Efficient Factory

There is an interesting parallel happening today with newspapers and the future of manufacturing. I saw this short report on CBS News Sunday Morning this last weekend while sipping my morning coffee. It’s done by “Fast Draw” a couple of guys that use simple drawings and animation to explain difficult concepts.

Newspapers began as highly distributed pamphlets in the time before the American Revolution; they went through a stage of consolidation and now are becoming a distributed model now that blogging is on the rise.

Click the Image to Play the Video

The strange thing is that no one saw the decline of modern newspapers happening, or at least they weren’t set to capitalize on the change.

To draw another parallel to revolutionary time is the vision of Thomas Jefferson. His ideal of America was a nation of small farmers. Each owning enough land to survive in essence he intended the freedom for individual Americans to be self sufficient growing what they needed and trading the rest.  The opportunity is trending toward the small nimble manufacturer that can take advantage of shorter production runs that are in lockstep with the increasing speed of change of consumer demand.

The pervasive pulse of information given to us by the internet is a destabilizing force for large entrenched organizations. But it is a windfall for those that see beyond these institutions and for the large firms that can adapt. It’s all about the information; the product is becoming secondary.

 Here’s to a nation of small manufacturers — lookout China.

Years ago when manufacturing was young, plants making the same thing were dispersed around the country. In time, the great change was a push to dominate the economies of scale of a process. The economies of scale that were deemed to be important were access to raw materials, access to labor and access to capital equipment.

A good example of the cyclical nature is the steel industry. Small regional or local factories followed the growth of the United States in the 1800’s. They sprang up where the materials and infrastructure existed. Sites such as Maramec Springs in Central Missouri where a supply of fresh water and iron ore existed. Transportation was difficult for the heavy end product and ample opportunities sprang up taking advantage of the growing demand in new areas provided the mechanism for distribution. The product was not easily distributed, but production was.

It was the latter half of that time when transportation infrastructure increases led by the railroad expansion created a demand for the product and improved the means for getting finished goods to the customer. The stage was set for concentration of production to create an advantage built by economies of scale.

This trend lasted for a good ling while until changes hit the economy in the 1970’s. It was the beginning of the end for big steel. Layoffs, plant closings, land a capacity utilization rate of 42% in 1982.

Then the 1990’s introduced a resurgence not based on “bigger is better” but a regional aspect. Where being more nimble, more flexible, and closer to the customer, were growing in importance. It was the rise of the mini mill, a technology scoffed at by big steel when it was offered to them, but embraced by a smaller company; Nucor.

The paradigm shift was like a bitter pill that Big Steel had to swallow. New technology along with flexible management practices allowed Nucor to leapfrog Big Steel in profitability.

So there we have it; an industry that started out as small regional producers that took advantage of growing markets. Then later became huge behemoths of centralized production capitalizing on economies of scale. Next the industry came crashing down under its own weight. The resurgence was led by a new technology as a distributed production structure rose in importance.

Connecting the dots there is a factor that is increasing in importance; Information. Big Steel’s downfall was their “bigness”. Pension and overhead cost liabilities along with loss of touch with the increasing flexibility required by their customers helped take them down. While the product is important the trends in manufacturing were driving production to be more flexible, LEAN, and nimble.

Now we are in a phase where the information about the product is arguably more important than the product itself. A distributed system with standardized information exchanges is an evolving way to get there.

Product life cycles are shorter and shorter with consumer tastes changing more and more rapidly. Capital intensive processes have to respond more rapidly and no longer have the luxury of long production runs to break even and become profitable. The thirst for real time effective information will be the way to keep manufacturing competitive. Today’s capital intensvive industries need to rely on information as a competitive advantage. Information needs to be centered around the product.