By Raj Batra
To compete, smart manufacturing is going to be vital. According to McKinsey, a global management consulting firm, 80 percent of production costs are determined in the design phase. Waiting to look at production design until a product is being assembled is too late. In our company we talk about integrating the virtual and the real worlds of manufacturing, including all phases—design, planning, engineering, execution, and services—to improve cost and efficiency. Integration of the virtual and real worlds of production has been a priority since 2006. We have made heavy investments in product life-cycle management software to integrate with automation systems.
The manufacturing sector is heating up in the U.S., with the August new orders index hitting its highest mark since 2004. Does the U.S. have an advantage in smart manufacturing? Smart manufacturing plays to the unique strengths of the U.S. The U.S. is the world leader in software development; 79 percent of global software revenue is generated by companies headquartered in the U.S. Software is driving the manufacturing revolution, and this is a sustainable advantage.
Energy is also a huge differentiator for the U.S. Last year we became the world’s largest producer of natural gas. Natural gas prices in the U.S. are about one-third of Europe’s and one-quarter of Asia’s. Our natural resource abundance is relatively new, but significantly, what made it possible was our long-standing prowess in advanced manufacturing.
U.S. manufacturing renaissance – reality or hype?
Manufacturing continues to outperform the U.S. economy overall. In addition, consumers are regaining their appetites for big-ticket items such as automobiles. The automotive space is expected to grow by 5 percent this year, according to the Manufacturers Alliance for Productivity and Innovation. There are many signals of increased investments here in the U.S., including low consumer debt and rising consumer wealth, as indicated by rising stock market values and home prices.
Looking to the fundamentals overall, the U.S. is the world’s largest market. Customer proximity to the manufacturing process is critical. There is a realization that manufacturing and innovation/research and development (R&D) need to be co-located. Manufacturing is once again strategic to the enterprise. It is a C-suite topic again, not a black box or a thing to be outsourced.
Does globalization have an impact?
There is an assortment of smart manufacturing initiatives happening in Europe, Asia, and the U.S. The new National Network for Manufacturing Innovation in the U.S. is modeled in part on public-private partnerships happening in Europe. Our company is a consortium partner and key investor for the Digital Lab for Manufacturing Institute and UI Labs in Chicago, announced in February 2014, and we invite other companies to participate. The Digital Lab will apply mobile, cloud, and high-performance computing technologies to the manufacturing challenges of the Department of Defense and industry.
Globalization has a huge effect on industry and smart manufacturing, because companies all over the world need transparency into their operations. They also need standardized approaches around the globe. Gone are the days when companies seek one standard for North America and another for Europe. Today, the winners will be the companies that take global approaches.
Challenges for smart manufacturing
These are complex technologies, and they will not run on autopilot. Standard factory worker tools used to be the wrench and the hoist. Today they are the stylus and the iPad. Smart manufacturing implies that you have a skilled workforce. As is well known, there is a global shortage of STEM graduates. According to the U.S. Department of Education, “60 percent of the new jobs that will emerge in the 21st century will require skills possessed by only 20 percent of the current workforce.”
The shortage of workers will drive up wages. At the same time, the number of engineering hours is increasing due to the complexity of products. In the past, companies could save money by focusing on product costs. But the real cost of automation is in the engineering time. By using smarter products, companies can reduce engineering by 25 percent. That is why Siemens is investing heavily in R&D for new products that help companies reduce engineering time. Overall, I am optimistic about the future of manufacturing, because we have the right technology to overcome the most complex challenges facing industry.