Driving Toward the Digital Economy and Digital Manufacturing

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Driving Toward the Digital Economy and Digital
Manufacturing
Presentation at the Siemens PLM Software 
Conference November 14, 2007

• Dr. Robert Atkinson
• President
• Information Technology and Innovation Foundation

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Todays Presentation

• The Power of the IT Revolution
• IT and the Productivity Turnaround
• The State of U.S. Manufacturing
• Digital Technologies and Intelligent
  Manufacturing
• Challenges and What Comes Next

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The Power of the IT Revolution
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New General Purpose Technologies Drive Change

• Most innovations comes in incremental
  improvements, with modest changes in products and
  processes.
• But approximately every half century a new
  technology system emerges that impacts virtually
  everything
• what we produce,
• how we produce it,
• how we organize and manage production,
• the location of productive activity,
• the infrastructure needed,
• the laws required concerning issues as property
  rights and permitted forms of business
  organisation.
• Since the mid-1990s ICT has been the engine of
  change and growth.

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General Purpose Technologies Go Through Phases

• When the GPT begins life, it is usually in a
  crude form that is only slowly improved and
  adapted.
• Later in its evolution, when it is becoming well
  developed, its efficiency rises quickly and its
  use rapidly and broadly proliferates.
• Eventually physical limits are approached,
  causing gains in efficiency to slow and adoption
  rates to slow as all available applications are
  used.

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GPT Transformations Drive Growth
Old Electro-Mechanical Technology System
New ICT System
Takeoff Installation Slowdown
Takeoff Installation Slowdown
1945-58 59-74 74-93
94-2000 2001-?- ??

Time
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We went from this

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To this.

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GPTs Have 3 Main Characteristics 1. They
undergo rapid price declines and
performance improvements.
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Moores Law Has Not Slowed Down (Transistor
Growth in Intel Computer Processor Chips)
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Moores Law Means that Computing Power is Almost
Free(Intel processing costs in per MIPS)
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GPTs Have 3 Main Characteristics 1. They
undergo rapid price declines and performance
improvements.
2. They are pervasive.
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Computing Used To Be Scarce

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Now IT is Everywhere(70 of computer chips
dont go into computers.)
The new John Deere Cotton Harvester

• GPS to show where it is.
• Microwave sensors to measure the flow of the
  cotton.
• RFID tag inserted into each bundle to let
  processors know precise origin of the bundle.
• Wireless data communications.
• The computing power of 8 PCs.

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Moores Law Created a Revolution
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Manufacturing Shipments Share by E-Commerce
(2005)
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GPTs Have 3 Main Characteristics 1. They
undergo rapid price declines and
performance improvements.
2. They are pervasive.
3. They make it easy to invent and produce new
products, processes and business models.
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IT Underpins Innovation

• Business models Wal-Marts supply chain
  Amazons long tail iTunes and the decline bricks
  and mortar music stores etc.

• Processes self-service mass customization
• supply-chain integration collaborative
  design etc.

• Products/Services hybrid cars transportation
• telematics human genome etc.

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IT Enables Mass Customization

• Firms using more IT have greater product variety
  (Gao and Hitt, 2004).
• Number of vehicle models doubled from 1970s to
  today.
• Number of food, beverage and health and beauty
  aids introduced yearly doubled from 1990 to
  today.
• Examples
• Dell "build-to-order" model.
• Architectural Skylight Company uses CAD to
  automate the production of windows to architects'
  specifications.
• Life cycle time of consumers goods fell by half
  from 1992 2002.
• 35 of total revenues come from new products in
  2007, up from 21 in 1998 (Deloitte Research).

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IT and the Productivity Turnaround
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ICT Drives Productivity Growth(U.S. annual labor
productivity growth)
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Productivity Turnaround Has Been Powered by IT

• Oliner and Sichel found that the use and
  production of computers were responsible for 0.92
  percentage points of the 0.89 percentage point
  increase in labor productivity growth rates
  between 96-2001 and 91-95.
• The OECD found that IT (production and use) was
  responsible for 109 percent of the growth in
  labor productivity from 1996 to 2002.
• Similar effects in nations like Australia,
  Canada, Finland, France, Finland, Germany, Korea,
  Japan, the Netherlands and Switzerland.

