Editor’s Note: In this guest blog post from Adams Nager, of ITIF (Information Technology & Innovation Foundation), he stresses the importance of fostering innovation and spurring competitiveness of American Manufacturing by focusing on more R&D from both the public and private sectors. This guest blog is appropriate to address once again so that we in the manufacturing community and service providers, like Cerasis who makes manufacturers efficient in transportation management, remember to always look towards efficient and investing in the long term, as the current tepid growth we’re experiencing could quickly go away if we don’t stay vigilant.
Manufacturing is hearing reports this month of much slower growth in the regional flash PMIs, and as Forbes reports that Manufacturing still has gains yet to be seen due to smart investments in projects like the Advanced Manufacturing Hubs. We stand on the fact that manufacturers must continue to make smart investments more in technology to stay more efficient, such as the use of 3PLs for better transportation management to reduce costs which often make up 4 to 5% of total revenue. This post is a reminder to all manufacturers, that in order to help yourselves, and help the economy, we cannot keep our eye of the long-term or investing for it.
In 1956, an American engineer, William Shockley, had an idea that silicon could be used to make transistors, and founded a company in Mountain View, California. The rest is history. The area experienced explosive growth after the invention of the silicon semiconductor sparked waves of manufacturing innovation. Other firms developed around the Shockley’s first company, also developing and improving on the invention. Continual support from nearby Stanford University, along with collaboration between local firms, created an innovative environment ideal for fostering growth. By the 1960s, 31 semiconductor firms had been established in the country, of which only five were located outside the region. Smaller firms providing research, specialized services, and other inputs located nearby the larger companies. Innovation thrived, the local economy boomed, the center of high-tech innovation shifted from the east coast to the west, and the Silicon Valley was born.
The Silicon Valley is a prime example of how advanced R&D tends to focus in clusters- geographically concentrated industries that maximize spillovers from firm to firm and between public and private researchers. Once research concentrates in an area, it is hard to displace, which is why DOE and other publicly funded labs can have such important influences on local economies. Local firms can share ideas generated by R&D, most of which have broad-reaching benefits only partially captured by the firm conducting the research. The rest of the benefits ‘spillover’ to neighboring firms, benefitting the whole industrial community and bolstering the local innovation ecosystem. Once established, clustered industries can grow quickly in the concentrated region. New entrants will want to locate close by to be a part of the innovative, collaborative environment, intensifying the cluster further. This phenomenon equates to a ‘first-mover advantage,’ which can give the geographic region where the invention occurred the momentum to remain a hub for the production, development, and continued improvement and evolution of the industry.
The Silicon Valley’s success is not unique. After all, over a hundred years after Henry Ford revolutionized car manufacturing, automobile R&D and production are still tightly clustered in Detroit. And the Boston biotechnology cluster, developed in large part by intense, concentrated research by the 40 area universities which offer advanced degrees in life science fields (notably among them Harvard and MIT), is certainly among the most innovative locales on the planet.
In fact, much of U.S. innovation is tucked into concentrated, industry specific pockets. Recent data released by the National Center for Science and Engineering Statistics illustrates where research and design (R&D) spending by large companies takes place. The top 24 metro areas for R&D produce almost three-quarters of all utility patents filed in the United States and 83 percent of R&D performed by large companies at their primary R&D locations. The Silicon Valley by itself accounts for 16 percent of all utility patents with just 1.4 percent of the U.S. population.
Not only do these cities excel in R&D, they tend to specialize in R&D surrounding specific industries. The Silicon Valley specializes in semiconductors and electronic components. Seattle and New York specialize in software publishing research, Boston, and San Diego in pharmaceuticals and medicines, and Houston in mining research. Focuses on specific industries can derive from ground-breaking inventions or from concentrated support for research in specific areas.
However, it’s important to remember that the Silicon Valley is located where it is because of superior American innovation following World War II. Unfortunately, that advantage has largely disappeared. The next Silicon Valley will most likely spring up around whatever firm, lab, or university invents the next semiconductor. Unless the U.S. revamps support for R&D in advanced industries, the next innovations and that create dynamic, high-tech clusters like the Silicon Valley will come from Germany, China, or Korea.
