Elisabeth Reynolds - Production in the Innovation Economy

Production in the Innovation Economy:
Manufacturing Innovation Ecosystems in a
Global Economy
Dr. Elisabeth Reynolds
MIT IPC
May 20, 2016
2
3
Obama Launches
Advanced Manufacturing Partnership (AMP)
• Report to President & Federal Agencies, with implementation of 11
recommendations underway (2015)
• Bipartisan Congressional authorization for National Network of
Manufacturing Institutes (Dec 2014)
• Institutes for Manufacturing Innovation launched:
• Additive Manufacturing (DoD, OH)
• Power Electronics (DOE, NC)
• Lightweight Metals (DoD, MI)
• Digital Manufacturing (DOE, IL)
• Advanced Composites (DOE, TN)
• Integrated Photonics (DoD, NY)
• Flexible Electronics (DoD, CA)
• Fibers and Fabrics (DoD, MA)
4
Manufacturing: A Dramatically Changing Landscape
1
Global Value Chains
2
Advanced Manufacturing Technologies / Industry 4.0
3
Supply Chain SMEs
5
1. Global Value Chains (GVCs): Main trends
• Outsourcing
• Vertical specialization: work and risk passed from lead firms to suppliers
• Suppliers struggle with low profits and high fixed costs
• From manufacturing to services to R&D
• Offshoring
• More countries entering the global trading system, but more specialization and
functional coordination
• Rising foreign direct investment (FDI) by:
• Branded lead firms
• Global supplier MNCs
• What’s new?
• Rise of the global supplier and global supply base
Source: Dr. Tim Sturgeon, IPC
6
Global Value Chains: Firm-Level Actors
Lead Firms
•
Branded firms
Platform Leaders
•
MNCs
•
•
What’s new?
What’s new?
•
Emerging market MNCs
•
•
Small global firms and
born global start-ups
•
•
Experiments with R&D
offshoring and outsourcing
Examples:
Apple, Ford, Unilever,
Embraer, Petrobras
Hardware and software
Suppliers
•
Tiers of suppliers
Increasing ubiquity and
global coverage, de facto
global standards
What’s new?
•
Supplier consolidation:
fewer, larger suppliers
Robust platforms for new
product development,
systems integration, and
services
•
Multiple customers
•
Supplier globalization:
Some involvement in
product design and R&D
services (contested)
Examples: Intel, Apple,
Microsoft, Qualcomm,
SAP, Google, TOTVS
Examples: Foxconn, Pao
Chen, Lear, AVL,
Halliburton, WEG
Source: Dr. Tim Sturgeon, IPC
7
Globalization Creates Lower Value Added in Value Chain
Vertical specialization and the “smiling” curve of value added
Value
Added
High
1990s – 2010s
1950s – 1980s
Upstream
After-sales service
Marketing & sales
Distribution & retail
Assembly & test
Generic inputs
Key inputs
R&D
Low
Design
Globalization
Downstream
Value chain
Business
Functions
8
Vertical Specialization and the “Smiling” Curve of Value Added for a $600 iPhone 4
Value
Added
High
France Japan
2,6% 0,6%
Germany
12,9%
$270,00
USA
19,7%
Korea
64,2%
Knowledge
clusters
$124,01
$90,00
$62,80
China:
1.1%
of retail
price
Production
clusters
Business
Functions
$6,54
Low
R&D & Design
(Apple)
Key
components
Generic
components
Assembly &
Test
Upstream
Distribution and
retail
Downstream
Value chain
Source: Dedrick, et al. 2009
9
How does Brazil fit into the Electronics GVC?
Rank
Rank
Company Name
Name
Company
Raw Materials
Samsung
Electronics
Value
and
11 Chain Foxconn
(Hon
Hai)
Equipment
22
Quanta
Apple Computer
3
3
4
4
5
Pegatron
General Electric
Compal Electronics
Hewlett-Packard
Flextronics
Equipment
Vendors
Value
Siemens
65 Chain Wistron
Design Tool
Actors
Vendors
7
7
8
9
9
Jabil Material
CircuitVendors
Hitachi
Sanmina-SCI
Sony
Celestica
10
10
PanasonicElectronics
Cal-Comp
RevenueRevenue
Profit
as % ofSegments
Industry
Primary Service
(USD Mil)(USD Mil)
Revenue
Components
Final Product
Consumer Electronics,
Communications Equipment,
Assembly and
Marketing and
SouthTaiwan
Korea Design $195,845
and
and
136,024
2.72%
EMS End Market
Computers and Storage
Devices, Distribution
Electronic Components
Testing
Sales
HQHQ
Subsystems
Development
Taiwan
U.S.
2.17% Computers and ODM
$182,795 30,300
Communications Equipment,
Storage Devices
Lead Firms
Taiwan
29,867
ODM
Industrial Equipment,1.50%
Medical
Electronics, Consumer
U.S.
