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Chapter 1
Globalization and Manufacturing Paradigms
Globalization is the integration and interdependency of world markets and resources in producing consumer goods and services
Globalization has created a new, unprecedented landscape for the manufacturing industry, one of fierce competition, short windows of market opportunity, frequent product introductions, and rapid changes in product demand. Indeed, globalization is challenging, but it presents both threats and opportunities. To capitalize on the opportunities, industry needs to offer products that are innovative and also can be made to appeal to buyers from many cultures so they can be sold all over the globe. The challenge, however, is to succeed in a turbulent business environment where all competitors have similar opportunities.
Success in such a turbulent environment requires a global enterprise structure that can rapidly respond to changing markets and customer's needs. This enterprise should be equipped with a manufacturing system that can be rapidly changed and reconfigured to respond to volatile demand. This new generation of manufacturing systems will need to be reconfigured within two categories: product quantities (changed capacity) and product mix (changed functionality). Capacity reconfiguration is needed to produce exactly the product quantities required by the market at any given time. Manufacturing system and supply-chain functionality must also be reconfigured to support an accelerated pace of product innovation, and to produce the right mix of products required by various regions around the globe.
In short, a new global manufacturing revolution is needed to succeed in the new global economy; it must be a revolution based on responsive manufacturing systems and responsive business models. Responsive business models should aim at expanding into global markets by developing products that fit the culture of those markets and can be sold there. The business model must encompass not only selling, but also the international buying of components, and establishing global supply chains. The global enterprise should more closely integrate product design with its manufacturing systems and its global business model.
Charles R. Darwin's statement in his book On the Origin of Speciesa: āIt is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change,ā is now valid for global manufacturing enterprises.
1.1 The Importance of Manufacturing to Society
Why are we worried about manufacturing in the twenty-first century? Isn't manufacturing an āold-economyā profession that should be relegated to only poor countries? Is manufacturing really so important for a fully developed nation in the global economy?
Manufacturing is today, as it always has been, a cornerstone of the U.S. economy as it is for other developed nations. Having a strong base of manufacturing is important to any advanced country because it impels and stimulates all the other sectors of the economy. It provides a wide variety of jobs, both blue- and white-collar jobs, which bring higher standards of living to many sectors in society, and builds a strong middle class. Simply put, its most important benefit to society is that manufacturing creates wealth.
Think about this:
Only art, agriculture, construction, and manufacturing, and more recently the software industry, create something of value from nothing.
However, there is a big difference in the types of jobs that each industry creates.
An important advantage of manufacturing is that it creates a whole range of diverse jobs. Whereas agriculture and construction generate lots of low-skilled jobs, and art and software create a few jobs for higher-skilled elites, manufacturing calls on the skills of everyone from entry-level factory workers to scientists, engineers, and business professionals.
To meet its far-ranging needs, manufacturing stimulates employment in other sectors of the economy. It has been calculated in 2001 by the Association of Manufacturing Technology (AMT) that each $1 million in sales of manufacturing goods produced in the United States supports eight jobs in the manufacturing sector and an additional six jobs in other sectors, such as information technology (IT), transportation, and construction. That means an average of 14 jobs are created by the U.S. manufacturing industry for each $1 million in sales. No other sector comes even close.
American manufacturing has been a strong contributor to the U.S. national economy for generations. In addition, gains in manufacturing productivity pass down to other sectors, building wealth and generating employment through the whole economy. The finished goods amount to only a portion of manufacturing's value. Production of intermediate-level goods (parts included in other products like engines, compressors, pumps, etc.) contributes significantly to the economy. Further, the design and production of manufacturing infrastructure, tooling, and equipment are industries of their own. And this says nothing of the high levels of transportation, information, and communications infrastructure that are all required to support world-class manufacturing. Because of its scale and volume, no other industry can replace manufacturing industry in any nation's economy. While the products America builds may and must change over time, domestic manufacturing continues to play a critical role in U.S. prosperity.