To keep the U.S. competitive, we need a coordinated National Manufacturing Strategy. In addition, the United States should also continue to sponsor public/private regional research initiatives like the National Network for Manufacturing Innovation (NNMI), which is supporting research and partnerships in emerging, advanced industries in Youngstown, Raleigh, Chicago and Detroit. NNMIs provide early encouragement that help clusters develop in emerging, cutting-edge industries through geographically-concentrated, publicly-funded research (which frequently spawns dramatic private sector innovations) and partnerships between public and private researchers, enabling advanced localized industries to maximize spillovers and collaboration and take advantage of the first-mover advantage.
Only through these kinds of actions- such as providing public support for R&D, both public and private, facilitating research partnerships, and instituting policies to encourage innovation in high-tech industries- can we ensure that the next Silicon Valley, and for that matter the 10 after that, will be located in the United States.
How do you think we can foster and drive more manufacturing innovation? Let us know in the comments section below!
The House is likely to vote soon on the Revitalize American Manufacturing and Innovation Act, which creates programs and a plan intended to increase manufacturing competitiveness. Manufacturers in the United States have always been the world’s leading innovators, as demonstrated by their investments and research and development and prolific patent portfolios. RAMI marks another important investment in a public-private innovation partnership that will help drive manufacturing and facilitate the longevity of our industry’s comeback. The legislation creates a network of innovation centers that brings together business, schools and the government in a joint effort to accelerate the transfer of advanced manufacturing technology and techniques into the commercial sector.
While Congress’s objective is very laudable, the legislation does create more government dependence for innovation and competition. Now, I am not saying we shouldn’t move forward with this act, as it will help domestic manufacturing, but manufacturers and Congress should recognize that the true spark to manufacturing innovation is best done by each and every individual and manufacturing company or industry —not solely on government programs.
We must make innovation, like employee culture, a focus in the manufacturing sector. At Cerasis, our history of innovation is the secret to our sustainable and long term success, starting with our choice to make our transportation management system, The Cerasis Rater, web-based all the way back in 1998, followed by our continued innovation of the development and iterations of the system. Recently, our latest innovation was the development of the world’s first ever end-to-end LTL eCommerce freight management application for manufacturers and distributors who are not starting to put their catalogs and products direct to consumer online. As with our investment in our technology, and strong values of continuous improvement, in order for manufacturing to sustain in America, manufacturers too must have this mindset.
We’re seeing a manufacturing resurgence in the United States—but not because of a government program of taxpayer-funded initiatives. Entrepreneurs and energy producers sparked a natural gas revolution that has dramatically lowered input costs for manufacturers.
Government planning is not entirely necessary nor the only way for manufacturing to thrive in the United States. Government action can increase domestic manufacturing, but the action to take is adopting free-market reforms for our economy.
Implementing free-market reforms to our tax, labor, regulatory, environmental, energy, and legal policies would dramatically increase competitiveness for all sectors of the economy. Several such reforms have already passed in the House. American manufacturers and industrial companies will flourish on their own with a good tax policy and laws that allow immediate expensing of machinery equipment that would encourage investment in both labor and capital.
Manufacturing now requires a totally different understanding than what was even a decade ago. With the increasing dominance of the internet, and digitization of processes, companies seek to create competitive advantage through speed, creativity and scale. This goes beyond the traditional thinking of creation of infrastructure or an ecosystem of cluster of supporting and complementing industries around the manufacturing unit. Nations which can create fountains of creativity and innovation within the system prosper, since companies can rapidly operationalize their product and technology development plans, one thing, speed, at which the government isn’t always the best at.
I addressed in an earlier editorial post about why we should stop calling this recent manufacturing uptick a revival and instead call it what it really is: a transformation. Colin Masson (who you should follow on Twitter for great content), Microsoft’s global industry director for manufacturing and distribution also echoes this transformation in manufacturing, by answering this question posed by “The Manufacturer” magazine:
“For manufacturers, what constitutes the biggest barrier to achieving a significant step-change in performance?”
And the answer, Masson observes, is to ignore the various buzzwords that are in circulation, and instead pursue manufacturing strategies that directly address customer needs and the underlying challenges posed by this brave new digital world.
“We’d say that it boils down to doing three things, and doing them well,” he stresses. “First, aim to enhance the customer experience – any movement in that direction will clearly pay dividends. Second, become more responsive – realign manufacturing and supply chain culture and metrics with customer experience goals. And third, undertake a transformation to becoming a digital business, from digital marketing to digital design and manufacturing, where progress will pay dividends in the form of more connected supply chains, faster new product introduction, higher productivity, and greater responsiveness.”