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IT Boosts Manufacturing Productivity

• The higher the rate of non-managers using
  computers the higher the plant productivity
  (Black and Lynch, 2000).
• Use of computer networks boosts productivity 7.5
  percent (Atrosic and Nguyen, 2005).
• Plants running sophisticated software to
  integrate multiple processes have significantly
  higher productivity (Atrosic and Nguyen, 2006.)
• Greater use of IT in the valve industry was
  associated with higher productivity (Bartel,
  Ichnowski, and Shaw, 2005).
• IT use in manufacturing had bigger impact on
  productivity in 2nd half of 1990s than in period
  1973 to 1995 (Clayton and Goodridge, 2004).

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IT Does MatterIT Adoption is Correlated with
Higher Firm Productivity and Profits

• On average, for every dollar invested in IT,
  market valuation of a firm rises by over 10
  (Brynjolfsson, Hitt, and Yang, 2002).

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But Its Not Just What You Invest, Its How You
Invest and What You Do With IT

• U.S. firms in the UK get 3 times more
  productivity benefit from IT than do similar UK
  firms. And over 80 percent of this advantage is
  related to better use of IT.
• U.S. firms had more flexible HR policies.
• U.S. firms devolved more IT authority to lower
  levels.

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IT Seems To Be Super Capital With Larger
Impacts On Productivity Than Other Capital

• Picks off the low hanging fruit of relatively
  easy to improve efficiencies.

• Enables companies to fundamentally reengineer
• processes.

• Has network externalities, where increasing
  the
• size of a network makes all users better
  off.

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Better Use of IT Will be Central to the Health
of U.S. Manufacturing
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Manufacturing Jobs Are Down
Source Bureau of Labor Statistics
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In Part Because Manufacturing Productivity Is Up
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But Also Because the Trade Deficit Is Up
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As a Result, Manufacturing Output As a Percent of
GDP is Down
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Real Manufacturing Value Added as Share of GDP
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Real Manufacturing Value Added as Share of GDP
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The U.S. Cant Compete on the Price of Labor
Average Hourly Compensation of Manufacturing
Workers 2002, U.S.100 (21.11)
Source Monthly Labor Review, August 2005
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Costs For an Average 10 million Manufacturing
Plant U.S., North Carolina, and China
(Source Dan Luria, Industrial Technology
Institute)
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Digital Technologies and Intelligent Factories
Will Be a Key Part of the Solution
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Technology Opportunities

• Most mechanical tech opportunities are taken.
• Nanos opportunities are far in the future.
• IT opportunities are large and available now.

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Manufacturing is about Atoms and Bits

• A part is information.
• What its characteristics are is information.
• Where it is is information.
• What its condition is in information.

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But the Bits Are Stuck in Silos

• 1990s ERP to integrate data for the enterprise,
  but the plant floor was not the focus.

• 2000s Manufacturing plant level
• got more attention, but data is still
• in silos.
• Return on ERP systems can be increased by as
  much as 50 percent through integration with real
  time plant information systems. (Gartner)

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Manufacturing Invests Just 2 of Annual Revenues
On IT
Source Information Week, October 27, 2007
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And Its Growing Its IT Investments Slower Than
Most Other Sectors(share of companies who expect
07 IT spending to exceed 06)
Source Information Week October 27, 2007
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Benefits of Intelligent Manufacturing

• Cuts Cost
• Less set up time
• Reduced waste
• Less machine down time
• Reduced inventory
• Adds Value
• Real time supplier integration
• Quality management
• Increased product diversity

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Challenges and What Comes Next
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The IT-Engine Is Not Likely to Run Out of Gas
Anytime Soon

• The core technologies (memory, processors,
  storage, sensors, displays, and communication)
  continue to get better, faster, cheaper, and
  easier to use, enabling new applications to be
  introduced on a regular basis.
• Many sectors, including manufacturing have not
  fully tapped the potential of e-transformation.
• Application use is growing, by business and
  consumers and has not matured.

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Challenges for Government

• Standards
• Manufacturing RD
• Trade Policy
• SME Adoption
• Skilled IT Workers

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Rob Atkinson ratkinson_at_itif.org www.itif.org