This autumn, SME and AMT-The Association for Manufacturing Technology are producing four key events: HOUSTEX, EASTEC, SOUTHTEC and WESTEC. All are part the Manufacturing Technology Series, and each will feature three keynote speakers offering information and perspectives pertinent to manufacturers in general, but of particular use to small and medium-sized manufacturers (SMMs). Each speaker was interviewed by SME Media to get a heads-up on the issues they will address.
Economist Chris Kuehl is managing director of Armada Corporate Intelligence, Lawrence, Kan., and chief economist for the Fabricators and Manufacturers Association. He will outline current and long-term economic trends that will affect the supply chain in various industries as the world emerges from COVID-19.
While the major question for the entire economy is “whether we’ll be seeing the withdrawal of inflation that we all think we’re going to see by the time we get to the fall,” there are other pertinent questions for the manufacturing world, he said. “From the manufacturing perspective, one hot topic has been what’s been referred to as the ‘great inversion:’ Last year, during the midst of the COVID-19 shutdown, people couldn’t spend on services, so they spent on things.
“Normally, consumers spend 65 percent of their disposable income on services, which because of COVID they couldn’t do,” Kuehl continued. “So the bulk of that money ended up going into ‘stuff’—new cars, new TVs, new electronics for the locked-in kids,” he explained. “So, that part of the economy did very well, relatively speaking.”
Now, consumers are back to spending on services. The inversion is that the “stuff” part will decline.
“Maybe people will buy fewer appliances; maybe they’ll be less concerned about building their home office; maybe they’ll buy fewer toys and gadgets for their kids because now they can boot them out the door and say, ‘go to summer camp.’ The question is, are they going to use all that disposable income to catch up on their favorite restaurants—or are they still going to be buying things? The answer will impact the makers of all of those goods,” he said.
Kuehl has observations about how the events of 2020, particularly COVID, impacted specific industries, from automotive and aerospace to medical and energy, as well as ongoing concerns that “these companies dealt with before all this and will be dealing with after all this.”
The top of that list will be the issue of labor supply. “Particularly with the small to mid-sized shops, there’s still no real effective system to get the people they need.”
An ancillary issue will continue to be “the big problem of succession,” he said. A lot of owners of small to medium-sized shops “just want to retire or step back—but they can’t, because there’s no one to run the show.”
On top of that is what he calls “the ongoing supply chain conversation,” by which he means the challenge of limiting a company’s vulnerability to its suppliers’ weaknesses.
“This really accelerated last year, but it was going on before that, and it has now started to manifest in more near-shoring, more on-shoring, more use of technology—anything to reduce your exposure to the global supply chain,” he said. “It’s not that most companies could give it up completely. But they’re thinking, ‘If I can take my 80 percent dependence on China and make it 60 percent, that puts me in a better place.’ That may mean doing more business with Vietnam or maybe it means bringing work back to, say, Oklahoma. And many will also say, ‘I think I’ll buy this bin-picking robot for a few thousand dollars instead of relying on people.’”
Another long-term trend is how smaller job shops are making an effort to diversify the number and kind of customers they cater to. Traditionally, such shops were quite comfortable having one or two key customers, he said, but recent years have shown the risks of sticking to a single industry, such as automotive, or even a single company, he said.
“Now, most of them are embracing the idea that ‘no single client should be more than 70 percent of my business.’ They’re starting to consider how to get to new customers and new markets. And that may be the biggest story of next year: How do you diversify? How do you make your facility flexible and ready for a new mix of work and customers?”
The metalcutting and production equipment may or may not already be able to do much more than has been asked of it, Kuehl noted, “but your people have to be ready to use it and you need to be ready to sell it.” This is putting a lot of pressure on shop owners to make sure workers and equipment are up to snuff, “as well as people on the sales force, who are being told, ‘Don’t just call on that one guy that you’d known for 30 years. Get out there and knock on new doors.’”
The questions of succession and diversification are just two of the topics also addressed in another keynote. These and other challenges faced by small to medium-sized manufacturers are detailed by Kenneth Sullivan, president and CEO of Micro Craft Inc., a small (65 employees) supplier to the aerospace and defense industry.
