Trends in manufacturing

By Robert Hickson 09/09/2013 18


Boeing’s Dreamliner has 6.5 million lines of software code for onboard systems support. It’s a very complicated aircraft.

The new Chevy Volt – a humble little hybrid car – has 10 million lines.

That says a lot about the direction of travel of transportation in particular, and manufacturing more generally.

Simon Arnold noted in his comments to my previous blog post that some of the large R&D manufacturing initiatives in NZ are focused on the here and now problems of firms, rather than developing capabilities for future needs. Some will dispute that point – I know Scion has done a lot to try and alert the forestry sector to opportunities in bioproduct manufacturing.

What is a possible future for manufacturing? The McKinsey Global Institute looked at just this topic last year.

They note that manufacturing, like many other sectors, is going through considerable change.  Technology, supply factors, demand and policy are all influencing manufacturing, creating greater risks and uncertainties.

New materials, robotics, additive manufacturing techniques (such as 3D printing), the rapidly increasing use of sensors (as part of the product as well as in the processing and distribution chains), and the ability to design and model performance virtually are opening up new opportunities for manufactured products and processes.

“Green manufacturing” ,where the whole lifecycle of the product and its production is considered, is being taken seriously by leading firms. This is driven partly by consumer demand, but also by the desire to improve resource use by firms, so that they save money. As with “food miles”, there is likely to be a growing interest in properly valuing the costs of raw materials in manufactured products.

Some are even suggesting we are moving into a glucose-based manufacturing economy.

As products become increasingly sophisticated so the supply chains become more complex, and harder to manage. Firms are starting to design manufacturing processes and supply chains that are more resilient – both to natural disasters as well as failures of suppliers. Agile operations that are able to quickly respond, and prepare for, changes will be more successful.

Volatile energy and raw material markets influence company strategies. Government policies (or lack there of, or their inconsistency) can also add to the uncertainty of the operating environment.

Demand for major manufactured commodities may increase by 30 – 80% as the global population continues to grow. This will open up of new opportunities in the emerging markets. Within and between markets there are also growing demands for greater customization of products to meet local needs. More sophisticated and customized products are leading to greater demand by customers seeking services (training, software support, etc) from manufacturers, not just products.

And, there is intense competition for highly skilled workers in the manufacturing sectors. Capital markets may also become tougher.

The McKinsey report states that its a whole new manufacturing world and that:

“manufacturing companies need to develop new muscles”

 

To be a global manufacturing company means that greater collaboration internationally will be required, and that firms need to develop a much better understanding of their different markets so they can tailor their products and supply chains accordingly. McKinsey point out that China isn’t a single market, but at least 22 different markets.

The profiles of some of NZ’s existing “High Tech” manufacturing firms are available in MBIE’s recent sector report [Pdf].

If NZ want’s to remain a viable niche player in the global manufacturing scene then firms (and government) need to think hard about the changing manufactured world, and how we can develop and attract the skilled people who will be needed. Universities and CRIs can and should help local firms meet their immediate needs, but they also need to help those firms see further ahead and support them in developing the capabilities they are going to require.

If factories in a box become common, what will be the valuable niches where NZ firms can thrive in? As Simon pointed out in response to my previous post, we need to be producing high value “weightless” products and services because we are a long way from the key markets.

One opportunity I see is in extending the sophisticated computational modelling skills developed by the Auckland’s Bioengineering Institute into the manufacturing sector to help design and prototype sophisticated manufactured products, as well as to design resilient supply chains and life cycle analyses.

 


18 Responses to “Trends in manufacturing”

  • Fisher and Paykel (the original company) were able to compete on a much much improved scale in the late 60s and early 70s when they adopted DSIR ideas of the flexible manufacturing line. This came from the ld Applied Maths and operations research. This gave F&P the opportunity to build any model at any time on the one line. Word is they still use it.

