Presentation given at a workshop on the Future of Manufacturing, Turin November 2015

1. The New Economics of Manufacturing
Richard Veryard
Future of Manufacturing Netcamp
Turin November 2015

2. 2
The French writer Jacques Attali
predicted the crisis in the music
industry. He now says
manufacturing will be hit by an
identical one – this time caused
by 3D printing.
Is he correct? What will the
possible disruption entail? And
how can Reply play a leading role
in this transformation?
This presentation looks at the
possible winners and losers from
the technological changes
sweeping the manufacturing
world, and how companies can
establish and maintain
competitive advantage from this
new manufacturing technology.
Outline

3. 3
Main Presentation
• Brief Historical Background
• 3x Crisis in the Music Business
• 3x Crisis in Manufacturing
• Types of Economic Advantage
• Production Forces – Exploiting
the Value Chain
• Relevance for Reply’s Business
Additional Material
• Phases of Innovation
• Economical Paradoxes
• Further Reading
Contents

4. 4
Ritual
Order
Imperial
Order
Merchant
Order
The Rise of Capitalism
From Jacques Attali, A Brief History of the Future (2006)

5. 5
Successive Cores of the Merchant Order
From Jacques Attali, A Brief History of the Future (2006)
Core City Core Technology
Bruges Central Rudder Stock
Venice Caravel
Antwerp Printing
Genoa Accounting
Amsterdam Fluyt
London Steam Engine
Boston Piston Engine
New York Electric Engine
Los Angeles Microchip
?? ??

6. 6
Harbinger

7. 7
Crisis of Patronage
• Public concerts replacing
aristocratic salons
Crisis of Production
• The emergence of electronic
music
Crisis of Proliferation
• The Work of Art in the Age of
Mechanical Reproduction
Music as a Harbinger of the Future
Because music is very important to us but also highly adaptable it's one
of the first places we can see new trends appearing. (Jacques Attali)

8. 8
Crisis of Patronage
• Governments 
Markets
• Local  Global
Crisis of Production
• Design  Build 
Design
• Lean  Agile
Crisis of
Proliferation
• Copyright  Open
Source
• “Physibles”
(PirateBay)
• DefCad
From Music to Manufacturing?

9. 9
Mass
Production
Print On
Demand
Hand Crafted
Book Production Pathways

10. 10
Material Fabrication Assembly Manufacture
Production Forces
3D Printing Robotics
CNC Tools

11. 11
Material Fabrication Assembly Manufacture
Economic Forces
Cheap
3D
Printing
Expensive High-
Grade Materials
Easy
Self-
Assembly
High-Quality
Components

12. 12
Smile Curve
Material
Fabrication
Assembly
Design
• Product
• Process
• Economics

13. 14
Economies of
Scale
The ability to create additional output from an existing
capability, reducing average unit cost. (i.e. producing
more output from the same technology infrastructure).
Long Production
Runs  Minimize
Setup Costs
Economies of
Scope
The ability of a business to extend the scope of its
operations across different markets reducing average
operating costs. (i.e. covering more markets with the
same business process infrastructure).
Agile Production
Runs  Optimize
Setup Costs
Economies of
Alignment
The ability to create additional ways of organizing the
business relationship with a customer over time,
reducing the average cost of alignment of business
operations to the dynamics of each customer
relationship. (i.e. managing more distinct customer
relationships over time supported by the same
infrastructure)
Dynamic
Complexity
Types of Economic Advantage
Source: Boxer Research Limited
http://www.asymmetricdesign.com/2006/10/creating-economies-of-alignment/

14. 15
Hardware
• Direct Machining -
alloy parts replacing
injection-moulded
plastics in housings
• Additive Manufacture
– custom design of
high-performance
components
• Robotics –
autonomous and safe
collaboration between
robots and humans
Software
• Digitization –
improves time-to-
market
• Simulation –
anticipates and
eliminates production
challenges
• Product lifecycle
management –
integration of supplier
and production
network
Services
• Servitization –
embracing the
service economy
• Personalization –
mass customization
• Circular
Manufacturing –
managing the whole
life of the product
• Virtualization – the
fabless factory
New Manufacturing Trends
http://www.theengineer.co.uk/manufacturing/automation/
understanding-industry-40-factories-go-digital/1019373.article

15. 16
How Big Data Will Affect Manufacturing
Source: LNS Research and MESA International com

16. 17

17. 18
Personalization involves four capabilities
Personalization
Targeting
• Starting with what we
want to promote.
• Selecting consumers for
a given campaign
Customization
• Starts with what the
consumer asks for.
• Take consumer
demands at face value
Contextualization
• Engaging with the
consumer’s world.
• Infers consumer desires
from context.
Co-Creation
• Providing a platform for
active consumer
engagement.

