The recent events caused by the COVID – 19 Pandemic are still shocking the world’s supply chain and have exposed the risks to countries that import large portions of a commodity from one or a few countries. The United States’ $2.568 trillion worth of goods from around the globe in 2019, and many of the top ten commodities like computers and pharmaceuticals, fuel our economy. Rarely do you hear anyone talk about these imbalances or the risk it poses to our economy or security of our nation.
One example of this imbalance is in the production of face masks. 90% of the face masks are imported into United States and with the world strain on face masks, producer countries are halting exports to support their own populations. For example, on March 4th, Germany banned export shipments of most protective medical supplies and equipment. Taiwan, India and Thailand banned exporting masks in January and other countries like Russia, Czech Republic followed suit. With a projection of a 40% increase in mask production needed before this virus is contained, there is no doubt banning exports will continue on any commodity that is constrained. As this pandemic continues to strain supply chains, these impacts will be exposed in a very painful way.
The lessons that we will soon learn will drive a change in the world that will have profound impacts to world trade and manufacturing in the United States. However, manufacturing as a share of the economy has been plummeting. Manufacturing accounted for 53% of the economy in 1965, 39% in 1988 and just 9% by 2004.
Manufacturing impact to GDP is listed in the below chart shows a 50% reduction of manufacturing impact to nominal GDP.
The current trade imbalance was $617B in 2019 (first decline in 6 years) mostly due to petroleum and partly due to tariffs. The trade deficit, along with the impact of manufacturing as a percentage of GDP, really tells the story. Further, our current situation with COVID – 19 is exposing this issue, which will present itself in major disruption ripples through our supply chains and economies.
The answer to the current state imbalances will be driven by the need of United States to assure it supply chain for our security and quality of life. With the current abundance of energy in this country (net exporter), we have all the opportunity we could ever imagine eliminating the trade imbalance, as well as the risk a global market presents.The difference will be how we leverage technology to bring manufacturing back to the United States quickly and to manage a global supply chain differently going forward.
The promise of Industry 4.0 and the technology it brings will offer us the ability to create new manufacturing capabilities that will eliminate the labor arbitrage that sent it offshore in favor of long supply chain logistics. The future of manufacturing in this country will begin to coincide with the speed of retail reality that Amazon and similar industries have created with next day delivery. Manufacturing and supply chains will need to run at the speed of retail to survive and small agile suppliers will be able to leverage technology and the retail networks to create productivity gains not seen since the last industrial revolution that emerged with computers.
Industry 4.0 Manufacturing and Supply Chains:
With a $617B trade imbalance, we have the opportunity as a country to mobilize much like we did in World War II and capitalize on the situation to create a new manufacturing and supply chain vision that will create flexibility and sustainability only dreamed of in the past. The cloud and Industrial Internet of Things (IIoT) create a powerful weapon against these trade imbalances and the risk they present to our economy. Much like when the cold war ended and the Russians did not have to maintain a cold war military, it allowed them to shed the past and concentrate on developing greenfield systems without maintaining the old infrastructure. The United Stated offshored entire commodities and eliminated struggling manufacturing sectors. As this trend continued, more and more complex commodities (computers, phones) were moved offshore as a competitive advantage due to labor costs and entire supply chains followed. Today’s Industry 4.0 technology can now account for the labor arbitrage by automating many things we needed the cheap labor to perform in the past.
The new reality is long supply chains can be easily disrupted, have poor visibility and are costly to maintain. A new manufacturing model of distributed manufacturing through cloud computing power and Industry 4.0 technology will be the way we bring back manufacturing to the United States to integrate with our new retail distribution system.
Imagine if you could utilize the power of real-time data to create a fully condition-based monitored system like Amazon has created. This system could manage a holistic, distributed manufacturing system that automatically adjusts its output hourly based on a live digital pull system to feed the entire supply chain. Amazon’s Ability to Promise (ATP) delivery is based on complex algorithms that drives it warehouse stocking and supply base. This system integrated into a distributed manufacturing base, coupled with Industry 4.0 smart manufacturing could generate productivity gains of over 20%.
Another technology that will greatly enhance the visibility in our supply chains is trusted Enterprise Blockchain that could utilize EDI signals to capture key supply chain milestones into the Blockchain distributed ledger. The trusted blockchain would create a common operational picture that provides a “one version the truth” system that provides live monitoring of all supply chains. With the proper credentialing and controls, the trusted Blockchain could provide actual vs plan status of the chain to allow for live lead time adjustment like a self-compensating system. The productivity gains the trusted blockchain system, coupled with live analytics, could greatly reduce the amount of material required in the supply chain, as well as improve available to promise (ATP) calculations.
