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Don't Talk About Industry 4.0! Let’s Get Ready To “Trump”!

By Michael Ford, Senior Market Development Manager, Mentor Graphics Corporation

Jan 03, 2017

The relationship between the world of business and politics at a popular level has recently come into sharp focus. An example of a business-political crossover is that the German government “invented” Industry 4.0 because it represents significant importance and opportunity to the German economy.

What Donald Trump has been saying, whether you like the way he says things or not, is a refreshing way to actually get something started and changing quickly with the reshoring of manufacturing, which will benefit local industries.

However, the movement of manufacturing to China did not happen overnight. Companies that were not large enough to set up their own operations in China made huge investments in Chinese EMS companies. But even with all of the money in the world, how quickly manufacturing operations can be established is limited. “Growing pains” with quality and delivery issues have been common in the industry for some time.

Visiting China in recent years, we can see how the pace of growth has been limited. The physical construction of factories takes time, as well as building industrial zones to house and provide facilities for the working population, which we know can exceed many thousands at each site. Even the time and cost to build roads that bring in raw materials and ship out products are a limiting factor. Increasingly, massive traffic jams of trucks all heading to the ports are a fact of life in areas in and around Shenzhen.

However, infrastructure is actually quite a trivial problem when compared to the skills gap. This was cleverly addressed by the Chinese government which enticed foreign companies to set up and train local workers, who contribute to the skills and competence of the country’s overall workforce. A lot has been invested in this area at a local level. The Chinese government also sent many students to other countries for education.

Now, we are starting to see the tide change. The reason that manufacturing went to China was because of lower labor costs, a critical fixed-cost of a manufacturing operation. With so many manual processes involved in electronics manufacturing, labor cost was more significant than the costs of offshoring, even though offshoring includes the costs of logistics, investment in stock, and risk of depreciation. However, as described in previous issues of this column, both sides of this equation have now changed. The costs of distribution have increased, as has the variety of products being created, which results in larger inventory costs. Product lifecycles have also shortened, which means a greater number of discrete products are being built and the risk of depreciation while in transit has increased.

On the other side of the equation, we now have Industry 4.0 and Smart Factories that make automation work efficiently and flexibly so that companies can now reduce the dependency and cost of manual labor in electronics manufacturing. Significant quantities of products with a high-mix can now be manufactured in a flexible way with smaller lot sizes, without decreasing the productivity of the operation and without the need for large local stock-holding. Savings in the ability to have direct factory-to-customer distribution add yet more to an attractive and achievable onshore business model.

The numbers adding up in favor of local manufacturing is just the first step, however. Some practical realities have to be faced if this trend is to become mainstream. The supply-chain infrastructure for common electronics materials has become somewhat depleted in local countries, including the United States; so, in the short term, vast quantities of materials will need to be imported, which will remain a dependency for some time.

Onshoring the manufacture of raw materials is a step that needs to be thought through. For sure, it will become justified in the same way as PCB and final product assembly, but a source of raw materials other than China will need to be established before serious investment is made. Key components, such as batteries, processors/ICs, and screens, all need significant investment if they are to be reshored. 3D printer technology to manufacture unique mouldings and even metal casings, PCBs, passive components, and potentially semiconductors in the future is likely to play a significant role because flexibility also needs to be a part of these industries.

As well as the material side, we also need skills. The experienced workforce of the United States and other Western countries, has moved into other areas, such as consulting and marketing, with many of those people already retired. Who will work in the new manufacturing sites, especially in the key areas of industrial engineering and management? The good news is that Industry 4.0 factories are far more attractive places to work for key engineers and technicians than the “dirty” image of factories of the last century. Higher level jobs will be created for engineers and programmers, rather than logistics and assembly operators. Jobs will also be created for the entire operation-support infrastructure. As well as a handover of manufacturing skills, a whole new set of skills will be required in the digital factory. Training and experience for these people is going to be an immense challenge.

The assumption that electronics manufacturing can suddenly start again in the United States as a replacement of all manufacturing made in China is unrealistic. The Chinese government had a plan when the tide went their way, now we need a plan also. But let’s be confident. No matter who thinks what about Donald Trump, the essence behind what is being said is likely to be a critical driver behind what many of us in the industry want to see for onshoring, but until now, we have not had the focus. Let’s get prepared with our Smart Industry 4.0 hardware and software technologies, and get some engineers up to speed!

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