18. 19
What is the Value of Personalization?
Engagement
• Message across all channels are more relevant to consumers increasing their affinity
with the channels and brand
• Consumer-led – consumers should feel that we are directly responding to their
actions and preferences.
Economics
• Improved conversion rate on campaigns.
• Reduced churn.
• Reduced price sensitivity – offers can be based on consumer desire rather than
discounts
• Lifetime value of consumer. Align consumer incentive to consumer value.
Efficiency
• More effective use of digital campaigns as more targetted, more coordinated ,
more timely.
• Growing accuracy of consumer profile, thanks to continuous feedback.
• Support for innovation (e.g. trial offers or campaigns), because faster and more
comprehensive feedback takes away some of the risk

19. 20
Global Manufacturing Revolution
Source: Koren

20. 21
Servitization /
Personalization
• Building long-term relationships
with consumers.
• Builds on Reply’s extensive
experience in the Retail and
Consumer sectors.
Virtual Warehouse /
Logistics
• Local fabrication reduces
transportation and storage
Big Data
• Enhancing Product Innovation
• Enhancing Process Innovation
Bleeding Edge Technology
• Research and Development
• Proof of Concept
Relevance for Reply Business

21. Thanks
Richard Veryard
r.veryard@reply.eu

22. 23
Before joining Reply in June
2013, Richard was an
independent consultant and
software industry analyst,
specializing in the service-
oriented enterprise.
He has written books on
Information Modelling, Business
Architecture and Organizational
Intelligence
Since joining Reply, Richard
has worked on a range of
architectural projects for several
Retail and Consumer clients.
His current focus is on Data and
Intelligence.
About Richard Veryard

23. 24
Patterns of Innovation
Source: Abernathy, W.J. and Utterback, J.M. – Patterns of Innovation in Technology, Technology Review 1978

24. 25
Phases of Innovation
Source: Abernathy, W.J. and Utterback, J.M. – Patterns of Innovation in Technology, Technology Review 1978
Fluid Phase Transitional Phase Specific Phase
Innovation
Product changes/radical
innovations
Major process changes,
architectural innovations
Incremental innovations,
improvements in quality
Product
Many different designs,
customization
Less differentiation due
to mass production
Heavy standardization in
product designs
Competitors
Many small firms, no
direct competition
Many, but declining after
the emergence of a
dominant design
Few, classic oligopoly
Organization
Entrepreneurial, organic
structure
More formal structure
with task groups
Traditional hierarchical
organization
Threats
Old technology, new
entrants
Imitators and successful
product breakthroughs
New technologies and
firms bringing disrupting
innovations
Process Flexible and inefficient
More rigid, changes
occur in large steps
Efficient, capital intensive
and rigid

25. 26
• Research and development
• Innovation
• Production processes
• Supplier and customer interdependencies
• Lifetime product maintenance and repair.
Adaptability
• Built-in reuse
• Remanufacturing and recycling for products reaching the end of their useful lives
Sustainability
• Energy efficiency
• Water efficiency
• Physical recycling
Resource Usage
Goals

26. 27
• High-Quality Materials
• Complexity - Different Materials For Each Job
Materials
• Analysing Productivity
• Analysing Demand
• Optimizing Alignment
(Big) Data
• Integration between craft production and mass production
• Rapid feedback and learning
Skills
Success Factors for the New Manufacturing

27. 28
• Fewer jobs. Smaller share of GNP. Protectionism.
Decline in the Manufacturing Sector
• Disruption – Who, Whom?
• Bureaucracy and the Megamachine (Lewis Mumford)
Demanding Change
• Downskilling versus Upskilling
Skills
Paradoxes of the New Manufacturing

28. 29
•Modelling and simulation integrated into all design processes, together with virtual reality tools will allow complex products and
processes to be assessed and optimised, with analysis of new data streams.
Faster, more responsive and closer to customers
•The integration of sensors into networks of technology, such as products connected to the internet, will revolutionise manufacturing.
New data streams from products will become available to support new services, enable self-checking inventories and products which
self diagnose faults before failure, and reduced energy usage.
Sensors
•New materials, in which the UK has strong capabilities, will penetrate the mass market and will include reactive nanoparticles,
lightweight composites, self-healing materials, carbon nanotubes, biomaterials and ‘intelligent’ materials providing user feedback.
Advanced & functional materials
•The range of biotechnology products is likely to increase, with greater use of fields of biology by industry. There is potential for new
disease treatment strategies, bedside manufacturing of personalised drugs, personalised organ fabrication, wide availability of
engineered leather and meat, and sustainable production of fuel and chemicals.
Biotechnology
•These will be used to reduce the resources used in production including energy and water, produce clean energy technologies, and
deliver improved environmental performance of products. Minimising the use of hazardous substances.
Sustainable/green technologies
Future manufacturing – Four Key Features
Source: UK Government Report, 2013

