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The New Economics of Manufacturing
Richard Veryard
Future of Manufacturing Netcamp
Turin November 2015
2
The French writer Jacques Attali
predicted the crisis in the music
industry. He now says
manufacturing will be hit by an...
3
Main Presentation
• Brief Historical Background
• 3x Crisis in the Music Business
• 3x Crisis in Manufacturing
• Types o...
4
Ritual
Order
Imperial
Order
Merchant
Order
The Rise of Capitalism
From Jacques Attali, A Brief History of the Future (20...
5
Successive Cores of the Merchant Order
From Jacques Attali, A Brief History of the Future (2006)
Core City Core Technolo...
6
Harbinger
7
Crisis of Patronage
• Public concerts replacing
aristocratic salons
Crisis of Production
• The emergence of electronic
m...
8
Crisis of Patronage
• Governments 
Markets
• Local  Global
Crisis of Production
• Design  Build 
Design
• Lean  Agi...
9
Mass
Production
Print On
Demand
Hand Crafted
Book Production Pathways
10
Material Fabrication Assembly Manufacture
Production Forces
3D Printing Robotics
CNC Tools
11
Material Fabrication Assembly Manufacture
Economic Forces
Cheap
3D
Printing
Expensive High-
Grade Materials
Easy
Self-
...
12
Smile Curve
Material
Fabrication
Assembly
Design
• Product
• Process
• Economics
14
Economies of
Scale
The ability to create additional output from an existing
capability, reducing average unit cost. (i....
15
Hardware
• Direct Machining -
alloy parts replacing
injection-moulded
plastics in housings
• Additive Manufacture
– cus...
16
How Big Data Will Affect Manufacturing
Source: LNS Research and MESA International com
17
18
Personalization involves four capabilities
Personalization
Targeting
• Starting with what we
want to promote.
• Selecti...
19
What is the Value of Personalization?
Engagement
• Message across all channels are more relevant to consumers increasin...
20
Global Manufacturing Revolution
Source: Koren
21
Servitization /
Personalization
• Building long-term relationships
with consumers.
• Builds on Reply’s extensive
experi...
Thanks
Richard Veryard
r.veryard@reply.eu
23
Before joining Reply in June
2013, Richard was an
independent consultant and
software industry analyst,
specializing in...
24
Patterns of Innovation
Source: Abernathy, W.J. and Utterback, J.M. – Patterns of Innovation in Technology, Technology R...
25
Phases of Innovation
Source: Abernathy, W.J. and Utterback, J.M. – Patterns of Innovation in Technology, Technology Rev...
26
• Research and development
• Innovation
• Production processes
• Supplier and customer interdependencies
• Lifetime pro...
27
• High-Quality Materials
• Complexity - Different Materials For Each Job
Materials
• Analysing Productivity
• Analysing...
28
• Fewer jobs. Smaller share of GNP. Protectionism.
Decline in the Manufacturing Sector
• Disruption – Who, Whom?
• Bure...
29
•Modelling and simulation integrated into all design processes, together with virtual reality tools will allow complex ...
30
•Modelling and simulation integrated into all design processes, together with virtual reality tools will allow complex ...
31
• These will be important in the on-going automation of many tasks that formerly required people. In addition, the volu...
32
Factories of the Future
Source: UK Government Report, 2013
Aspect Typical Current Likely Future
Processes and
Practices...
33
• Foresight (2013). The Future of
Manufacturing: A new era of opportunity and
challenge for the UK (The Government Offi...
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The New Economics of Manufacturing

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Presentation given at a workshop on the Future of Manufacturing, Turin November 2015

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The New Economics of Manufacturing

  1. 1. The New Economics of Manufacturing Richard Veryard Future of Manufacturing Netcamp Turin November 2015
  2. 2. 2 The French writer Jacques Attali predicted the crisis in the music industry. He now says manufacturing will be hit by an identical one – this time caused by 3D printing. Is he correct? What will the possible disruption entail? And how can Reply play a leading role in this transformation? This presentation looks at the possible winners and losers from the technological changes sweeping the manufacturing world, and how companies can establish and maintain competitive advantage from this new manufacturing technology. Outline
  3. 3. 3 Main Presentation • Brief Historical Background • 3x Crisis in the Music Business • 3x Crisis in Manufacturing • Types of Economic Advantage • Production Forces – Exploiting the Value Chain • Relevance for Reply’s Business Additional Material • Phases of Innovation • Economical Paradoxes • Further Reading Contents
  4. 4. 4 Ritual Order Imperial Order Merchant Order The Rise of Capitalism From Jacques Attali, A Brief History of the Future (2006)
  5. 5. 5 Successive Cores of the Merchant Order From Jacques Attali, A Brief History of the Future (2006) Core City Core Technology Bruges Central Rudder Stock Venice Caravel Antwerp Printing Genoa Accounting Amsterdam Fluyt London Steam Engine Boston Piston Engine New York Electric Engine Los Angeles Microchip ?? ??