    Maybe the time is right to consider researching ways of developing manufacturing lines that truly are flexible between weird and wonderful product lines. Models of ovens, washing machines etc could be termed generic. But mixing ovens with wood products are different generics. Why not design something that can take truly disparate products and produce them at will.

    3D printing may do it, but the materials may not be up to it. Yet.

  • A quick additional couple of comments. I find the analysis that categorises manufacturing into broad sectors (eg both McKinsey and MBIE ref above) and then proceeds to create priority sectors for encouragement isn’t particularly useful in the NZ context.

    This is for two reasons.

    First, the number of companies involved in discrete manufacturing in NZ with balance sheets sufficiently strong to be involved in multi-year investments in intangibles (like innovation) is small enough (<100) that we are better talking about them directly.

    Second, the use of categories leads to mistaken inferences about what we need to do. There are a bunch of scientists using this kind of analysis to advocate for investment in medical devices (because that's what they do), when this really isn't what NZ industry is strong in (the two medical device companies of substance are primarily mechanical equipment and ICT), and getting these kinds of products away de novo is a tough ask, even without the added complexity of doing it through a start-up.

    One thing the McKinsey report does do well (as we should expect) is look at the global trends facing manufacturing (pps 84-92). A good starting point for those considering the Science Challenge for physical and engineering would be to look at how these relate to NZ's characteristics and the existing manufacturing sector and what that might mean for a Challenge, rather than starting with what they are doing and working how to get it funded.

  • F&P appliances benefited more from the technology shift from vitreous enamel on steel and fibreglass insulation to much lower cost painted steel or ABS plastic with polyurethane insulation during the late 1960s – early 1970s.

    Those introduced technologies greatly reduced costs, admittedly with shorter design life ( 15 years – versus 25 years ), and the many smaller firms slowly consolidated as the high capital cost and different skills overwhelmed them. The change from ozone-layer unfriendly Refrigerant 12 ( fridge-freezer ), R11 ( polyurethane foam blowing agent ), and R22 ( freezer ), was the final blow.

    Larger multinational firms, such as Frigidaire, closed NZ plants as their parent company ( GM ) considered market size and future issues associated with tariff reductions.

    The current manufacturing problem for NZ is that global companies can enter niche markets and drive unit costs down to levels that aren’t profitable from NZ.

    Software and design are high value lightweight products, and NZ companies seem to compete well in those markets, as well as using overseas manufacturing to cater for world markets for niche products.

    The call to add high value to products from primary industries hasn’t really produced dividends. Maybe NZ needs to create innovative industries around local market needs before trying to expand globally.

    Bio-industries still struggle with the water problem. Most have 70% water in feedstocks along with large waste volumes, compared to current modern chemical processes. That usually means energy is required. In the 1970s, it was felt that crude oil at US$60/bbl would make bio-* processes viable, but now, at US$100/bbl they are even more non-viable without some sort of punitive tax on fossil carbon and/or a subsidy.

  • As Shaun Hendy has pointed out in his book, F&P only got going because of import licensing, circa 1936. It is a tribute to F&P management, and the R&D inputs mentioned above, that F&P remained competitve for so long, in the face of fierce low-cost competition from offshore. Trouble is, these things catch up with you in the end. No-one would dream of starting an appliance business in NZ now, and this is really the acid test.
    Similarly, would anyone want to start a mobile phone business in Finland?
    Bruce- you are right- we haven’t been very successful in adding value to primary products. It doesn’t mean we can’t do it. Global trends suggest we should still have this as a core economic strategy, rather than buy Lotto tickets in the science-led high-tech space. We can’t do everything, and I worry that we will follow the sizzle and not the sausage.

  • Kemo Sabe,

    The problem is that we have been trying to add value to primary products for 40+ years, and the same old suggestions keep appearing in bids for research money. eg
    1. Extract a higher value minor component from a bulk low value feed, ( polar lipids from dairy products, squalene from shark livers, polyunsaturated fatty acids from marine species, etc. etc. )
    2. Increase value of a product, eg timber, with processing, but other timber producers have got there first and sell NZ the large production lines to make such products.