29. 30
•Modelling and simulation integrated into all design processes, together with virtual reality tools will allow complex products and
processes to be assessed and optimised, with analysis of new data streams.
Information and communications technology (ICT)
•The integration of sensors into networks of technology, such as products connected to the internet, will revolutionise manufacturing.
New data streams from products will become available to support new services, enable self-checking inventories and products which
self diagnose faults before failure, and reduced energy usage.
Sensors
•New materials, in which the UK has strong capabilities, will penetrate the mass market and will include reactive nanoparticles,
lightweight composites, self-healing materials, carbon nanotubes, biomaterials and ‘intelligent’ materials providing user feedback.
Advanced & functional materials
•The range of biotechnology products is likely to increase, with greater use of fields of biology by industry. There is potential for new
disease treatment strategies, bedside manufacturing of personalised drugs, personalised organ fabrication, wide availability of
engineered leather and meat, and sustainable production of fuel and chemicals.
Biotechnology
•These will be used to reduce the resources used in production including energy and water, produce clean energy technologies, and
deliver improved environmental performance of products. Minimising the use of hazardous substances.
Sustainable/green technologies
Important pervasive technologies for future manufacturing activities
Source: UK Government Report, 2013

30. 31
• These will be important in the on-going automation of many tasks that formerly required people. In addition, the volume and detail of information captured by businesses and the
rise of multimedia, social medial and the internet of things will fuel future increases in data, allowing firms to understand customer preferences and personalise products.
Big data and knowledge based automation
• There is potential for major impacts in terms of business optimisation, resource management, energy minimisation, and remote healthcare. In factory and process environments,
virtually everything is expected to be connected via central networks.
• Increasingly, new products will have embedded sensors and become autonomous.
Internet of things
• Advances are likely to make many routine manufacturing operations obsolete, including healthcare and surgery, food preparation and cleaning activities.
• Autonomous and near-autonomous vehicles will boost the development of computer vision, sensors including radar and GPS, and remote control algorithms. 3D measurement
and vision will be able to adapt to conditions, and track human gestures.
Advanced and autonomous robotics
• This is expected to have a profound impact on the way manufacturers make almost any product. It will become an essential ‘tool’ allowing designs to be optimised to reduce
waste; products to be made as light as possible; inventories of spare parts to be reduced; greater flexibility in the location of manufacturing; products to be personalised to
consumers; consumers to make some of their own products; and products to be made with new graded composition and bespoke properties.
Additive manufacturing (also known as 3D printing)
• Computerised manufacturing execution systems (MES) will work increasingly in real time to enable the control of multiple elements of the production process.
• Opportunities will be created for enhanced productivity, supply chain management, resource and material planning and customer relationship management.
Cloud computing
• Smart phones and similar devices are positioned to become ubiquitous, general purpose tools for managing supply chains, assets, maintenance and production. They will allow
functions such as directed advertising, remote healthcare and personalisation of products.
• Linked technologies include battery technology, low energy displays, user interfaces, nano-miniaturisation of electronics, and plastic electronics.
Mobile internet
Important secondary technologies for future manufacturing activities
Source: UK Government Report, 2013

31. 32
Factories of the Future
Source: UK Government Report, 2013
Aspect Typical Current Likely Future
Processes and
Practices
Limited flexibility of production lines, with some potential
for multi-product manufacturing.
Highly capable, flexible, embedded knowledge, close
customer relationships, cross-sector R&D
Locations Centralized in legacy locations, some distance from
customers and suppliers.
Diversity, central hubs, urban sites, distributed and
mobile, home integrated design-make environments.
Supply chains Typically a mixture of global and local supply chains, not
well integrated with partners with limited risk / revenue
sharing.
Localized and integrated ‘partnering’, effective use of
global capabilities and adaptable logistics systems.
Goals and metrics Mostly focused on cost, quality and delivery with less
emphasis on future performance and sustainability.
Speed, agility, degree of cross-region / sector
collaboration, total resource efficiency, global
competitiveness.
Facilities Often close to urban areas with legacy infrastructure
(especially ICT) and poor sustainability performance
Innovative and customized buildings, spacious,
sustainable operations, open to customers, partners and
the community.
Technology Typically a focus on low-risk automation and product
technologies. Reliant on technology from equipment
suppliers
Integrated value chain approach, digitized. Big Data
enabled, additive processes and many new advanced
materials.
People Typically technical and professional workers, mostly
men, with processes reliant on manual intervention.
Increasingly knowledge-based work, continuous
improvement principles, multi-skilled / gender teams.
Culture Typically a ‘command and control’ culture focused on in-
house knowledge, limited supply chain integration.
Open, creative, networked and interactive. Integrated
working principles with suppliers and research partners.

32. 33
• Foresight (2013). The Future of
Manufacturing: A new era of opportunity and
challenge for the UK (The Government Office
for Science, London 2013)
• William J. Abernathy and James M.
Utterback, “Patterns of Innovation in
Industry,” Technology Review, Vol. 80, No. 7,
June-July 1978, pp. 40-47
• Jacques Attali, A Brief History of the Future
(2006)
• Walter Benjamin, "The Work of Art in the Age
of Mechanical Reproduction" (1936)
• Philip Boxer, “Creating Economies of
Alignment” (Asymmetric Design, 2006)
• Larry Hirschhorn, Beyond Mechanization
(MIT 1984)
• Yoram Koren, The Global Manufacturing
Revolution: Product-Process-Business
Integration and Reconfigurable Systems
(Wiley 2010)
• James M. Utterback and William J.
Abernathy, “A Dynamic Model of Product and
Process Innovation,” Omega, Vol. 3, No. 6,
1975, pp. 639-656.
Further Reading