  6. 6. 6 Harbinger
  7. 7. 7 Crisis of Patronage • Public concerts replacing aristocratic salons Crisis of Production • The emergence of electronic music Crisis of Proliferation • The Work of Art in the Age of Mechanical Reproduction Music as a Harbinger of the Future Because music is very important to us but also highly adaptable it's one of the first places we can see new trends appearing. (Jacques Attali)
  8. 8. 8 Crisis of Patronage • Governments  Markets • Local  Global Crisis of Production • Design  Build  Design • Lean  Agile Crisis of Proliferation • Copyright  Open Source • “Physibles” (PirateBay) • DefCad From Music to Manufacturing?
  9. 9. 9 Mass Production Print On Demand Hand Crafted Book Production Pathways
  10. 10. 10 Material Fabrication Assembly Manufacture Production Forces 3D Printing Robotics CNC Tools
  11. 11. 11 Material Fabrication Assembly Manufacture Economic Forces Cheap 3D Printing Expensive High- Grade Materials Easy Self- Assembly High-Quality Components
  12. 12. 12 Smile Curve Material Fabrication Assembly Design • Product • Process • Economics
  13. 13. 14 Economies of Scale The ability to create additional output from an existing capability, reducing average unit cost. (i.e. producing more output from the same technology infrastructure). Long Production Runs  Minimize Setup Costs Economies of Scope The ability of a business to extend the scope of its operations across different markets reducing average operating costs. (i.e. covering more markets with the same business process infrastructure). Agile Production Runs  Optimize Setup Costs Economies of Alignment The ability to create additional ways of organizing the business relationship with a customer over time, reducing the average cost of alignment of business operations to the dynamics of each customer relationship. (i.e. managing more distinct customer relationships over time supported by the same infrastructure) Dynamic Complexity Types of Economic Advantage Source: Boxer Research Limited http://www.asymmetricdesign.com/2006/10/creating-economies-of-alignment/
  14. 14. 15 Hardware • Direct Machining - alloy parts replacing injection-moulded plastics in housings • Additive Manufacture – custom design of high-performance components • Robotics – autonomous and safe collaboration between robots and humans Software • Digitization – improves time-to- market • Simulation – anticipates and eliminates production challenges • Product lifecycle management – integration of supplier and production network Services • Servitization – embracing the service economy • Personalization – mass customization • Circular Manufacturing – managing the whole life of the product • Virtualization – the fabless factory New Manufacturing Trends http://www.theengineer.co.uk/manufacturing/automation/ understanding-industry-40-factories-go-digital/1019373.article
  15. 15. 16 How Big Data Will Affect Manufacturing Source: LNS Research and MESA International com
  16. 16. 17
  17. 17. 18 Personalization involves four capabilities Personalization Targeting • Starting with what we want to promote. • Selecting consumers for a given campaign Customization • Starts with what the consumer asks for. • Take consumer demands at face value Contextualization • Engaging with the consumer’s world. • Infers consumer desires from context. Co-Creation • Providing a platform for active consumer engagement.