Manufacturing has not typically been thought of as an industry driving digital transformation. In fact, just 12 percent are deemed to be Digerati — leading-edge innovators who have fused front and back-end processes together to enable seamless innovation and delivery.
Hit-hard by the economic downturn and consumers’ obsession with low-cost goods, many companies turned their sights inward to strip cost out of their production models.
That day is done. Squeezing supply chains, optimizing operations, and streamlining distribution are no longer enough to boost revenues and race to the head of the class. A quick look at IndustryWeek’s top-performing public manufacturers of 2013 shows companies such as Apple Inc. (#1) and Monster Beverage Corp. (#4) surging ahead of traditional leaders Exxon Mobile Corp (#6), Hershey Co. (#12), and Microsoft Corp (#15).
With their laser-focus on innovation, these companies seem to be saying, why lead when you can rule?
Manufacturers must follow their example and turn their sights outwards. The newest imperative? Leverage big data, cloud, social and mobile capabilities to create third platform businesses that get them closer to their customers. The market’s message is clear: digitize…or else.
Some of the key drivers of creativity and transformation in manufacturing is the exponential growth of artificial intelligence and robotics that help improve algorithms and pattern-recognition on a continuous basis. For many tasks, what used to take months and dozens of people can be done by a normal computer within an hour with better and more reliable results.
One example from our everyday experiences is the rapid improvement in the voice-to-text conversion in smartphones. Just a couple of years ago, one had to struggle with the imprecision and inaccuracies of the conversion software (which was often due to our own difficult-to-understand various accents). But the new recent Android applications are almost perfect in converting voice; they factor in even major differences in individual accents and pronunciations, saving huge time and effort in writing messages and increasing productivity in communications such as email. Another example is handwriting recognition software; it is now intelligent enough to read even a blurred and unevenly written sentence of a child and print it in type form without a glitch which even parents find difficult to decipher.
Increasingly manufacturers seek to apply knowledge across platforms and customizing innovations to solve specific problems. There is premium on exchange of value-added information between manufacturing firms and research firms. A typical example is the development of GIVEN; a pill-sized camera that looks at human intestines in situ. The initial impetus for this revolutionary product came when an Israeli missile and radar designer was asked by a medical researcher in the US to use his knowledge of photo-imaging of missile targets to develop miniature imaging systems for gastrointestinal regions of human body. The delay in commercial launch of this life-saving innovation in the late 1990s was only because of non-availability of a complementary battery technology that was powerful enough to last more than two hours. Once the constraint was overcome, GIVEN’s acceptability across the globe soared.
High-tech products enjoy a unique property that technologies can be tweaked around rather easily to be useful for solving problems than for which it was designed. Manufacturers seek support from local universities not only for providing high-quality talent, but also for solutions to scientific problems. An example of this is the 3D radar system initially developed by Norwegian University of Science and Technology for high-resolution 3D imaging of earth sub-surfaces, including scanning for buried objects, mining and underground resource mapping, and detection of landmines, among others. This 3D high-resolution technology is now used regularly by Air Force and Navy to detect flying objects at large distances beyond visual range (BVR).
Creativity and innovation does not always require very sophisticated equipment but an intelligent mind capable of thinking and working across disciplines and self-created organizational boundaries. In the aircraft maintenance industry, the accounting and identification of tools is a major task after a servicing is over. The tools, if not retrieved before flying, can play havoc in aviation safety during flying. This challenge was overcome by radio-frequency (RFID) tagging of the tools for continuous tracking at all times. RFID — a technology extensively used in retail industry to prevent theft — has completely replaced the imprecise, risky and laborious process of manual accounting of tools.
Adam Smith wrote in the 18th century that ‘the wealth of a country consists, not of its gold and silver only, but in its lands, houses, and consumable goods of all different kinds’. The world has changed dramatically and unrecognizably since Adam Smith’s time. The wealth of the country now lies in the ability of our people to think, imagine, connect and solve problems through knowledge and creativity: the backbones of innovation. If we can develop this capability in our people, America can continue to be the domestic and global manufacturing power house we come to expect.