$148,321
Electronics
Taiwan
23,840
0.36%
ODM
Electronics
Computers and Storage Devices, Computer Peripherals and
$111,454 Manufacturing
SemiconductorsU.S.
Services
U.S./Singapore
23,569
1.18%
EMS
Office Equipment
and Other
Components
Industrial Equipment, Medical Electronics, Electronic
Original
Design18,577
Manufacturing
(Foundries,
Germany
$101,560
Taiwan
1.28%
ODM
Transportation and
Logistics Service
Advertising
ServicesComponents
Fabless, IDM,
Providers (3PLs)
Design Houses, U.S.
Consumer Electronics,
Industrial Equipment, Automotive
18,337
2.79%
EMS
Equipment Japan
$88,786
Electronics
Vendors)
U.S.
5,917
1.34%
EMS
Consumer Electronics,
Computers and Storage
Devices,
Japan
$74,724
Electronic
Components
Canada
5,796
2.04%
EMS
Japan
$70,169
Thailand/Taiwan
Retailers
Consumer Electronics,
Automotive Electronics
3,982
0.44%
EMS
Production
Production
inin
Brazil?
Brazil?
After-Sales
Yes
Yes
(5)
Services
No
Yes
No
Yes
Yes
(1)
Electronics
Manufacturing
Yes
Services
Yes
(4)
Original Design
Yes
No
Manufacturing
Services
Yes (2)
Yes
Yes (1)
Yes
No
YesYes
(2)
Source: Fortune Global 500, company annual reports
Source: Ezequiel Zylberberg, MIT IPC
10
2. Advanced Manufacturing Technologies:
Most Promising New Manufacturing Technologies
Nano-engineering of Materials and Surfaces
Synthesis of multi-functional materials at the
nano-scale from the ground up
Additive Precision Manufacturing
Building up components by adding layers of material in
complex 3D shapes
Robotics, Automation and Adaptability
Using robotics to substitute for or complement human
labor in new ways
Next Generation Electronics
Next generation circuits using non-Si materials,
using mask-less processes and flexible substrates
Bio-manufacturing / Pharmaceuticals
Continuous manufacturing of small molecules,
turning cells/ organisms into programmable factories
Distributed Supply Chains / Design
Enabling flexible and resilient decentralized supply
chains, new approaches to web-enabled mfg
Green Sustainable Manufacturing
New manufacturing processes that use minimal energy,
recycle materials and minimize waste and emissions
11
What is Advanced Manufacturing?
Traditional
Manufacturing
(20th century)
raw materials
from nature
Fabrication
parts
Assembly
finished
products
raw materials
from nature
services
software
Material
Design
Advanced
Manufacturing
(21th century)
synthetic
materials
Fabrication
parts
Bundling
Integrated
solutions
Assembly
finished
products
continuous
recovered
materials
Recycling
Advanced Manufacturing is the creation of integrated solutions that require
the production of physical artifacts coupled with valued-added services and
software, while exploiting custom-designed and recycled materials using
ultra-efficient processes.
Source: Professor Oli de Weck, MIT
Where/how do the 7 technology areas impact this
expanded view of advanced manufacturing?
Advanced
Electronics
raw materials
from nature
Materials &
Nano-Technology
Material
Design
synthetic
materials
Additive and
services
Precision Mfg
software
Bundling
Integrated
solutions
parts
Assembly
finished
products
Fabrication
continuous
recovered
materials
Pharmaceuticals
Bio-manufacturing
Robotics
Automation
Adaptability
Recycling
Supply Chain
Design
Green / Sustainable
Manufacturing
13
3. Changes in Supply Chains: Consolidation and Collaboration
• A stratification and consolidation of the supply chain
• Greater emphasis on collaborative partnerships with
a select number of strategic suppliers
• High pressure on commodity suppliers to be high
performing at competitive price and at the same time
more investment/support to top commodity suppliers
Strategic
Suppliers
Bottleneck
Suppliers
• An integration of supply chain management with
engineering
• Centralizing supply chain operations across
business units
Commodity
Suppliers
• Shortening lead times overall
Supplier Pyramid showing stratification of supplier base
14
SMEs and Characteristics for High Performance
Current Small Suppliers
• Price: yearly price reductions
New Suppliers
• Innovative components that
• Quality Control: zero defects
• add value to OEMs’ products
• Rapid Response: 100% on-time
• support OEMs’ product innovation
delivery
• High Flexibility
• Accountability
• Concurrent Engineering due to
product complexity
process
•
Minimal Requirements
Standard Certifications (e.g., ISO, AS)
Lean (esp. cross-trained operators, Just-in-time, Kanban)
Technical skills (IT, CAD/CAM)
•
Culture of “Curiosity” and Continuous Improvement
•
•
15
What makes for a successful partnership between OEMs and
SMEs?
