Manufacturing as a Service

February 6, 2017

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February 6, 2017 – I am in Costa Rica right now and have been here for the last 10 days, so you’ll have to forgive me for not writing new postings about technology and innovation. But this sabbatical from writing has allowed me to do some thinking about the effort by President Donald Trump to try and restore manufacturing jobs in the United States. Trump’s approach has been a combination of public shaming, intimidation, and persuasion. What he calls doing deals. So far a planned Ford assembly plant in Mexico has been canceled, a Courier outsourcing of manufacturing to Mexico has been forestalled, and various high-tech manufacturers have held meetings with the President and his team to discuss the new America First strategy.

What this fundamentally ignores is the changes that have occurred to manufacturing in the latter part of the 20th and first two decades of the 21st century. Manufacturers are no longer fully-integrated vertical industries controlling every aspect of production and distribution. Instead, they have become a multi-faceted, parceling out to third parties much of the processes involved in creating products.

A good example can be found in the automotive industry where hundreds of suppliers build the components that go into a mass-produced vehicle. Even on the assembly floor, a third-party may be used to bring supplier parts to the point on the production line as needed. In a recent edition of The Economist, an article entitled, They Don’t Make ‘Em Like That Anymore, describes how the car manufacturer of Jaguar, Tata Group, uses DHL, better known as an international courier, to be the logistical mover of supplier products on the assembly line.

What exactly do 21st-century employees of manufacturers actually do these days? More research and development, design, and post-production jobs such as marketing and product distribution. That’s why industrial manufacturing jobs are never likely to return in any kind of volume to the automotive industry in this century unless the entire idea of manufacturing is transformed anew.

One potential change to manufacturing businesses may come about because of the rise of autonomous vehicles. Who will own them? Will it be the manufacturer, fleet companies like Hertz and Avis, or individual consumers? Will the manufacturers, in fact, become service providers, owning the products they produce and providing them as a service?

Today Rolls Royce is changing its manufacturing model from being a builder of jet engines for airplane manufacturers, to a service provider who delivers an end-to-end package that includes the engines, their servicing, and replacement.

Imagine the implications of this new paradigm when manufacturers build autonomous vehicles. General Motors, Ford, Mercedes-Benz, Toyota, and others, as they adopt the technology that will no longer require individual families to own cars, particularly those living in urban settings, will need to adopt a service model. If not, these companies will likely fail or be acquired by businesses comfortable in making money based on services.

In cities, no one will need to buy an autonomous car. No one will need to lease an autonomous car unless they are a fleet operator. If the manufacturer chooses they won’t need a buyer at all. They will build and operate fleets of vehicles that will be available on demand for consumers.

Threatening, cajoling, and shaming these companies may be the current strategy of the sitting President. But he will soon be made to realize that the times, “they are a changing,” and manufacturing jobs are no longer about assembling widgets, cars, smart phones or anything else in the 21st century.