Micro Craft, Cowan, Tenn. has had to take measures to adapt to new conditions in the post-pandemic reality. Sullivan draws from the company’s experience to offer insights for companies finding themselves in similar straits.
Regarding diversification, Sullivan agrees that companies need to be able to pivot their current core competencies to other market sectors—without risking their current customer base.
“In our case, our claim to fame was wind tunnel models,” he said—creating 3D models that could be tested under actual wind conditions to optimize airframe and wing designs. “That market has gone down quite a bit over the years,” Sullivan said. For one thing, the OEMs don’t design and build as many aircraft as they used to, he noted. On top of that, digital modeling on computers has progressed to the point where fewer real-world models are necessary.
“Because of that, we had to find other things that we knew how to do that would expand our niche,” he said. “We still do the models and prototypes, but in order to grow, we have to find other things to go into.”
The company has diversified into some low-volume, high-mix manufacturing. The challenge is not only being in new competition with other down-tier suppliers, it’s showing a readiness to pursue larger programs as a top-line supplier. And that calls for a different mindset than the shop was used to when it primarily lived in the R&D world of modeling.
“There’s a fundamentally different mentality between doing R&D and production,” Sullivan said. “We’re having to almost split the shop between the two tasks to make them both work. It’s a balancing act.”
Another issue any manufacturer needs to be concerned with in the modern era is cybersecurity. With the Department of Defense’s new cybersecurity maturity model certification (CMMC) rules coming into play, companies that are or hope to be working in defense manufacturing will need to be able to show they are on their game. And more so than ever: A major difference between CMMC Level 3 and its predecessor, NIST 800-171, rev 1, upon which it is directly modeled, is that under CMMC, each supplier must be ready for third-party certification. This is a departure from the old rules, under which the OEM of record for the defense project would simply vouch for all suppliers it had working on the project.
“The Defense Department had basically given the OEMs the keys to run the supply chain, to run the industrial base,” Sullivan explained. “Well, the OEMs have been maximizing profit while minimizing readiness, when it needs is to be the other way around. When I would talk to the DoD guys about it, I’d ask, ‘Hey, whose supply chain is it?’ Their response was always a very precise: ‘Well, it’s ours.’ And my reply has been, ‘Well then, you manage it.’”
Therefore, in Sullivan’s view, CMMC has the potential to be an improvement.
“I think CMMC, with its third-party certification, is a good thing. However, the DoD needs to make sure that compliance really equals security,” he said. “Don’t go off and have us do stuff that doesn’t make us more secure just for the sake of doing it.”
Micro Craft, like other small shops, has to recognize and meet these and other new challenges, many of which were minor or nonexistent a few decades ago, Sullivan said.
“A small example: We used paper green-sheet documents to do our bid proposals forever—but that is all going to have to be done electronically now. We had to create the sheet electronically, yet set it up in a way where it can be signed and others know it’s ready, and that it’s been signed. You have to figure that process out and get it set up electronically —and securely.
“You have to embrace these new technologies and practices,” he concluded. “If you’re still trying to operate like in the 1970s and ’80s, you’re dead in the water.”
Adapting to up-to-date practices and technologies immediately brings to mind the paradigm of Industry 4.0 or smart manufacturing. Shops engaged in improving their game in order to prove themselves ready for more and different customers should seriously consider getting started with Industry 4.0 techniques and technology, said Stephan Biller, whose keynote addresses digital transformation for small manufacturers.
Biller is president and CEO of Advanced Manufacturing International (AMI), Clearwater, Fla., and has decades of experience in analytics, artificial intelligence, the Internet of Things (IoT), additive manufacturing and digital manufacturing. He is also a founding board member of the Smart Manufacturing Leadership Coalition, with firsthand experience in the challenge of moving enterprises of various sizes into the world of smart manufacturing.
Many small to medium-sized suppliers remain wary of Industry 4.0 because they think it calls for expensive new equipment and new practices that are far from what they’ve had to concern themselves with in the past. Neither is true, Biller asserted.