Customer Contribution
Supplier Contribution
Duration
of
Relationship
Financial
support
by OEM
Supplier
Development
Business
Opportunities
Communication
Transparency
High
Performance
Long-term
contracts
Direct &
Indirect
(act as
guarantor,
etc.)
Process
efficiency,
etc.
National
and international
expansion
direct
contact
with CEO
Cost
drivers,
etc.
Price,
Quality,
Rapid
Response,
Flexibility,
Accountability
sustainable and effective supply chains
Building Innovation Ecosystems
Boston
Kendall
Square
Charles River
MIT
Cambridge
http://www.bostonmagazine.com/2011/11/search-results-google-and-the-boston-tech-scene/
17
Why Think of Innovation in Terms of Systems?
•
Non-linear
•
Interactive
•
Geographically-mediated
•
Shaped by institutions and culture
•
Innovation takes place within a system of market and
non-market institutions
18
What is innovation?
“THE APPLICATION OF NEW KNOWLEDGE TO
CREATE VALUE”
• Innovation differs from invention
• Can be new to a firm, a market or the world
• Most innovation comes not from invention but
from borrowing
19
Geographic Distribution of the Most Important Advanced
Manufacturing Industries in MA
LOWELL
BOSTON
WORCESTER
HOLYOKE
SPRINGFIELD
Surgical and Medical Instruments
Semiconductor
Search, aeronautical, and nautical systems
Instrument for Measuring Industrial Process Variables
Analytical Laboratory Instruments
Aircraft Engine
Pharmaceutical Preparation
Machine Shops
TAUNTON
Source: http://www.census.gov/econ/cbp/ [2012 data]
20
MA Manufacturing Innovation Ecosystem
Associations
OEMs
SMEs
MEPs
Advanced Manufacturing
Collaborative
Universities
MassTech Collaborative
R&D networks
Global networks
SENAI
ISIs
Startups
investors
R&D networks
Innovation sources
Weak knowledge flow
Strong knowledge flow
Intermediaries
21
Building an Innovation Ecosystem for Manufacturing
SMEs
• Support lean manufacturing and upgrading among SMEs, technology
adoption and diffusion, and access to resources that encourage product
and process innovation
R&D
• Support applied R&D that brings together universities, OEMs and SMEs
22
23
Building an Innovation Ecosystem for Manufacturing
SMEs
• Support lean manufacturing and upgrading among SMEs, technology
adoption and diffusion and access to resources that encourage product
and process innovation
R&D
• Support applied R&D that brings together universities, OEMs and SMEs
Human Capital
Develop training with career paths
Entrepreneurship
Support early stage manufacturing for start ups
Ecosystem as a Whole
Strengthen links between nodes in the ecosystem
24
Building an Innovation Ecosystem for
Manufacturing in Brazil
• Focus on SME upgrading
• Operations, technology adoption, management
• Support R&D collaborations
• Increase focus on global markets, not just domestic markets
• Shift industrial policy approach toward specialization and learning
through participation in GVCs
• Importation of intermediate goods and services are seen as threats – high tariff and non-
tariff barriers
• Reduce “Brazil Cost”
• Regulatory compliance, trade and transport infrastructure
25
Appendix
27
Building an Innovation Ecosystem for
Manufacturing in Brazil
• Focus on SME upgrading
• Increase focus on global markets, not just domestic markets
• Imports of final and intermediate goods restricted in various sectors
• Sharp rise in intermediate goods imports has not produced a rise in final goods exports
• Exports dominated by unprocessed primary commodities (current crisis)
• Multinational affiliates and large domestic firms focus on domestic markets rather than
exports
• Very few Brazilian lead firms have successfully internationalized (weak outbound FDI)
• Shift industrial policy approach toward specialization and learning through
participation in GVCs
• Aim for fully vertically integrated domestic industries rather than specialization and
learning through participation in GVCs
• Importation of intermediate goods and services are seen as threats – high tariff and nontariff barriers
• Outward FDI flows are seen as threat
• “Brazil Cost” makes Brazil an unattractive place for efficiency-seeking FDI
• Regulatory compliance extremely difficult (e.g., paying taxes, registration, visas, licenses)
• Unstable regulatory regime
• Poor trade and transport infrastructure
28
Impact
• Radical innovation
• Suddenly occurring and not predictable structural breaks
• Create new markets and customer values
• High novelty
• High time and resource requirements
• High risk of failure
• Highly relevant for progressive entrepreneurs and creative destroyers
• Incremental innovation
• Result of reaction to continuous trends
• Improved or different solutions for well-known problem-areas or needs are
developed
• Are not based on absolutely new technologies
• Better efficiency and quality of an existing product
• Existing solutions still remain competitive
• Existing market structures do not change
• The novelty is the optimized relation between objectives and means