  18. 18. 19 What is the Value of Personalization? Engagement • Message across all channels are more relevant to consumers increasing their affinity with the channels and brand • Consumer-led – consumers should feel that we are directly responding to their actions and preferences. Economics • Improved conversion rate on campaigns. • Reduced churn. • Reduced price sensitivity – offers can be based on consumer desire rather than discounts • Lifetime value of consumer. Align consumer incentive to consumer value. Efficiency • More effective use of digital campaigns as more targetted, more coordinated , more timely. • Growing accuracy of consumer profile, thanks to continuous feedback. • Support for innovation (e.g. trial offers or campaigns), because faster and more comprehensive feedback takes away some of the risk
  19. 19. 20 Global Manufacturing Revolution Source: Koren
  20. 20. 21 Servitization / Personalization • Building long-term relationships with consumers. • Builds on Reply’s extensive experience in the Retail and Consumer sectors. Virtual Warehouse / Logistics • Local fabrication reduces transportation and storage Big Data • Enhancing Product Innovation • Enhancing Process Innovation Bleeding Edge Technology • Research and Development • Proof of Concept Relevance for Reply Business
  21. 21. Thanks Richard Veryard r.veryard@reply.eu
  22. 22. 23 Before joining Reply in June 2013, Richard was an independent consultant and software industry analyst, specializing in the service- oriented enterprise. He has written books on Information Modelling, Business Architecture and Organizational Intelligence Since joining Reply, Richard has worked on a range of architectural projects for several Retail and Consumer clients. His current focus is on Data and Intelligence. About Richard Veryard
  23. 23. 24 Patterns of Innovation Source: Abernathy, W.J. and Utterback, J.M. – Patterns of Innovation in Technology, Technology Review 1978
  24. 24. 25 Phases of Innovation Source: Abernathy, W.J. and Utterback, J.M. – Patterns of Innovation in Technology, Technology Review 1978 Fluid Phase Transitional Phase Specific Phase Innovation Product changes/radical innovations Major process changes, architectural innovations Incremental innovations, improvements in quality Product Many different designs, customization Less differentiation due to mass production Heavy standardization in product designs Competitors Many small firms, no direct competition Many, but declining after the emergence of a dominant design Few, classic oligopoly Organization Entrepreneurial, organic structure More formal structure with task groups Traditional hierarchical organization Threats Old technology, new entrants Imitators and successful product breakthroughs New technologies and firms bringing disrupting innovations Process Flexible and inefficient More rigid, changes occur in large steps Efficient, capital intensive and rigid
  25. 25. 26 • Research and development • Innovation • Production processes • Supplier and customer interdependencies • Lifetime product maintenance and repair. Adaptability • Built-in reuse • Remanufacturing and recycling for products reaching the end of their useful lives Sustainability • Energy efficiency • Water efficiency • Physical recycling Resource Usage Goals
  26. 26. 27 • High-Quality Materials • Complexity - Different Materials For Each Job Materials • Analysing Productivity • Analysing Demand • Optimizing Alignment (Big) Data • Integration between craft production and mass production • Rapid feedback and learning Skills Success Factors for the New Manufacturing
  27. 27. 28 • Fewer jobs. Smaller share of GNP. Protectionism. Decline in the Manufacturing Sector • Disruption – Who, Whom? • Bureaucracy and the Megamachine (Lewis Mumford) Demanding Change • Downskilling versus Upskilling Skills Paradoxes of the New Manufacturing
  28. 28. 29 •Modelling and simulation integrated into all design processes, together with virtual reality tools will allow complex products and processes to be assessed and optimised, with analysis of new data streams. Faster, more responsive and closer to customers •The integration of sensors into networks of technology, such as products connected to the internet, will revolutionise manufacturing. New data streams from products will become available to support new services, enable self-checking inventories and products which self diagnose faults before failure, and reduced energy usage. Sensors •New materials, in which the UK has strong capabilities, will penetrate the mass market and will include reactive nanoparticles, lightweight composites, self-healing materials, carbon nanotubes, biomaterials and ‘intelligent’ materials providing user feedback. Advanced & functional materials •The range of biotechnology products is likely to increase, with greater use of fields of biology by industry. There is potential for new disease treatment strategies, bedside manufacturing of personalised drugs, personalised organ fabrication, wide availability of engineered leather and meat, and sustainable production of fuel and chemicals. Biotechnology •These will be used to reduce the resources used in production including energy and water, produce clean energy technologies, and deliver improved environmental performance of products. Minimising the use of hazardous substances. Sustainable/green technologies Future manufacturing – Four Key Features Source: UK Government Report, 2013