Manufacturing was, is, and shall remain the foundation of a strong economy. No other sector can replace it. Without a solid manufacturing base, the service and finance sectors will collapse.
As shown in Figure 1.1, the percentage of GDP of the U.S. private manufacturing sector has been gradually declining from 32% in 1950 to 13.4% in 2007.b From 1950, the manufacturing sector was constantly the highest in GDP percentage until 2005. In 2006, the real-estate sector moved ahead (14.9%) with manufacturing second (13.8%), and, as depicted in Figure 1.2, these sectors were 14.3% (real-estate) and 13.4% (manufacturing). However, even 13% is still a huge portion of the economy. In fact, manufacturing still remains the largest productive sector in the overall U.S. economy.
The GDP percentages of several sectors of the economy are shown in Table 1.1. In the late 1980s, āinformationā emerged as a new sector, which gradually increased to 5% in 2000. It is worth noting that, since 1990, investments in IT on behalf of manufacturing enterprises have contributed significantly to development of the information sector.
Table 1.1 Sectors of Private Industries From 1970 to 2006 (in %)
Table 1.1 shows that the productive sectors of the economy halved in 35 years. Simultaneously with the 50% decline in manufacturing in the last 35 years, agriculture also declined at the same percentage. During the same period, the service sectors (including education, health, finance, and insurance) doubled. These data show that the U.S. economy is becoming more of a service economy than an economy that creates tangible wealth. But, is this a healthy trend?
Some renowned economists argue that the future of the United States is in the service industry. However, many portions of the service industry depend on the domestic manufacturing industryātrucking, financing, education, and infrastructure. Furthermore, an export of the service industry is very limited. A balance of export and trade is vital to a nation's economy, and therefore for the economy to thrive, manufacturing must remain healthy.
Advanced industrial countries, including the United States, heavily subsidize agriculture, rendering that sectors benefit to the nation's economy as questionable. And yet, by contrast, manufacturing is not subsidized in the United States, even though its growth directly contributes to the wealth of the country.
Enhancing manufacturing growth depends on increasing productivity and inventing manufacturing technologies. Many major innovations in manufacturing methods originated in the United Statesāthe invention of mass production by Henry Ford at the beginning of the twentieth century, the invention of numerical control (NC) machines of the 1950s, and the invention of reconfigurable manufacturing systems (RMSs) in the late 1990s. Coincidently, these three inventions that contribute to productivity improvements were started in the state of Michiganāthe first in Dearborn, the second in Traverse City, and latest in Ann Arbor.
1.2 The Basics of Manufacturing in Large Quantities
Manufacturing revolves around the production of quantities of new products. First, the product is developed, then it is manufactured, and finally it is sold to customers. Important factors for product developers to consider include how products look, how they work, and how the user interacts with them. To verify the product design, a product prototype is often constructed and tested to validate the design and product functionality. A prototype is built as a one-of-a-kind, essentially a work of art, and that can take a lot of time and labor. Even so, the prototyping method can be cost-effective when only a handful of copies are ever going to be sold.
When the manufacturer intends to produce large quantities of the product, as in the production of automobiles, refrigerators, or microprocessors, a more economical method is required. If large quantities were produced in the same way as the prototype, each product could be 10ā20 times more expensive than the ones produced by a well-designed manufacturing system. For large quantities of products, a manufacturing system capable of mass production has to be developed.
The goal of a manufacturing system is to produce high-quality products at a fraction of what it took to build the prototype, so they can be sold at a marketable price. The manufacturing system achieves āeconomies of scaleā that the prototype shop cannot, neither in output nor in consistency. In a globally competitive environment, designing a cost-effective manufacturing system and operating it efficiently is a key competitive challenge especially when competitors have an advantage in countries where labor costs are substantially smaller.
Manufacturing systems typically consist of multiple stages, where each stage contains a machine or an assembly station to perform a given set of operations, as is illustrated in Figure 1.3. The machines are connected with a material transport system.
When the operations in one stage are completed, the raw product is transferred to the next stage, and so forth until all needed operations are completed and the product is finis...