• The distinction here gives a clue to how an innovation differs from its
previous state
Proof of alternative
concepts
Concept
evaluation and
selection
Extended product life cycle
Innovation cycle
Research
Development
and trials
Innovation Cycle
costs
Prototyping
Preparation for
production and
sales
revenue
Market
introduction
Market cycle
Market
diffusion
Market
saturation
Market
degeneration
29
t
[Bischof 1981]
Cambridge Innovation System
Corporate R&D Labs
Microsoft
Google
Mitsubishi Electric
Novartis
Pfizer
Schlumberger
Nokia
Entrepreneurs / Start-up Companies
Life Sciences / Biotech
Energy
Robotics
Internet / Web 2.0 / Web 3.0
Gaming
Information & Communication Technologies
Harvard University
Boston University
Northeastern University
Tufts University
Babson College
Brandeis University
University of Massachusetts
Worcester Polytechnic Institute
Deshpande Center
Venture Mentoring Service
MIT Entrepreneurship Center
MIT Enterprise Forum
Modular, Add-As-You-Grow
Offices / Services
Competitions
Educational Institutions
MIT Organizations
MIT 100K Entrepreneurship Competition
MIT Clean Energy Entrepreneurship Prize
MIT IDEAS
X-Prize
MIT and Dow Materials Engineering Contest
Investors
Venture Capitalists
Angel Investors
Private Equity
Corporate Investor Groups
Cambridge Innovation Center
One Kendal Square
Pegus
Service Providers
Law Firms
Marketing and Publicity Services
Accountants and part-time CFOs
HR
Outsourced IT
Traditional Office Space
Incubators
Consultants
Entrepreneurship support
Regional Trade Associations
State & Local Gov Initiatives
TiE Boston
128 Innovation Capital Group
Boston Entrepreneurs’ Network
Mass Technology Leadership Council
Mass Software Council
Mass Innovation and Technology Exchange
Mass IT Collaborative Entrepreneurs Committee
Life Sciences Cluster\Robotic Cluster
Clean Energy Cluster
IT Cluster
30
Lessons from Scale-Up Economies:
Germany and China
1. Strong manufacturing does not mean low
wage labor
2. Dense industrial ecosystems make jobs
and companies sticky
3. There䇻s real innovation in scale-up
capabilities
18
32
Impact on Advanced Manufacturing
• Product life cycles are getting shorter, thus innovation
cycles have to be adjusted accordingly
• Automobile ~5-7 years
• Smart phones ~9 months
• Fast sequence of technological innovation without
reaching optimal lifetime of products
• Products need to be developed faster and more efficiently
• Innovations extend a company’s product portfolio
• Share of new products in total revenue is increasing while product
life cycles are decreasing
33
OEMs and Changes in Supply Chains: Consolidation and
Collaboration
• A stratification and consolidation of the supply chain
•
•
•
•
•
•
to reduce the overall number of suppliers (esp. of
commodity suppliers)
Greater emphasis on collaborative partnerships with a
select number of strategic suppliers, and a more
solutions-oriented approach with suppliers in general
High pressure on commodity suppliers to be high
performing at competitive price and at the same time
more investment/support to top commodity suppliers
An integration of supply chain management with
engineering to bring design and technological
innovation into the supply chain procurement process
earlier
Centralizing supply chain operations across business
units or particular products rather than within each
business unit
Shortening lead times overall and highly responsive
supply chains to respond to customer demands that
can’t be known ahead of time
There are examples of firms moving production back
to the US, where it is becoming more competitive to
manufacture, particularly given the emphasis on shorter
lead times
Strategic
Suppliers
Bottleneck
Suppliers
Commodity
Suppliers
Supplier Pyramid showing stratification of supplier base
34
High-Performing, Innovative SMEs Across OEM Supplier
Landscape
• Three broad categories of suppliers
• Strategic suppliers
• Bottleneck suppliers
• Commodity suppliers
(growth/maintenance)
Strategic
Suppliers
Bottleneck
Suppliers
• Increased collaboration around
innovation with strategic suppliers
• More investment/support to top
commodity suppliers
• Ongoing consolidation especially in
bottom category
• Emphasis for commodity suppliers
on high performance at competitive
price
Commodity
Suppliers
35
Defining Innovation
The application of new knowledge
to create value
• Innovation can be
• new to the firm,
• new to the market,
• or new to the world
• Innovation differs from invention
• Most innovation comes not from
invention but from borrowing.
36
Defining Innovation
product
Product
Innovation
Service
Innovation
Process
Innovation
Organizational
Innovation
physical
intangible
• new to the market,
• or new to the world
Tangibility
• Innovation differs from invention
• Most innovation comes not from
invention but from borrowing.
based on [Kirner et al. 2009]
• new to the firm,
Innovation Object
• Innovation can be
process
The application of new knowledge
to create value
Innovation Fields