Last week I talked about how advanced manufacturing is changing the game and is the new face of American manufacturing. This includes robotics, automation, and the much talked about and hyped, 3D printing, or additive manufacturing. This type of manufacturing innovation got me thinking about how throughout history, it is innovation which has caused civilizations to leap forward and have their economies sustain and remain increasing in output. Often, it is in manufacturing innovation where we see the greatest leaps forward, and we all know the importance of manufacturing to any economy.
I was further inspired by a blog I came across that opened with the following excerpt:
“Much like in May of 1961 when U.S. President John F. Kennedy challenged American scientists to land on the moon within the decade, the U.S. now has an opportunity to position itself as a world technology leader. But instead of a Moonshot, it’s a Smart Grid-shot or a Personalized Medicine-shot. Whatever you call it, advanced manufacturing, specifically automation and robotics, is at the center of it.”
Read the entire post from Jabil here.
When I think about some of the bold and great Presidents, John F. Kennedy comes to mind, as he does to most Americans, as he knew that it was in innovation, and specifically manufacturing innovation that would help move our country forward.
Now, whatever your political affiliation, you have to at least give credit where credit is due to new ideas and initiatives that aim to spur further innovation in the manufacturing space to help move US manufacturing forward. President Obama proposed building a National Network for Manufacturing Innovation (NNMI), consisting of regional hubs that will accelerate development and adoption of cutting-edge manufacturing technologies for making new, globally competitive products.
Individually and together, these regional hubs—public-private partnerships called Institutes for Manufacturing Innovation (IMIs)—will help to strengthen the competitiveness of existing U.S. manufacturers, initiate new ventures, and boost local and state economies.
The President unveiled his plan for the NNMI in March 2012. In his 2013 State of the Union Address, the President renewed his call for creating a full-fledged nationwide network devoted to innovating and scaling up advanced manufacturing technologies and processes. He has asked Congress to authorize a one-time $1 billion investment—to be matched by private and other non-federal funds.
The competitively selected National Additive Manufacturing Innovation Institute (NAMII) was launched in August 2012. NAMII was established with an initial federal investment of $30 million, using existing authorities in the Departments of Defense and Energy and other federal agencies. NAMII, a consortium that includes manufacturing firms, universities, community colleges, and non-profit organizations from the Ohio-Pennsylvania-West Virginia ‘Tech Belt,’ is led by the non-profit National Center for Defense Manufacturing and Machining (NCDMM). The NAMII partners more than matched the federal investment, contributing almost $40 million in support.
Another great initiative from the government comes from the Manufacturing Extension Partnership (MEP) powered by the National Institute of Standards and Technology (NIST). The Manufacturing Extension Partnership is a catalyst for strengthening American manufacturing – accelerating its ongoing transformation into a more efficient and powerful engine of innovation driving economic growth and job creation. The NIST MEP works with manufacturers and the below video showcases two such manufacturers, as the NIST MEP spurs manufacturing innovation across America.
According to economist Ken Goldstein of the Conference Board, in a recent NPR interview, in a sluggish economy with slow growth and high unemployment, manufacturing innovation may be part of the solution. Einstein explains that for the first part of the year, the U.S. economy grew very slowly — an annualized rate of only about 2 percent. “Without innovation, not only would you be stuck at 2 percent — we might be lucky to get 2 percent growth,” he says. Goldstein says a concerted focus on innovation could boost growth by perhaps half a percentage point. “And that’s got to be worth, alone, maybe 50-, 75- maybe even 100,000 jobs a month,” he says.
But innovation, and the jobs it creates, doesn’t happen overnight. It takes time, and there’s another stumbling block — money.
“Where we are right now is not a dearth of ideas, but the ability to finance those new ideas into new companies, new products, new services. It hasn’t broken down, but it has slowed down,” Goldstein says.
Furthermore to the point of money and investment in manufacturing innovation, Robert Atkinson, senior fellow at the Brookings Institution talks about manufacturing innovation and the need for Manufacturing Universities, partially funded with more money from the US Government to bootstrap and spur innovation, stating, “Today, the challenge is even greater as America competes against a wide array of nations seeking to win the race for global innovation advantage, especially in advanced manufacturing.”
The Risk and Rewards of Manufacturing Innovation for America
Manufacturing promises to position the U.S. as a technology and innovation leader. Consider the numbers. In 2012, U.S. manufacturing domestic business Research and Development (R&D) spending reached $273 billion, accounting for 72 percent of all domestic business R&D performed in the United States and 90 percent of U.S. patents. Patents and other forms of intellectual property (IP) account for 60% of all U.S. exports.
