Discussion of AMP - the Advanced Manufacturing
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Transcript Discussion of AMP - the Advanced Manufacturing
The D. Allan Bromley
Memorial Lecture:
Bringing Advanced
Innovation to
Manufacturing
William B. Bonvillian
Director, MIT Washington Office
University of Ottawa,
May 14, 2012
D. Allan Bromley
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Background:
The U.S.-Canada Partnership
U.S.-Canada – the largest bilateral trade relationship
in
the history of the world –
Total merchandise trade: $530B (2007 pre-recession)
Enhanced through deep trade agreements - U.S.Canada Auto Pact of 1965 to NAFTA
U.S.-Canada economies highly integrated – comparable
standards of living and industrial structure
U.S. (pre-recession 2007): $300B in in imports from Canada
and $230B in exports
We must care a lot about each other
I bring today a perspective on U.S. manufacturing but it
affects both nations
I will outline steps I believe the U.S. must consider, and have
been active in a number, but will leave details on the
actions and who the actors might be to Q&A
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BACKGROUND POINTS
---why “manufacturing
matters”
Hollowing Out?
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Employment:
Down almost 1/3 in a decade
Investment:
Manufacturing fixed capital investment declined
(accounting for costs) in the 2000s for the first time since
the data has been collected
Output:
Adjusting gov’t data (for foreign component origin and
inflationary assumptions in IT and energy sectors),
manufacturing output value declined in the 2000s
Decline in 16 of 19 sectors
Productivity:
If output lower than assumed, productivity is lower
We have been assuming we
have been losing
manufacturing jobs because of
productivity gains
Recent work – “The Race Against the Machine,” for example is telling us that multiplying productivity gains from IT are
displacing work as we know it.
Yet, historically - most recently in the tech boom of the 90’s productivity gains, although disruptive initially, grow more jobs
Maybe that history is still true – and maybe we need to search
for our profound job losses in the manufacturing sector.
That means “The Great Recession” is structural, not business
cycle, so the Keynesian stimulus tools we have been applying
won’t work well.
The Manufacturing Hollowing Out is why these aren’t working
– requires a Structural strategy not a maco-economic strategy
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Sharp Decline in Mfg. Employment,
2000-2010 -- drop so steep that
productivity gain can’t explain
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Manufacturing Remains a
Major Sector
Manufacturing = $1.7 Trillion of $15T U.S. economy
Employs 12 million in workforce of 140m
Dominates the U.S. innovation system – 70% of of industrial
R&D, 80% of patents, employs 64% of scientists and engineers,
The currency of international trade is complex high value
goods –
80% of U.S. exports are high value goods (capital goods,
industrial supplies, transport goods, medicines)
U.S. pre recession ‘07: $500B deficit in goods – on track to
return to that level
Services surplus ($160B) growing gradually but will not offset
manufacturing deficit in foreseeable future
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Underlying Issue: Our
“Innovate here/Produce
Here” Assumption
Since WWII - U.S. economy organized around
leading the world in technology advance.
US led all but one of the innovation waves of the 20th
century – and growth economics tell us that
technological & related innovation = 60%+ of growth
from aviation to electronics, to nuclear power, to
computing, to the internet, to biotech
Missing an innovation wave is serious: Japan led quality
mfg.; 1973-1991 tough for U.S. – GDP and productivity 1%
below historical averages
Response: ‘90s IT innovation wave and record growth
Our operating assumption - we would innovate here and
WE would translate those innovations into products
Would realize the full range of economic gains from
innovation at all stages
It worked – world’s richest economy
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“Innovate here/Produce
here” Bonds Breaking?
With global economy, assumption of innovate
here/produce here no longer holds.
In some industrial sectors, can now sever R&D and
design from production –
That brings the economic foundation of our
innovation-based economy into question. Why
invest in innovation here if gains elsewhere?
Last 25 years – IT/electronics allowed severing of
R&D/design from production via IT-based specs;
commodity goods, too
Distributed Manufacturing – Apple iPod example
But other sectors still require deep connection
between R&D and production – constant
reengineering and improvements to cut costs
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Mind The Connection between R&D/Design and
Production in Different Sectors
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3 basic kinds of produced goods:
(1) IT, (2)bio/pharma, and complex (3) electromechanical-aero
First – can sever R&D/design from production using batch
processing (bio/pharma), IT specs (IT goods)
Electro-mechanical-aero – tie R&D/prod.– variables too
complex
Energy, for ex., is in the 3rd electro-mechanical category –
need to connect R&D/design with production
If offshore production, will design/R&D follow?
