The manufacturing industry as we’ve known it for the last four decades is done and gone. The COVID-19 pandemic made sure of that. The global supply chain was hit hard and still has not fully recovered; the cost of materials is continuously rising, with inflation soaring to new heights; and new ‘Made in America’ legislation is influencing and incentivizing a shift in where production takes place.
Our new reality is ushering in a new age of manufacturing, with many large manufacturers reconsidering where they make goods and how they move them. As they look to bring operations closer to home (i.e., reshore, nearshore), they’ll first need to tackle two significant challenges: the cost of labor and trained labor availability, otherwise known as “skill and scale.”
Influenced and incentivized
Reshoring and nearshoring are not trends spurred by the pandemic or today’s administration. Governments everywhere are flipping the script – swapping globalization for regionalization, focusing on self-sustainability to protect their own, so that their economies do not fold when the next crisis or black swan event arrives. We have learned the hard way that countries that do not manufacture their own goods – that are dependent on another country or countries across the world to produce on their behalf – are left too vulnerable.
Legislators are actively taking steps to ensure we do not see a repeat of 2020’s economic fallout, though issues with the global supply chain have existed for many years prior. Through the CHIPS and Science Act, for example, President Biden aims to bolster domestic manufacturing, combat supply-chain inefficiencies, create new jobs, and maintain America’s edge for innovation – expecting that all these will contribute to a competitive advantage that supports both economic resilience and national security.
The U.S. is not the only country revamping its approach to manufacturing; European and other Western countries that have been offshoring production are making significant investments to move manufacturing back to their regions as well. A recent ABB survey found that 70% of executives in the U.S. and Europe plan to reshore or nearshore to address supply chain issues. But, manufacturing organizations looking to move production closer to home first need to solve for skill and scale.
Whether you’re a consumer-packaged goods or an electronics manufacturer, you need the ability to scale production. Everyone manufacturer needs people who have the skills to execute the production program reliably. And, they need to achieve both these things without breaking the bank. That is why China has been a part of nearly every manufacturer's production program for years; it’s a manufacturing empire that offers low-cost, highly skilled workers who can execute quickly and consistently.
There will be government subsidies to help offset high labor costs when moving production home; recently, Biden signed legislation to provide $52 billion in subsidies for building more than a half-dozen semiconductor manufacturing facilities in the U.S. Even with that significant incentive, those projects face the labor shortage as well: there are more than 2.6 million job openings today for U.S. factories.
Solve for ‘skill and scale’
There is a solution to these challenges. Technology, for the first time in history, can help manufacturers move production closer to home (or closer to where demand is) and solve for skill and scale in a way that’s not overly dependent on people. Some manufacturers will be making greenfield investments, and others will be looking at a complete overhaul of existing factories to incorporate today’s digital solutions.
Greenfield or brownfield, the key ingredient for success in any smart facility is intelligent automation. This, coupled with the right talent, is how manufacturers make the promise of reshoring and nearshoring a reality; it’s how they offset the labor-cost arbitrage of moving production home, and it’s how they maximize outputs.
• Create smart factories with intelligent automation. There’s no doubt that, at some point, people will no longer manufacture products by hand. As technology continues to advance, it won’t make sense for a person to work eight hours a day manually applying adhesive to a pipe. It's not a good use of a worker’s skills now, and it certainly won’t be in years to come. We’ll see industries continue to move from human-centric manufacturing to fully automated, machine-centric manufacturing, but in the meantime, companies will deploy hybrid solutions — a combination of people and intelligent machines.
Here’s why: Intelligent, scalable solutions that leverage software, machine learning, computer vision, and robotics allow companies to take a more flexible approach to production. They can adjust input/output based on changing demand levels in the region they’re serving; they can make changes to the line without having to swap out equipment; and they can easily and quickly program lines to accommodate different assembly tasks.
A Deloitte global study found that companies running smart factories average a 10% increase in production output, 11% increase in capacity utilization, and 12% increase in labor productivity. Plus, instead of needing 50 people to manage the line, they can have three or four people supporting an intelligent, automated line.
These numbers always matter, but they matter even more when manufacturers are making a large investment to reshore or nearshore production.
• Attract new talent, uplevel existing talent. Those same workers who are currently doing manual, mundane tasks on the line can then level-up to higher-skilled work. Instead of training workers how to solder or apply glue, the software can take those tasks over, and manufacturers can implement programs that train workers to tackle new, exciting technologies for today’s complex production environment, which has shorter, faster cycles and near-constant changes to the product recipe and requirements.
Reskilling and upskilling opportunities can not only advance the careers of those individuals but can directly benefit the company through continued innovation. Currently, only 0.5% of global GDP is invested in adult lifelong learning, but World Economic Forum and PwC research shows that wide-scale investment in reskilling and upskilling will likely boost the GDP by $6.5 trillion by 2030. For an industry that’s struggling to retain strong workers and attract fresh talent, this is the solution.
Embracing the new age of manufacturing
With the right technology and talent in place – with the skill and scale challenges solved – manufacturers will reap the benefits of moving production closer to home, with each benefit cascading into another one.
First, in some regions, reshoring increases intellectual property protection and control. Manufacturers can more easily know exactly what’s going into the product, which can be difficult with overseas production. This is something most manufacturers – in fact, most brands – are being asked about today, too. Nearly 65% of global customers (both consumers and industrial buyers) said they would prefer products made in their country.
When there’s proximity to the end customer, manufacturing will naturally become “build to order” rather than “build to stock.” The numerous, time-intensive steps associated with the global supply chain have previously trapped manufacturers into making poor forecasting choices that often lead to either too much or too little product—and once the product is in the shipping container, changes cannot be made. Instead, with inherently flexible systems closer to home, manufacturers can produce based on local or regional demand, which shortens the lead time, and can make changes to the product based on market response.
Close-to-home production lifts logistical burdens of last-mile delivery as well, which is better for the environment. A localized supply chain, paired with smart factories, reduces air pollution, produces higher yields, and creates less waste. Manufacturers no longer have to regularly fly engineers to China, and they can reduce overall emissions by minimizing use of shipping containers. All manufacturers should be looking to adopt more sustainable practices today, and reshoring or nearshoring will undoubtedly contribute to eco-conscious initiatives and goals.
Those who can successfully navigate the requirements of skill and scale first, and then move production closer to home will be poised for long-term success in an industry that’s rapidly changing (and for good reason). The sooner manufacturers embrace this new age of manufacturing – who understand that technology is there to usher them into the next phase of growth and redefine what success can look like – will better their company, our economy, and the environment.
Lior Susan, is the co-founder and CEO of Bright Machines, a “software-defined manufacturing” company that uses robot-based microfactories for automated electronics manufacturing and inspection.
