance, early factories were arranged around the transmission of power rather than the flow of labour and goods – they needed to be compact to keep machines close to power sources, and any reorganisation was a cumbersome process

By contrast, the 1920s and 1930s saw the birth of factories without group-drive shafts bolted to their ceilings – factories could be bright, airy facilities with efficient single-floor layouts that could be rearranged quickly in response to market demands – electrification thus changed manufacturing, but only after managers became willing to redesign their entire businesses around the fundamental capabilities of electric machinery

COMPUTERS

Computers have since become another example – it seemed obvious that they should boost productivity, but those gains didn’t materialise at first

In the 1960s and 70s, businesses simply moved individual functions like payroll, inventory management and invoicing to computers, treating them more like glorified databases and printers – this led to some modest efficiency improvements, but no more – the real gains would be realised not from saving a little money on record-keeping and printing but by reorganising entire companies and industries around computers – indeed, from the mid-1990s onwards, we’ve seen the rise of an entire generation of valuable companies that invented new, fundamentally digital business models around computers and networking

Today’s manufacturers are in a position similar to that of the semi-digitised businesses in the early 1990s – individual technological solutions are available for a wide range of problems that manufacturers experience:

  • Artificial intelligence can save worker costs on tasks like quality assurance
  • Connected machinery can reduce downtime by warning of maintenance needs in advance
  • 3D printing offers rapid prototyping, flexible production, and savings on small- and medium-run manufacturing

Manufacturers that adopt these technologies without a plan for reinvention will earn only incremental improvements and fail to realise the full value of such new technologies

Ways to reimagine manufacturing

Manufacturers should look to early successful examples of digital factories driving changes in products and business models

These include:

Mass customization, in which products are designed and fabricated around individual consumers – first applications have emerged in high-value fields such as medical devices – decreasing costs for digital fabrication technologies promise to bring mass customisation to lower-value products, including consumer electronics, apparel and athletic equipment

Example: Align Technology has treated more than 5 million orthodontic patients with its Invisalign dental aligners – they begin with a 3D scan of a patient’s mouth and continue with a 3D printing-based manufacturing process

Continuous product development, in which physical products are constantly refined in order to offer improvements or address new markets – the flexibility of digital manufacturing reduces product-development and retooling costs and makes continuous product development possible.

Example: Airbus uses over 1,000 3D-printed parts in its newest airliner, the A350-1000 – most must be reconfigured whenever a modification is made to the layout of the cabin – by 3D-printing these components, Airbus avoids retooling costs and supply chain disruptions – meeting a customer demand for a new cabin configuration only requires a digital redesign

Digital supply chains, which combine digital design files with flexible, automated production facilities that are able to fabricate them – by making distributed manufacturing feasible and cutting inventory requirements, they reduce supply chain cost and risk, and make it possible to serve markets in ways that would not otherwise be feasible or cost-effective.

Example: Deutsche Bahn, the German railway operator and global logistics provider, found that 50% of the replacement parts it requires to maintain its trains can be 3D-printed – this reduces its costly inventory of spare parts, currently worth €600 million, increases dependability, and brings flexibility to the railroad’s fleet planning by making it possible to operate trains, some of which are 50 years old, without long-term support from their original manufacturers

Digital supply chains also offer a way to respond to the emerging global tariff regime: product specifications can be transmitted digitally to distributed factories, which can produce them for local markets without exposure to tariffs.

CONCLUSIONS

When new manufacturing technologies emerge, it’s easy to think about them in terms of concrete applications—the requirements they’re able to meet, the kinds of products they’re able to fabricate

But the real returns go to those who are able to build new business models that stand on top of them, and are willing to reorder entire industries around them

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