“Let’s start with Industry 4.0,” he said. “It’s really addressing an old task—namely, the continuous improvement of key performance indicators that we all have been measuring for a very long time.”
Any factory focuses on five or six metrics, he said—the most important of which are throughput, quality, costs, and on-time delivery. “And then there’s safety and sustainability and other measures—but from an economic perspective, it’s really those four that you that you want to go after.
“And, if you think about it, Henry Ford probably was concerned with the same KPIs a hundred years ago. I’d go further and suspect that maybe James Watt was also concerned with them when he was developing and commercializing the steam engine.”
Biller’s point is that rather than being new, Industry 4.0 is concerned with tracking and improving these same metrics. “It’s really an extension of continuous improvement and Lean and Six Sigma,” though the practices may have become more formalized in the past 30 or 40 years, he acknowledged.
The tasks are not new, but “what has changed dramatically are the tools we can now use to achieve those goals. Number one is probably the cloud. And then you have 5G, IoT, artificial intelligence and machine learning—and I would include real-time systems analysis in that group as well. Those are the tools that now allow us to make better decisions.”
In other words, the smart factory or enterprise is on the same journey that it has always been: continuous improvement of those KPIs, but with tools that get you there much faster. “In the past, to do these Lean projects, we would go out and collect data, analyze it and use it as the basis for implementing change,” he explained. “It was all very transactional and took a long time.” But using these new tools, all those data come off machines and systems in real time — and it’s possible to optimize these KPIs in near-real time.
At GM, where Biller led an Industry 4.0 initiative, “we saved hundreds of millions of dollars every year through these kinds of methods.” Needless to say, most small or medium-sized manufacturers don’t have the deep resources of a GM or GE, where he also led a digital transformation. So he and others have developed ways for SMEs to easily engage with the same set of fast, empowering tools.
Cheering this digital transformation of these shops, Biller says, are the OEMs who are their customers. One thing COVID-19 and its impact showed, he said, was that “supply chains, which we have been optimizing for so long exclusively for cost, are really kind of brittle.” And now people throughout Industry are discussing the need to make them more resilient.
The important thing large OEMs are coming to understand is that if they want to be resilient, they had better make sure that their supply chain is resilient, too. “You can optimize your own factory—but that means little if 80 percent of your parts come from outside of it and your supply chain isn’t resilient enough to react to a sudden change as fast as you can,” he said. “In any resiliency discussion, it should be clear that the weakest link determines the resiliency of the system. And that should drive our large companies to a mindset where there should be deep collaboration with their supply chain partners to help them get to that level.
“That’s the OEM perspective,” Biller continued. “For their suppliers, they need to understand that if they aren’t going to be on that train, they’re going to be under that train.” Smaller shops must be prepared to defend their supply chain position by adopting required technology.
The impression persists that Industry 4.0 techniques—at least in how they are portrayed in glowing media coverage of glistening “factories of the future” created by large international OEMs—require a warehouse worth of new, digitally enabled production equipment and complex software and IT systems far beyond the budget of small job shops with narrow profit margins.
Biller says that isn’t so. In the first place, although new production equipment is generally outfitted with the necessary sensors and software to record and share performance indicators, even decades-old equipment can be made smart factory ready with little cash outlay.
“I don’t think any of that [lack of Industry 4.0-ready equipment] is a hindrance. It’s completely unnecessary to replace a well-functioning lathe or mill, for example, when one could simply extract, visualize and share the data from the machine by installing a LIMS box there,” he said. (See Page 38).
And it would be a mistake to think one needs to transform an entire factory, much less a larger enterprise, all at once, he noted. It makes much more sense to start small and scale up.
“My message is that whatever your size and budget, you can start today,” said Biller. “You just have to make sure that you that you begin by focusing on a real problem—one that gives you good ROI and that ideally you could potentially also scale to other parts of the organization.”
Lastly he offered three pieces of advice: “Start small, start simple and start now. That third one is pretty important, because if you don’t start, there will always be an excuse not to start—you know, ‘We have this customer coming in,’ or ‘Maybe after this next delivery.’ And getting started never happens. You have to make the decision and get started.”
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