    There are some companies who are agile and have diversified eg Scott Technology ( who, incidently, made Whirlpool appliances in 1950s, and who now also sell their facility designs globally ), Gallagher Industries, and F&P.

    We need to identify totally new products and processes, and if we can’t – we should abandon high value manufacturing for other than local markets.

    I suppose we could claim the addition of methylglyoxal to low value honeys ( thus producing high UMF honeys ), shows innovation – as would adding a precusor chemical for methylglyoxal to the hives and thus allowing the bees to convert the cheap honey to higher value honey.

    But selling more manuka honey globally than is produced nationally is the same mistake Australian Tea-tree Oil producers made when they diluted their product with cheap Chinese camphor oil. Eventually the clients change to less shonky alternatives to protect their own reputations.

  • kemo sabe

    The point is that we shouldn’t buy Lotto tickets, but do some mission oriented applied physical sciences and engineering research that addresses major challenges that lie ahead. That’s what the other science Challenges are trying to do.

    The problem is that the scientists working on this Challenge have lost sight of the “challenge”, apart from perhaps the challenge of keeping the funding flowing.

    What are the challenges facing technological development in NZ? The most obvious is going to be reducing the cost and time to innovate (obviously limited to the kinds of companies we have in NZ, otherwise it becomes life, the universe and all that).

    Now a physical science team is probably going to need some help to think about how they might contribute to this Challenge, but it shouldn’t take long. Engineering research teams perhaps less so.

    In part the challenge to the science teams will be that their business models will need to change to support more efficient approaches to technological innovation suited to the NZ environment.
    ……
    As an aside import licensing started in 1938, and that got F&P to start the switch to local manufacture. But it was the war restriction supporting their industry that probably got them through the critical scale up period. Roll on WW3.

    On whether you would start and appliance industry in NZ again, I think the conditions are probably getting easier. The question is how long one can keep it here with our capital markets the way they are (eg WhisperTech) . The sweet-spot starting point for a NZ manufacturer is a product costing more than few grand and an addressable global market of ~$1B – pricey enough to justify shipping, big enough market to get going but not too big to attract too much attention, and small enough volumes to allow lower capital cost manufacturing processes to begin with. This means more specialised industrial equipment than appliances but not too far removed.

    I must say from what I know of NZ industry and developments in modern functional materials I wonder why thermal management devices that build on our expertise in (old fashioned imported) refrigeration technology don’t get more attention.

  • I should add that another condition for the sweet spot is high value per m3. Hence lots of lines of embedded code is good, but having said that I believe that Wilson Transformers in Aus manage to ship 100MVA transformers (think big) to the UK and still be competitive. The freight is just a few percentage points of the final price.

  • Simon,

    I think NZ already has plenty of innovators, and even a relatively benign commercial environment to establish small companies. The problem is that we don’t identify the challenges.

    It’s my impression that many innovators start outside academic environments. Govt. funding favors academic institutions and research institutes, rather than small entities. The recent science challenges virtually ignored smaller entities and offer same old, same old, future programmes.

    Any innovative manufacturing is likely to take a decade from concept to commercial, so we need you to help select winning sausages. The challenges should be based around any unique strengths available locally.

  • “I suppose we could claim the addition of methylglyoxal to low value honeys ( thus producing high UMF honeys ), shows innovation – as would adding a precusor chemical for methylglyoxal to the hives and thus allowing the bees to convert the cheap honey to higher value honey.”

    Only slightly off-topic, I have to admit get tired of (and somewhat annoyed at) seeing manuka honey + UMF factors raised as examples of a ‘good’ product. If by good you mean a successful marketing campaign then, OK, you’d be right, but that’s the marketing not the product per se.

