August 2011 08 Fall

[Module 4 – Challenge of scale up]

Module 5 – Challenge of scale down]
Many global supply chains are not equipped to cope with new economic production realities. “Most were engineered, some brilliantly, to manage stable, high-volume production by capitalizing on labor-arbitrage opportunities available in China and other low-cost countries. But in a future when the relative attractiveness of manufacturing locations changes quickly--along with the ability to produce large volumes economically -- such standard approaches can leave companies dangerously exposed.”

“…Pioneering supply chain organizations are preparing themselves in two ways. First, they are "splintering" their traditional supply chains into smaller, nimbler ones better prepared to manage higher levels of complexity. Second, they are treating their supply chains as hedges against uncertainty by reconfiguring their manufacturing footprints to weather a range of potential outcomes.” Thus, to meet diverse requirements from a variety of customers and circumstances, companies must have a flexible supply chain that splinters the traditional monolithic model to smaller branches.

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Conexus Indiana, Manufacturing and Logistics 2011 National Report

http://cber.iweb.bsu.edu/research/conexus11/

http://cber.iweb.bsu.edu/research/conexus11/NationalReport11.pdf

[Module 7 – Policy inputs (measures effects of policies such as tax burden, benefits costs and VC availability)]

[Module 1 – Manufacturing technologies

[Module 3 – Cross border production issues

[Module 4 – Challenge of scale-up]

[Module 7- Policy Inputs]
Reversing the decline of manufacturing competitiveness is crucial for U.S. to pay down deficit and raise standard of living. Two major changes are needed:

1. 
   Government must foster collaboration among itself, academia and business when funding basic and applied scientific research to tackle large societal problems.
   
2. 
   Corporations must better understand and cease exaggerating the payoffs and dismissing the problems associated with outsourcing production and reducing R&D
   

1. The “Kindle 2” could not be made in the US:

1. 
   Flex circuit connector – China
   
2. 
   Electrophoretic display – Taiwan
   
3. 
   Controller – China
   
4. 
   Lithium polymer battery – China
   
5. 
   Wireless card – China
   
6. 
   Injected molded case – China
   

7. 
   every brand of US notebook computer (except Apple) and of mobile/handheld designed in Asia
   

3. 
   Advanced materials:
   
   1. 
      Gone from U.S. production: advanced consumer composites, advanced ceramics, IC packaging
      
   2. 
      At Risk: carbon composite components for aerospace/wind
      
4. 
   Computing and Communications:
   
   1. 
      Gone: desktop, notebook, netbook PC’s, low end servers, hard disk drives, routers, home network tech
      
   2. 
      At Risk: midrange servers, blade servers, mobile handsets, optical comm. equipment, core network equipment
      
5. 
   Green technology/Storage:
   
   1. 
      Gone: Lithium ion, lithium polymer batteries for consumer electronics, chrystalline and poly-crystalline silicon solar cells, bulk of wind turbines
      
   2. 
      At Risk: thin film solar
      
6. 
   Semiconductors:
   
   1. 
      Gone: fabless chips, bulk of SC mfg.
      
   2. 
      At Risk: flash memory chips
      
7. 
   Displays:
   
   1. 
      Gone: LCDs, electrophoretics
      
   2. 
      At Risk: next gen “electronic paper”
      

Complex innovative assignments are outsourced:

• 
  U.S. software industry
  
• 
  Energy-efficient illumination R&D
  
• 
  Batteries
  
• 
  Carbon fiber component for Boeing’s new 787 Dreamliner
  

Decreased domestic capability to innovate and subsequently manufacture

• 
  “For example, nearly every U.S. brand of notebook computer, except Apple, is now designed in Asia, and the same is true for most cell phones and many other handheld electronic devices.” Almost every U.S. brand of laptop is designed and manufactured in Asia.
  
• 
  The “Industrial Commons”: “A foundation for innovation and competitiveness, a commons can include R&D know-how, advanced process development and engineering skills, and manufacturing competencies related to a specific technology.
  
  • 
    Being geographically close to an industrial commons offers a competitive advantage, which explains why certain types of industrial companies tend to cluster together: “Detailed empirical work on knowledge flows among inventors by our HBS colleague Lee Fleming shows that proximity is crucial. An engineer in Silicon Valley, for instance, is more likely to exchange ideas with other engineers in Silicon Valley than with engineers in Boston.”
    
  • 
    Studies show that main flow of knowledge transfer occurs when people switch jobs from one company to another, and vast majority of job switching is local, so knowledge stays within geographic cluster and Commons persist
    
  • 
    Even though large amount of scientific data can now be accessed from anywhere in the world, such as the data for the Human Genome Project, the actual drug research that HGP generated is mainly concentrated in research clusters in Boston, San Francisco, and San Diego areas
    
  • 
    “Our research on the semiconductor, electronics, pharmaceutical, and biotech industries has found that commons are even more important to countries’ and companies’ prosperity than is generally believed. That’s because innovation in one business can spawn whole new industries.”
    

Decline of manufacturing in a region (outsourcing production and R&D) sets off a chain reaction - it means a “tragedy of the commons” scenario for U.S. manufacturers and tech companies:

• 
  Outsourcing may present an ephemeral competitive advantage, but this “advantage” is contagious, so other companies in the area follow suit. None can maintain cost-saving “advantage” from outsourcing production and R&D while experienced employees move out of the region and students shy away from the field due to the lack of employment opportunities. The commons loses “a critical mass of work, skills, and scientific knowledge and can no longer support providers of upstream and downstream activities, which are, in their turn, forced to move away as well. This is what happened to the industrial commons serving a number of high-tech sectors in the United States.”
  

How Government can restore the Commons:

• 
  Increase federal funding for basic and applied scientific research
  

• 
  Focus resources from government/business/academic on solving “grand challenge problems” such as climate change and water scarcity
  
• 
  Let failing companies that “suck the vitality out of the Commons” die
  

How Businesses can restore the Commons:

• 
  Innovation and capability as main pillars of company strategy
  
• 
  Invest in long-term high risk basic and applied research
  
• 
  Collaborate with government and academia
  
• 
  Elect a tech-savvy board of directors
  

U.S. (August 2011)