The state of Manufacturing sector has been an emotional topic for many Americans. Political campaigns have centered around the issue of the decline of American manufacturing. Radical ideas has been proposed and recently, radical steps have been taken to revitalize American manufacturing.
To be candid, Manufacturing in America may never come back to the levels of its former glory with the changes in global business ecosystem but I believe that Manufacturing 4.0 has the potential to revive American manufacturing and bring back some of its old glory home.
The backbone of Manufacturing 4.0- Technology
Technology is the foundation for manufacturing 4.0-you don’t need me to tell that to you if you are even slightly familiar with what Industry 4.0 is about. While it is still early to forecast the exact impacts Industry 4.0 will have on everything, we know for sure that it will impact labor pool. The type of skill set required in the smart factories of tomorrow will be different from today, since the skill set required will also involve understanding the complex manufacturing technology of the future-from a shop floor perspective.
Factors that will give US workers edge and may help bring manufacturing back:
The factory of the future will be less labor intensive: As crude as it may sound, the primary driver behind offshoring or outsourcing manufacturing is the cheap labor available in low cost countries. I often hear arguments that it is also about supplier bases in these countries but we have to remember that the suppliers typically try to co-locate aroud their large customers. So it is natural that the suppliers moved AFTER the customer’s manufacturing moved offshore.
In the ecosystem of Manufacturing of the future, labor cost is not going to be a major factor. In his book “Measures for Manufacturing Excellence (Harvard Business School Press)”, Dr. Bob Kaplan eloquently captures the impact of automation on manufacturing costs- “First, manual production has been replaced by automated machines, reducing direct labor content dramatically. On the other hand, indirect labor in the areas of design, monitoring and R&D has increased sharply. Plant and equipment has also increased because of the large amount of capital required for full automation”.
Though Dr. Kaplan is not referring to factories of the future but full automated assembly lines that we have in many industries currently, the economics will still follow the trend he has suggested. The labor cost element of manufacturing cost will decrease further. Since this is a primary driver in offshoring, this will help eliminate one major criteria for offshoring manufacturing.
Shop floor level skillset required will be more complex ?? : Whatever shop floor roles will remain, will be far more complex in terms of skill set required, as compared to present. U.S has one of the best education systems in the world and if the education system and government collaborate and work on this, U.S will definitely have an edge in terms of skill sets to offer. Since the labor cost will not be significant, companies will prefer to locate manufacturing in areas where they can find the work force with required skill set easily.
Other costs in low cost countries will be that low cost anymore: Energy, real estate and other costs will not be as cheap as they currently are in these low cost countries. China is a good example where the rapid pace of energy consumption is leading to increase in energy prices. Also, as these low cost countries get industrialized, the commercial real estate availability will get scarce, thereby raising the cost of operations. Infrastructure is still a US strength and the US has developed its infrastructure over a century in a planned fashion.