Distributed Mfg.: risk losing production;
the rest: lose production, will design/innovation follow?
Underlying all this: Competing with low cost/wage high tech
competitors: must have production productivity gains
That means new innovation req’d: technology and processes
If Manufacturing is changing,
what are the New “Geopolitics of
Manufacturing”?
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U.S. has gone through 3 phases:
1789-1945 – Alexander Hamilton saw that U.S. independence
and security would be built on its commercial strength – U.S.
pursued strong self-dependence in manufacturing through
WW2
1945-1993 – Cold war competition with Marxist economic
system – U.S. strategy: North America, Western Europe, Japan
in a system of mutual economic dependence and integrated
economies among allies.
1993-now: Clinton: unified global economy is way to integrate
China into the world system – manufacturing would be global –
decentralized and integrated
If manufacturing is no long a tool of national security, can
technology leadership shift?
Historical Examples of
Manufacturing Shifts
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Post-WW2, U.S. built a comparative advantage in
innovation – but unlike the Ricardo comparative
advantage in resources, comparative advantage
in innovation can shift – it is not eternal (Samuelson 2004)
1.
US takes leadership of Industrial Revolution mid- 19th
century through development of the “American system” of
interchangeable machine-made parts
Result of 20-year DOD technology development of
precision machine tools at Harper’s Ferry Arsenal
2. Japan 1970’s-80’s – Quality Mfg. - new quality/price
tradeoff, just in time inventory, making labor a fixed cost for
labor flexibility – tech: IT, computer driven machine tools,
tied to production process - built in quality at every phase
3. US recaptures Semiconductor manufacturing lead in 80’s –
focus on mfg. process – advances in Semiconductor equip.
suppliers, roadmapping
In All Three Shifts: tech innovation, process, business model
Competiveness Then and Now
– much more complex
JAPAN v. U.S. – 1970’S – 80’S
CHINA v. U.S. - Today
High cost, high wage, advanced
technology economy –
comparable to the U.S.
Low cost, low wage, increasingly
advanced technology economy
U.S. had entrepreneurial
advantage, Japan had industrial
policy advantage
Entrepreneurial and pursuing
industrial policy
Rule of Law
Limited Rule of Law
IP Protections
Extensive IP theft
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Subsidizes currency, buys U.S. debt Following Japan’s model: subsidizes
currency and largest holder of U.S.
debt
This Competition = Eroding U.S.
Advanced Technology Sectors
Shifted abroad:
Every brand of notebook computer
Every mobile/handheld
Displays
Shifting abroad? Major erosion in:
Advanced materials
Computing and communications
Renewable energy technologies and storage
Semiconductor production
The Kindle could not be made in the U.S.
$100B trade deficit advanced tech goods
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Behind it all:
Understanding
the Hourglass -<---- Resources, Suppliers,
Components,
Innovation
<--- Production (12m jobs)
<--- Distribution, Sales, Life
Cycle
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It is an Hourglass because
we know Mfg. is a Job
Multiplier:
Economic Policy Institute: Mfg. job
multiplier - 2.90
Milken Institute: 2.50 multiplier
Zobel (Germany) smart manufacturing
factory supports 5.2 additional jobs
High-tech manufacturing industries
appear to have greater multipliers Electronic computer manufacturing
multiplier of 16
[ITIF 4/11 summary]
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Change in Median Household
Income, 2000-2011 (inflation adj.)
+2
0
-2
-4
-6
-8
-10
-12
CAUSE: STRUCTURAL RECESSION – Centered in Mfg.
Source: G.Green, J.Coder (10/11, based on Census Bur. Data)
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If it is a structural
recession with a base in
manufacturing, this
requires:
Innovation in
Advanced
Manufacturing:
9 Steps to
consider
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Need to Keep in Mind the
Levels in the US
Manufacturing Sector
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Three elements in US mfg.:
Large Multinationals (MNCs) – very international - will
locate in low cost production centers for productivity
gains; need to be in emerging markets
Start-up and entrepreneurial firms – increasingly
offshoring production – not a core competency, can’t
get financing So: next gen technologies shift?
300,000 small manufacturers – suppliers, component
makers – bulk of US mfg
Thinly capitalized, risk adverse, no R&D
Step #1: What technology advances
= new manufacturing productivity
= new paradigms?