    Some research, including some I wrote about a few years ago, suggests that if some other honeys are gently warmed they produce MGO (methylglyoxal). That, in turn, suggests that it’s possible, if not likely, many or most honeys already have the ‘precursors’ in them. There’s much more to this and I don’t feel like going into it here, but I do feel the manuka honey story is more about marketing than the product itself.

    “But selling more manuka honey globally than is produced nationally is the same mistake Australian Tea-tree Oil producers made when they diluted their product with cheap Chinese camphor oil. Eventually the clients change to less shonky alternatives to protect their own reputations.”

    Just for clarity – I’m not disputing this general line of thinking or the wider discussion.

    To your latest comment, re:

    “It’s my impression that many innovators start outside academic environments. Govt. funding favors academic institutions and research institutes, rather than small entities. The recent science challenges virtually ignored smaller entities and offer same old, same old, future programmes.”

    Quite a few start from within academia too and of course many have formal academic backgrounds that they draw on. There is at least one government initiative that targets small entities that intend to write about – a proposed tax loss credit scheme for R&D efforts. Unfortunately the brief IRD has used ‘conveniently’ leaves out a sector that could do with support, which is one aspect I’d like to tackle when I write about this. (Also to keep politics out of it, Labour proposed a related scheme, not it’s not a ‘National’ policy as such, but the latest rendition of an on-going story that has roots going back several years now.)

    Simon,

    “The problem is that the scientists working on this Challenge have lost sight of the “challenge”, apart from perhaps the challenge of keeping the funding flowing.”

    Maybe I’m taking this out of context and perhaps you’re right, but I’d quibble at the latter bit a little: scientists generally have a very good idea of the prospects and likely future directions in their field. If there is a problem in NZ in this respect, perhaps it is the fairly conservative nature of what tends to be funded – but don’t get me started on that! 🙂

  • Bruce

    The problem isn’t the innovators, its doing innovations that come out into the sector. Callaghan Innovation is designed to do the business focused stuff, but this leaves building capabilities in areas that underpin our industrial base.

    The refrigeration example illustrates. We have a significant number of companies involved in this, and we have a significant number of scientists with the capability to develop functional materials aside, but with the exception of Massey PN not much happening to deliver our industry the capabilities they will need in 5 – 10 years time (both for refrigeration and for other areas that our industry could develop into).

    Grant

    Scientists are intelligent people and if they can screw the scrum to get their area endorsed as a priority for future funding and they didn’t do it, we’d have to wonder about it all. It’s human nature.

    If you’ve spent your life researching medical devices its hard not to believe that will be the panacea to NZ’s ills, and to grab every opportunity to give it a shove as a priority area.

  • Simon,

    I’m not familiar with the impending refrigeration issues, but it sounds like a good challenge topic. Once it’s viable ( production prototypes meeting design/performance targets), then industry should either take the product, or encourage a start up business by demonstrating their willingness to purchase.

    However, one issue I have – What is the unique NZ resource that will ensure the system is superior to overseas alternatives?.

    My perception and experience is that most NZ customers will purchase based on value for money and lowest initial cost, hence even name brands manufacture in cheapest labour countries.

  • Bruce

    I suspect we are talking about different things here. You seem to be suggesting development starts with some researchers dreaming up some stuff and having a go at it, and then seeing if industry is interested. It’s the way a lot of science gets done in NZ but it isn’t the mission oriented applied R&D that we are talking about here.

    What I’m talking about is some or all of the local industry (and in this case it is primarily industrial scale refrigeration) working out where they need to be in 5 years time against a road map of markets, product and technologies, and then the research team de-risking it for them.

    Hence mission oriented, directed, and applied.

  • We should direct our resources into fields where we have a sustainable competitive advantage. We should think very hard about how we can do that. It won’t come from having a few bright sparks with good ideas.
    What I am seeing are proposals that we should get down and dirty with other advanced nations, and compete with them in technology growth areas. They’ll kill us, not least because they don’t have any other options.
    Norway has got very rich exploiting its resources. They are very clever at doing this. They have narrowed their research agenda in recent years; they realise they have to focus their scarce science and technology skills.
    From a resources point of view, we are better off than Norway.