  29. 29. 30 •Modelling and simulation integrated into all design processes, together with virtual reality tools will allow complex products and processes to be assessed and optimised, with analysis of new data streams. Information and communications technology (ICT) •The integration of sensors into networks of technology, such as products connected to the internet, will revolutionise manufacturing. New data streams from products will become available to support new services, enable self-checking inventories and products which self diagnose faults before failure, and reduced energy usage. Sensors •New materials, in which the UK has strong capabilities, will penetrate the mass market and will include reactive nanoparticles, lightweight composites, self-healing materials, carbon nanotubes, biomaterials and ‘intelligent’ materials providing user feedback. Advanced & functional materials •The range of biotechnology products is likely to increase, with greater use of fields of biology by industry. There is potential for new disease treatment strategies, bedside manufacturing of personalised drugs, personalised organ fabrication, wide availability of engineered leather and meat, and sustainable production of fuel and chemicals. Biotechnology •These will be used to reduce the resources used in production including energy and water, produce clean energy technologies, and deliver improved environmental performance of products. Minimising the use of hazardous substances. Sustainable/green technologies Important pervasive technologies for future manufacturing activities Source: UK Government Report, 2013
  30. 30. 31 • These will be important in the on-going automation of many tasks that formerly required people. In addition, the volume and detail of information captured by businesses and the rise of multimedia, social medial and the internet of things will fuel future increases in data, allowing firms to understand customer preferences and personalise products. Big data and knowledge based automation • There is potential for major impacts in terms of business optimisation, resource management, energy minimisation, and remote healthcare. In factory and process environments, virtually everything is expected to be connected via central networks. • Increasingly, new products will have embedded sensors and become autonomous. Internet of things • Advances are likely to make many routine manufacturing operations obsolete, including healthcare and surgery, food preparation and cleaning activities. • Autonomous and near-autonomous vehicles will boost the development of computer vision, sensors including radar and GPS, and remote control algorithms. 3D measurement and vision will be able to adapt to conditions, and track human gestures. Advanced and autonomous robotics • This is expected to have a profound impact on the way manufacturers make almost any product. It will become an essential ‘tool’ allowing designs to be optimised to reduce waste; products to be made as light as possible; inventories of spare parts to be reduced; greater flexibility in the location of manufacturing; products to be personalised to consumers; consumers to make some of their own products; and products to be made with new graded composition and bespoke properties. Additive manufacturing (also known as 3D printing) • Computerised manufacturing execution systems (MES) will work increasingly in real time to enable the control of multiple elements of the production process. • Opportunities will be created for enhanced productivity, supply chain management, resource and material planning and customer relationship management. Cloud computing • Smart phones and similar devices are positioned to become ubiquitous, general purpose tools for managing supply chains, assets, maintenance and production. They will allow functions such as directed advertising, remote healthcare and personalisation of products. • Linked technologies include battery technology, low energy displays, user interfaces, nano-miniaturisation of electronics, and plastic electronics. Mobile internet Important secondary technologies for future manufacturing activities Source: UK Government Report, 2013
  31. 31. 32 Factories of the Future Source: UK Government Report, 2013 Aspect Typical Current Likely Future Processes and Practices Limited flexibility of production lines, with some potential for multi-product manufacturing. Highly capable, flexible, embedded knowledge, close customer relationships, cross-sector R&D Locations Centralized in legacy locations, some distance from customers and suppliers. Diversity, central hubs, urban sites, distributed and mobile, home integrated design-make environments. Supply chains Typically a mixture of global and local supply chains, not well integrated with partners with limited risk / revenue sharing. Localized and integrated ‘partnering’, effective use of global capabilities and adaptable logistics systems. Goals and metrics Mostly focused on cost, quality and delivery with less emphasis on future performance and sustainability. Speed, agility, degree of cross-region / sector collaboration, total resource efficiency, global competitiveness. Facilities Often close to urban areas with legacy infrastructure (especially ICT) and poor sustainability performance Innovative and customized buildings, spacious, sustainable operations, open to customers, partners and the community. Technology Typically a focus on low-risk automation and product technologies. Reliant on technology from equipment suppliers Integrated value chain approach, digitized. Big Data enabled, additive processes and many new advanced materials. People Typically technical and professional workers, mostly men, with processes reliant on manual intervention. Increasingly knowledge-based work, continuous improvement principles, multi-skilled / gender teams. Culture Typically a ‘command and control’ culture focused on in- house knowledge, limited supply chain integration. Open, creative, networked and interactive. Integrated working principles with suppliers and research partners.
  32. 32. 33 • Foresight (2013). The Future of Manufacturing: A new era of opportunity and challenge for the UK (The Government Office for Science, London 2013) • William J. Abernathy and James M. Utterback, “Patterns of Innovation in Industry,” Technology Review, Vol. 80, No. 7, June-July 1978, pp. 40-47 • Jacques Attali, A Brief History of the Future (2006) • Walter Benjamin, "The Work of Art in the Age of Mechanical Reproduction" (1936) • Philip Boxer, “Creating Economies of Alignment” (Asymmetric Design, 2006) • Larry Hirschhorn, Beyond Mechanization (MIT 1984) • Yoram Koren, The Global Manufacturing Revolution: Product-Process-Business Integration and Reconfigurable Systems (Wiley 2010) • James M. Utterback and William J. Abernathy, “A Dynamic Model of Product and Process Innovation,” Omega, Vol. 3, No. 6, 1975, pp. 639-656. Further Reading

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