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“Network centric”
– mix of advanced IT, RFID, sensors in every stage and element, new decision making from
“big data” analytics, advanced robotics, supercomputing w/adv’d simulation & modeling
Advanced materials
“materials genome” – ability with supercomputing to design all possible materials with
designer features
Biomaterials, bio fabrication, syntehtic biology
Lightweighting everything
Nanomanufacturing
fabrication at the nano-scale
Mass Customization
Production of one at cost of mass production (ex.: 3D printing/additive mfg, etc.)
Distribution efficiency
IT advances that yield distribution efficiencies (incl. in supply chain)
Energy Efficiency – energy is “waste
These tech paradigms are
not optional – Companies
will have to meet them
Timetable – starting to see these adv’d mfg.
technologies emerge – will be pervasive in next 15 years
Just as with “Lean Mfg.” (way US firms responded to
Japan’s model of the 70s-80s), today’s firms will need to
pursue these advanced technologies because the
competitive efficiencies are major
How will mass of 300,000 US SMEs adapt to these tech
advances? Big challenge
US: strength on the design side – real limits on the
commercialization and scale-ability side which
advanced mfg. innovation would enable
US is not yet working systematically on this agenda
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Step #2 – Pick Tech Paradigms
that Apply across Sectors
Manufacturing is sectoral, but with
increasing sectoral overlap for
complex, high value goods
An airplane is complex system: aero
design, electronics, IT, materials, etc.
Technology paradigms have to make
sense in the sectors
Run a matrix – technology options
against sectors they apply to – pick
technologies with payoff across
sectors
Include emerging sectors
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MATRIX: Tech Sectors/Mfg. Paradigms
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Sector
and Mfg.
Pardigm
Bio/pha Aerorma
space
IT/elect
ronics
Heavy
Equip
ment
Digital
search,
network
New
energy
Trans
port
Network centric
x
x
x
x
x
x
x
Advanced
materials
x
x
x
x
x
x
Nano Mfg.
x
x
x
x
x
x
x
Mass
Customization
x
x
x
x
x
x
x
Distribution x
Efficiency
x
x
x
x
x
Energy
Efficiency
x
x
x
x
x
x
x
Step #3 – Technology is Not
Enough…Need to Look at
all Three:
A) New Adv’d Mfg.
Technology Paradigms - first
building block
B) But need Process – adapt to
production system
C) Then need Business and
Organizational Model – has to
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Step #4:, It’s no longer Manufacturing
or Services
21st Century firm increasingly fuses services,
production, supply chain management and
innovation –
IBM’s Lou Gerstner originated this model in the 90’s
Many of these capabilities are knowledge
“intangibles” not fixed assets – learning to tie new
equipment and technologies to new processes –
fusing IT-informed services models with new mfg.
What is this emerging firm model? How pervasive?
is it vertical or horizontal?
is it integrated or the result of flexible leveraging
other firms’ specialty capabilities?
Business model stage - will need to look at optimal
combined mfg./services model
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Step #5: Need to Look Over
Our Shoulders
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Look at competitor nation strategies
Hard to understand the future of U.S.
manufacturing without evaluating the context
of global manufacturer competitors and their
strategies – learn from them – they are doing
this and have “top down” not just “bottom up”
Look at:
China/India/Brazil – large emerging
Germany/Japan – large established
High wage & cost – yet major mfg. surpluses
Korea/Taiwan – smaller scale, key niches
Expanding mfg. employment
Step #6: Build the Workforce Most of mfg. is now defined as services –
Need a new level of fused knowledge, skills in both
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STEM Ed req’d; mfg.: pervasive basic STEM skill sets
Ed system doesn’t understand that innovation requires “mind and
hand”
“intelligent hand” - mix of skills, experimentalists and theorists –
learning by doing
Additive manufacturing in schools?
It’s not just design as a stand-alone stage, design is over time
also the ability to make, as well – education needs to incorporate
Very hard, still, despite distributed IT manufacturing, to sever
design from production – mutually informative
Community college skills role w/industry certification
New adv’d mfg. engineering curriculum – how to develop
process from lab bench technologies – lost in engineering
curriculum
Step #7: Innovation Organization The Pipeline and the Seams
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US pipeline innovation model organized with heavy
federal basic research investment,
some applied (from DOD)
Limited investment in manufacturing R&D (including tech, process,
business model) - $800m – and not interagency
We institutionalize the “Valley of Death” in our R&D model
profound problems at the seams of the innovation pipeline – big
disconnects between actors
U.S. research strong; scaling/commercialization a problem:
Research – basic research agencies, univ’s
Applied and later stages – industry, some DOD support
But other intermediate steps will need public-private
connections –further down the pipeline to commercialization
Not just R&D–pre-production networked organizational
We Need these Guys - DOD: Operates
at Every Stage of the Innovation System Historically Central Player
- Role in Adv’d Mfg.?