    In today’s news: Xero says it can’t get enough programmers in NZ. The number of domestic computer science graduates from our universities has fallen steadily over the last five years, despite a buoyant IT labour market. Think about that in the context of ‘sustainable competitive advantage’.

  • Simon,

    Thanks, I was holding the wrong end of the stick.

    That seems to be vaguely similar to the original Research Association model, 50% funded by industry levy 50% funded by DSIR, with free access to DSIR, and a senior DSIR manager on the RA board.

    There were so many, including the dry cleaning industry (RITS), pottery ( PACRA), coal (CRA), timber (FRI), leather ( LASRA ), wool ( WRONZ), meat ( MIRNZ), Dairy ( DRI) etc.

  • Mike

    Advantage (whether competitive or comparative) is built right along the value chain. Better to have a number of advantages in an ultimate product or service offering than just one, and if you have an advantage better to buttress it and extend it than just milk it (if you see what I mean).

    So it isn’t just a simple issue of developed nations being better than us in technologies, so we shouldn’t compete. It is identifying those combinations of things that give us a unique position and chase those.

    Bruce

    Yes like the RAs (and consortia), but extended back into the longer-term, higher risk stuff (that Grant wants – although the directed bit mightn’t appeal) that requires less than 50:50 funding. You then end up with industry participating in the closer to market product and process development paying 50% but having the science system de-risking the longer-term stuff (with the Crown taking more of the risk).

    Better than chasing good ideas that at best will need start ups to commercialise.

  • Some interesting discussion going on. I agree with you Simon, we need to pay more attention to the technology and other trends that McKinsey and others point to rather than simply relying on what we are already good at (or think we are).

    The former Ministry of Economic Development commissioned Coriolis Research a few years ago to look at NZ’s food industry and help identify where new opportunities lie – http://www.med.govt.nz/sectors-industries/food-beverage/moving-to-the-centre-report. A similar in depth hard edge look at the manufacturing sector could be of use as well. [The “Parliamentary inquiry into the future of manufacturing” undertaken earlier this year – http://manufacturinginquiry.org.nz/report/ – can’t be considered sufficient]

    As I wrote about last year – https://sciblogs.co.nz/ariadne/2012/11/12/the-challenge-of-science-challenges/ – grand challenges can work well in some situations, but they need to be thought about carefully, and government needs to be kept at arms length. Framed and managed properly they can be very good at inspiring scientists, engineers, and the public. I can’t identify a “manufacturing” challenge for NZ but there are likely to be a range of interesting broader technological challenges that could be useful in bringing not just physical scientists but a range of disciplines together. The real outcome from such a challenge may not be in what is produced but in illustrating that NZ researchers can tackle big multi-disciplinary technological issues. This is the type of inspiration that may encourage more New Zealanders to consider research and development as a viable option, and help attract more talented researchers to NZ.

  • A report just out from the Boston Consulting Group looks at the decline of manufacturing in the Nordic countries – https://www.bcgperspectives.com/Images/BCG_Revitalizing_Nordic_Manufacturing_Aug_2013_tcm80-141654.pdf.

    Some useful lessons in that for NZ. The numbers employed in manufacturing have been declining as countries with lower labour costs become more competitive, and because many manufacturing firms in the Nordic lands export primarily to other European countries, where demand is decreasing. BCG predict 200,000 manufacturing jobs may be lost in Denmark, Finland, Norway & Sweden over the next 5-7 years if practices don’t change.

    Some of the firms have moved their factories to asian countries to reduce labour costs. While they try and keep their R&D capabilities within the home country, there is also increasing pressure to relocate them to sit along side the factories or in their main export markets.

    BCG recommend improving the policy and regulatory environment for manufacturing firms to encourage/attract the “next-generation” manufacturing firms. And to improve the training of a skilled workforce.