With technology these days, we often find solutions without a problem, rather than the other way around. The concept of the “Internet of Manufacturing” (IoM), combined with the evolution toward automated and computerized factories, is an exciting subject for engineers. However, managers who are responsible for the business side of manufacturing, need a solid business case for change that is driven either by need from the customer or by a compelling internal performance enhancement. The decision to purchase new equipment today is a catch-22—with requirements to be “future-proof” just in case the factory will become a computerized operation as put forward by the proponents of Industry 4.0, but without really knowing the full implication of what that might be.
Let’s take a look at these two potential business cases. First, we will look at the likely reasons that would compel customers to change their demands and requirements from factories, whether OEM or EMS. Second, we will look at what is the “state of the art” today for automated factories that have a controlling layer of computerization, understand the challenges and potential costs, as well as direct operational benefits. We will see if we can find the balance point between the two.
Lastly, we will look forward at what needs to be done to provide a practical and economical way to address the various challenges to implementing an Internet of Manufacturing, with solutions and benefits for both manufacturers and customers. If these areas are addressed, the adoption of computerization and the creation of more automated factories could then become mainstream.
Demand Patterns Are Changing
The real pressure that a factory feels comes from its customers, whether a vertical organization that supplies a world-wide customer-base or an EMS operation that supplies products according to the changing needs of multiple customers. The line of distribution of products between the factory and the customer, from consumer goods to business-to-business assemblies, has always been a major cost to the electronics business. In the “old world,” economic theory stipulated that products needed to be physically present in retailers’ stores to be sold because a good salesmen would not let the customer leave the store empty-handed. If the desired product was not available, an alternative would be offered, and the sales opportunity for the customer’s original choice would be lost. In retail especially, the distribution chain has ensured that any product could be on the shelf at every store in every city, in every region, in every country in the world.
The amount of products across the globe in this distribution chain, whether in transit stored in warehouses and hub locations, or in the storeroom of every retailer, adds up to a significant investment, which, like the raw manufacturing cost, becomes part of the final product cost. This distribution chain also significantly increases the risk of depreciation, as the value of products often reduces over time when they gradually become end-of-life or, more abruptly, when a new competitive product is introduced by another company. A competitive product reduces sales of existing products, and introduces the costs of promotions and discounts.
These distribution costs have been a key issue for consumer goods for more than 20 years, but they are now having significant influence in other areas of manufacturing. For the automotive industry, the amount of electronics used in vehicles has increased rapidly in recent years, which means that the cost in the supply chain has also grown and automotive OEMs are seeking to reduce it. As technology for communications has evolved, the cost and quantity of manufacturing telephone, broadband, and wireless infrastructure network products has also increased. Almost all areas of electronics manufacturing are now feeling the effects of supply or distribution costs, depending on the company’s point of view, more than they were expecting to when manufacturing started to move in the 1990s to locations such as Eastern Europe, Asia, and China to reduce their labor costs. What has made the supply and distribution costs more significant is the increase in the amount of products and their variations. Seen as a way to be more competitive, companies have now made the features, functions, and even aesthetics such as color, in many electronic products configurable for the customer, as well as creating products compatible with various service providers that have different software versions.
As a result of all this variation, few sectors in the industry now support the investment of a long and complex distribution chain. We are experiencing the age of electronic ordering, where physical shops are being replaced with on-line shops, and where the long distribution chain of products has been shortened or replaced with direct shipping from a central hub for the region or the entire country. Although the incremental logistics cost of each end-customer delivery may increase with these practices, the overall cost of distribution is reduced.
The logical extension of this trend is to move the entire business closer to the factory to save on distribution costs and to speed delivery; however, this can only work if the factory is based near the market. Conducting business this way can be more difficult for factories located in more remote locations. An exception to this is mobile phones, which have enough value and risk of depreciation to justify air-shipment while the demand in developing countries is growing. However, the majority of other products have to make do with surface or sea-shipping. In China and other low-cost manufacturing areas, flexibility and agility is difficult to achieve when the shipping time is a more significant problem in their distribution chain. As factories based closer to their market evolve, the potential for more business cases where local manufacturing is effectively cheaper overall than in China increases when considering the costs of the distribution chain. Factories that can react quickly to make what the customer needs remove an element in the overall product cost that exceeds many times over the cost difference of manufacturing near market locations compared to remote manufacturing locations.