REMEMBER DOD’s 20th Century
Innovation Waves:
Aviation
Electronics
Nuclear Power
Space
Computing
The Internet
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Step #8: Build Regional
Infrastructure
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Research > Development > Prototype >
Demonstration > Testbed > Production at Scale
No longer the Old Pipeline model – gov’t does Research
and industry picks up the rest
Now: host of intermediary steps require public/private
connections
Especially important: the Testbed
Where 300,000 SME’s test the efficiency and cost of new
mfg. technologies – they lack resources for this stage
Mfg. is regional not national – need to be in regional
clusters
Step #9: Financing Innovation - “5
Year Yardstick” doesn’t work in Mfg.
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The Breakthrough system – the pipeline: federal R&D,
univ. research, startups/entrepreneurs, VC’s angel,
IPO’s
5-year yardstick based on IT model: VC’s fund
technologies no more than 2/3 years from
commercialization, then the flip to an IPO within 3
years
New manufacturing technology paradigms probably
require the breakthrough innovation system
But advanced manufacturing doesn’t fit the 5 year
yardstick
5-Year vs. 10-year Yardstick:
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Manufacturing doesn’t fit the 5-year yardstick:
New mfg. tech’s face the Valley of Death –
Then they face the “Mountain of Death” – getting to market launch at
scale: major financing and price competitive at the outset of launch
+
Valley of Death – 5 year scale up
- creating connections and
funding to move from research
to late stage development
Mountain of Death: 10+ year
scale up; major financing needed
to scale, price competitive from
moment of market launch
Work-Arounds for the
Mountain
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Manufacturing – the 10+year yardstick
Requires deeper, longer term, patient capitalization/finance
than IT
Longer time to stage entry and to scale – 10+ years not 5
It’s a complex, established “legacy” sector
US better at bringing innovation into new areas, not at introducing
innovation into legacy areas
Different mindset – can’t create a company to sell it, as in IT, biotech
Work-Arounds for the Mountain of Death:
Front end of the innovation system:
R&D programs designed for the breakthrough and to drive down
prices/reduce production costs
US research agencies: “NMP” – Not My Problem – look at just research
not the implementation – change?
ARPA-E and EERE considering
Back end of the innovation system?
Andrew Lo – portfolio approach
Small commitments by large nos. of investors – use the internet
Crowd-funding? Lotteries?
Remember Innovation
Organization Effects for the 3
kinds of Mfg Firms Different ---
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MNC’s
Respond to competitive cost competition by locating where they
need to
Will locate R&D near production when nexus needed – can go
abroad, avoid risk of adv’d technologies by offshoring to low cost
Entreprenurial/Startups pursuing scaleable tech’s
VC’s won’t fund mfg. – not core competency
So: Offshore production – reduce risk and costs
But risk product control – knowledge spillover
Lose next gen technologies
Small Manufacturers – bulk of US manufacturing
Need productivity gains to stay competitive
Lack resources, tech dev/access – so need proven technologies,
processes
Lack testbeds, financing for productivity options – miss tech waves
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Remember the Steps:
#1- Technology advances that yield new
manufacturing paradigms
#2 – Matrix - Pick new manufacturing technology
paradigms that apply across range of
manufacturing sectors
#3 – Technology alone is not enough – also need
process and business model
#4 –Fuse Services and Manufacturing
#5 – Other nations - Better look over our shoulder
#6 – Build the Workforce
#7 – Innovation Organization – Look at those
intermediary stages
#8 – Build Regional Infrastructure
#9 – Financing – The 5 vs. 10 year yardstick
Remember: Manufacturing
Scales
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Economics focused on “decreasing returns”
Brian Arthur – helped us understand “increasing
returns”
tech advance lock in a standard, geometric
increase
Exs.: railroads, cars, Microsoft operating
system,desktops, iPod-iPad-iPhone,
Services scale slowly – face to face
Manufacturing key to “increasing returns” in an
economy – fundamental to strong growth
Wrap- up:
Focus here is innovation, the supply side –
the demand side also needs attention:
taxes, trade, regulation -- But: it’s
STRUCTURAL NOT MACRO-ECONOMIC
Remember the Hourglass - we must
understand the tie between production and
other employment sectors – that’s why mfg.
must be taken seriously
And Remember, Manufacturing Scales – key
to growth
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