So, in conjunction with Obama’s NNMI initiative, talk of investment in manufacturing universities, and the increased use of advanced manufacturing, do you think we are headed for a manufacturing boom thanks to manufacturing innovation? From what I read daily, and what I hear from my customers, who are manufacturers, there is a lot of positive buzz, but it doesn’t stop there. There are real results from companies taking the risk of innovation.
One such company, coming out of St. Louis, MO, called CR Metal Products, employed manufacturing innovation to increase output, known as quick response manufacturing (QRM). In short, QRM, emphasizes the beneficial effect of reducing internal and external lead times. In Supply Chain management, lead times are a big and hotly debated deal, as evidenced by this LinkedIn Discussion where a member asked “Hi everyone, Can you share your experiences about what situations do cause to long lead times in supply chains?” and received over 200 comments!
In QRM, Shorter lead times improve quality, reduce cost and eliminate non-value-added waste within the organization while simultaneously increasing the organization’s competitiveness and market share by serving customers better and faster. From, “Design2PartNews” in an article about QRM and with a categorical entry on how to improve lead times, they talk about how CR Metal Products “developed its first-ever small fabrication cell to handle a high volume customer with the ultimate demand in high mix. The system worked, and it was the first step the company took towards implementing the principles of Quick Response Manufacturing (QRM). The cellular approach increases visibility and decreases lead times, which means savings for both CR Metal Products and its customers.” This implementation for CR Metal Products clearly worked at providing both hard and soft costs for the OEM.
Another such reward seen from a manufacturing innovation risk is the use of alternative fuel, primarily the shale oil and gas boom. In a recent MoneyNews article titled “US Manufacturers Regain International Competitiveness” they state:
“U.S. manufacturers are re-establishing their competitiveness globally after a decade-long slide. The U.S. trade deficit for manufactured goods narrowed to $225 billion in the first half of the year from $227 billion a year earlier, according to the calculations of Ernest Preeg, an economist for the Manufacturers Alliance for Productivity and Innovation, The Wall Street Journal reports.”
They continue, citing the Wall Street Journal: “The shale oil and gas boom will depress energy prices, and workers’ pay isn’t rising. “The U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world,” the report says. The United States will have an advantage over competitors in both energy and labor costs, according to the report.
This is directly due to innovation in rethinking the costs for manufacturers to do business by bringing in better fuel alternatives. Time will tell how fracking and the shale oil boom will decrease the costs of doing business thus spurring more R&D and increasing innovation over time.
The amount of data in our world has been exploding, and analyzing large data sets—so-called big data—will become a key basis of competition, underpinning new waves of productivity growth, manufacturing innovation, and consumer surplus, according to research by MGI and McKinsey’s Business Technology Office. They studied five key areas, one of which being American Manufacturing. Some manufacturers are attempting to leverage big data and are integrating data from multiple systems, inviting collaboration among formerly siloed departments, and even seeking information from external suppliers and customers to co-create products. In advanced manufacturing sectors such as automotive, for example, suppliers from around the world make thousands of components. More integrated data platforms now allow companies and their supply chain partners to collaborate during the design phase—a crucial determinant of final manufacturing costs. Therein lies the heart of innovation, in any setting, whether internal or external: Collaboration.
I am a firm believer in collaboration to beget innovation. When you have sets of big data at your fingertips, it allows you to gain powerful insights, such as how well suppliers are performing. When you can have meaningful conversations built on trust and backed up by data, then truly two parties, even competitive, can come together and create innovative ideas. Think about the electric car for a second. If Edison had not shunned Tesla some 125 years ago, would we JUST now be touting the Telsa Model S as the safest (and most fuel efficient) mode of transportation to ever grace our roads? I would think not, as it is highly possible, that if Edison had allowed for collaboration from Tesla’s findings in the potential of electricity to power vehicles, then perhaps his worked would have not waited so long to see the glorious manufacturing innovations of Elon Musk. But, to his credit, Mr. Musk is one of those who are doing what JFK did, making bold statements. And for that, we thank you for helping move the ideas of innovation forward.
What innovative manufacturers have you come across in your business? What other factors are driving manufacturing innovation? Let me know in the comments section below!
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