Industry 4.0 Procurement:
Another opportunity for manufacturing and supply chains is to utilize the cloud technologies to revolutionize procurement with the distributive manufacturing model by creating a reverse auction marketplace. The reverse auction procurement model utilizes digital auction software like Coupa or SAP Ariba to manage online auctions for direct and indirect material for manufacturing.
With the disruption in the supply chains that will be experienced soon, the reverse auction would allow for many manufacturers to find new sources of supply quickly by setting up a network of qualified suppliers. As the demand changes for commodities, suppliers can identify opportunities, which is similar to how the government procurement processes. As we expose the weak links in our supply chain, we will need to ability to leverage all manufacturing capacity in this country quickly.
With government owned, contractor operated (GOCO), a reverse auction system could be hosted to promote rapid sourcing of critical supplies from the United States-based supply and manufacturing infrastructure. Today’s cloud-based systems have the computing power and data integrity to drive the scale needed to host the nation’s supply base, especially in view of the government’s move to large cloud contracts.
What is the “So What”?
The good news to our current situation is all the technology we need to answer this call to action is within our grasp. With the current state reality as a catalyst, it would be hard to argue a seismic change will not be required for the assurance of our supply chains!
Now is not the time to wait and see if this will die down and go back to “normal”. We have been exposed and just as we mobilized after the shock of Pearl Harbor and 9/11, we have to get on war footing to solve our trade imbalances and harden our supply chains. This can be accomplished by shifting toward continent of consumption supply models that are smart and resilient to the effects of catastrophic events like COVID – 19.
C5MI Industry 4.0 Solutions are the Answer!
We founded C5MI to “Challenge the present. Change the Future” and we believe our solutions based on the knowledge that real time visibility of your supply chain and manufacturing was the only way to have true business transformation. Digital Manufacturing, Enterprise Asset Management, Blockchain, Operational Intelligence coupled with Lean supply chain and manufacturing processes, create a cohesive and connected common operational picture never seen before. Our solutions transform your operations and improve business outcomes, while driving full transparency in your supply chain and manufacturing to solve common challenges such as these:
Our experience and solutions in Digital Manufacturing, Enterprise Asset Management, Enterprise Blockchain, Operational Intelligence, Supply Chain and Manufacturing processes make us the partner of choice in solving these common challenges with transformation digital capabilities.
C5MI’s methodology for building Industry 4.0 digital road maps integrate process and technology into a cohesive integration of information and operational technology systems that drive productivity to create sustainable business outcomes. Our key technologies to transform your supply chain and manufacturing are listed below. We are prepared to answer the call to action our nation needs to solve our current supply chain and manufacturing issues, as well as change the future of them.
Our Live Factory® solutions integrate your supply chain and manufacturing operations utilizing Industry 4.0 technologies and cloud computing by merging people, process and technology. The solutions create a “single version of the truth” common operational picture to drive improved decision making, productivity, and automation.
The Digital Reliability Centered Maintenance® (DRCM) solutions improve the reliability and availability of supply chain and manufacturing assets. The DRCM solution integrates all aspects of asset management into a single system for holistic asset maintenance and lifecycle management that includes preventative and predictive services. The system provides live condition-based monitoring of asset sensors to drive predictive and prescriptive actions. Included in our solution offering is the functional and technical experience to lead reliability-centered services. These solutions and services allow us to develop asset management strategies for Industry 4.0 supply chain and manufacturing processes to ensure productivity that drives improved throughput and quality.
Our Enterprise Blockchain solution fully integrates into supply chain and manufacturing processes to create an end to end trusted visibility of your supply networks. The visibility of the entire supply chain in a live ledger system creates a “single version of the truth” solution that fully integrates across disparate systems. When you have to have a certified condition-based monitored supply chain, Enterprise Blockchain is the answer.
Operational Intelligence is the glue between process and technology that drives transparency across supply chains and manufacturing processes. Our Illuminate Real Time Location System (RTLS) provides real-time asset and material traceability. Our solutions that leverage the Atrius lighting bluetooth low energy system (BLE) and ultra-wide band (UWB) systems offer specific use case solutions for live tracking. The Illuminate RTLS solutions integrate with transactional systems to create a live common operational picture to drive situational awareness and analytics that drive automation and productivity.
Supply Chain and Manufacturing Services:
Our Lean 4.0 services provide supply chain optimization and manufacturing process consulting and assessments to create Lean processes that are stable, capable and adaptable. To support the Industry 4.0 transformation, processes must be codified to support their digitization into a common operational picture. Our assessment services provide a tool that identifies key process gaps required to prepare for the business transformation that Industry 4.0 technology will drive.
Author: Marty Groover – Partner, C5MI (a YASH Technologies company)