A New Advanced Manufacturing System Is Emerging - Are American Businesses Going to Miss It?
New technologies are transforming advanced manufacturing, but American businesses may be stuck in the past.
A new dawn of advanced manufacturing is here because of technological advancement. But when we envision these new technologies in manufacturing plants, we draw narrow conclusions about their impact. We imagine mass production, which can be made bigger and more efficient. These ideas resemble only our past experience with manufacturing.
Most people think about manufacturing as a long process of transforming raw materials into products by going through stages of fabrication, assembly, and distribution. In America, even our most modern view of manufacturing is of a process performed in faraway low-cost countries. We believe that American companies are innovators who know better than to manufacture themselves.
As we've discussed before - this thinking is outdated. Markets have evolved because of new technologies, and a modern advanced manufacturing system is emerging. America could capitalize on this. To do so, we need to understand the modern economy and how it is changing.
Masses of Markets
The Industrial Revolution enabled corporations to mass market products through mechanization and automation. The United States perfected the mass production system after World War II and dominated the global economy as a result.
Brands made billions of widgets in low-cost factories. Then they distributed those widgets to customers through high-volume distribution channels – big retailers, large hospitals – and so on. Billion-dollar blockbuster products dominated business strategies, whether it was toilet paper or pharmaceuticals.
Corporations were able to profit from stable demand, long production runs, and long product lifecycles. These product-centric companies competed through scale and were optimized by increasing efficiency and reducing costs.
During this period, low-fit (one-size-fits-all) products dominated the landscape because access to smaller customer populations with higher-fit (personalized) products simply wasn't efficient. But today, the barriers to reaching smaller groups of customers no longer exist. Anyone can sell a product through eBay, Amazon, or Etsy and reach a customer practically anywhere.
This access to customers has removed a significant barrier to entry and allowed more brands to enter markets. These brands may not be able to compete with entrenched efficiency and scale, but they can compete with higher-fit products. So much so that they can disrupt a Fortune 500 company. Today, the battleground for brands is through high-fit products.
This has increased competition and fragmented markets into smaller segments. As a result, we live with masses of markets where consumers are fragmented with incredible granularity. The increase in the number of competitive products in the market has also shortened product lifecycles.
Brands now have less volume (fragmented markets are smaller) and less time (product lifecycles are shorter) to produce returns on their investments. This puts incredible pressure on new product development and scale-up. To succeed in this environment, businesses need a new way to capture value.
Customer-Centric Value Capture
The new value capture model must be customized and efficient. To accomplish this, brands need deep customer insights, agility in product development, and speed to market. Brands no longer have the luxury of earning customer loyalty over time with a single product. They must build customer loyalty with multiple products and services in a constantly shifting landscape.
Brands need a customer-centric value capture model that focuses on how many products they can sell to a particular customer - over the customer's lifetime. This business model is optimized by increasing the lifetime value of each customer and reducing customer churn.
This represents a shift from transaction-based revenue to lifecycle-based revenue. Most of us would easily recognize this, as consumers, by the increased number of subscriptions we pay today for products and services. Brands want a longer and more personalized relationship with us.
This has enormous implications on how we structure businesses and develop product portfolios. In Life Sciences, organizations are shifting their focus to the "personal health ecosystem." Brands aim to build direct, long-term, patient-brand relationships.
In this context, a biotechnology company may find value in developing products that go beyond only treating the symptoms of a disease with drugs. They may develop products that can predict, prevent, and diagnose – before a patient ever becomes sick. And, of course, charge a reoccurring subscription fee for some of those things.
In parallel to these changes, the ability to develop and manufacture high-fit products is now moving up the chain from low technology products to high technology products. The convergence of many new technologies enables this.
In the Medical Device industry, this is enabled by new technologies in advanced materials, flexible hybrid electronics, advanced sensors, miniaturization, 3D printing, and robotics. These technologies provide an incredibly diverse array of possibilities for Medical Device innovation.
In the Biotechnology industry, this is enabled by advances in molecular biology and genomics which together have opened the door to personalized medicine. Today, these therapies are still in their infancy. They are mainly used to treat late-stage patients who are severely ill and have limited other options. However, soon these medicines will be predictive and curative.
Dr. Michael Chiu on scaling patient-centric manufacturing.
The New Advanced Manufacturing System
These new market dynamics and enabling technologies are causing a dramatic expansion of product portfolios in size and diversity across high technology segments of the economy – such as drugs built to match your genetics.
The key success factors of Industry 4.0 are not the same as the Industrial Revolution. Increasing efficiency, reducing waste, and decreasing costs will not win the day alone. Organizations still need efficiency to succeed, but they need them inside dynamic, fragmented markets.
To capitalize on this, the trends we have seen in manufacturing for the past four or five decades towards bulk and distant locales will need to become more distributed and responsive. Organizations need the agility to identify opportunities, develop critical functionality, and pursue new markets rapidly. Think Moderna and their COVID vaccine. Moderna didn't get lucky. They were building a modern, adaptable manufacturing platform from the start.
Brands can't rely on large stable customer populations and the creation of barriers to entry through scale. Instead, brands will need to build the capacity for organizational responsiveness amidst a constantly shifting environment.
The bold long-term vision for Advanced Manufacturing is a movement towards distributed small-batch manufacturing complemented by peer-to-peer logistics. This will be carried out by organizations that can deliver rapid innovation through multidisciplinary product development teams and diversified scale-up capabilities.
Revenue and margin will be enhanced by repeatedly elongating the customer lifecycle with new innovative products. Elongating the product lifecycle with scale, efficiency, and low costs will hold less water. The proximity of manufacturing and customers will matter. Manufacturing footprints will change entirely.
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