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Supply Chain News: Here Comes the Internet of Goods Part 2


MAPI Research Report Predicts Major Manufacturing Transformation - to the Benefit of the US and the Rust Belt

Oct. 31, 2018
SCDigest Editorial Staff

Two weeks ago, SCDigest covered a new report from MAPI, the Manufacturing Alliance, on the imperative for US manufacturers to digitize, and how doing so would dramatically change the face and prospects for domestic production. (See Here Comes the Internet of Goods.)

The report was written by Dr. Michael Mandel of the Progressive Policy Institute for MAPI, a research organization focused on manufacturing. He calls this a transition to an “internet of goods.”

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As a result of all this, Mandel says, could be a revitalization of US manufacturing, where the advantages of local trump the existing efficiencies of low cost offshore manufacturing.

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In part 1, we reported how Mandel believes that advances in distribution technology introduced by Amazon are changing the economic equation.

"A technology designed to sort and ship packages to consumers efficiently can give industrial businesses the ability to ship individual items directly to customers without going through distributors" – and that would be a game changer indeed.

Mandel also believes the combination of robotics and 3D printing will also change the equation to enable companies to efficiently fulfill small-batch or custom production runs without incurring heavy retooling costs.

"That greatly expands the types of business models that are possible," Mandel notes.

So after covering the imperative for making this digital transition, here in part 2 we'll look at Mandel's thoughts for how to get there.

3D printing is a key component, but to date has been limited in terms of materials that can be used, the time to produce a part, and the inability to scale to high volumes for both cost and time limitations.

However, Mandel says, new technologies are showing an increase in speed. For example, a company called Carbon, a startup with over $400 million in funding, has a proprietary technology that it laims goes up to 100 times faster than conventional 3D printing techniques.

As a result, Adidas is using Carbon fabricators to make midsoles for its new Futurecraft 4D line of athletic shoes. Other companies are also speeding up 3D printing, through either changes in technologies or changes in printing algorithms.

But even then, the question is are the new printers fast enough to compete with conventional manufacturing?

Oddly enough, Mandel says, it depends on the distribution system. The traditional distribution system operates best at the scale of containers, mass production, and warehouse inventory. Shipping customized goods directly to the final user in individual lots is inefficient, either slow or expensive, and should be avoided wherever possible, especially for low-cost parts. And 3D printing is unlikely ever to be fast enough to compete directly with mass production.

By contrast, a digitized distribution system – ala Amazon - makes the rapid shipping and delivery of individual customized items more efficient. That allows for a new business model where 3D printers can offer a customized product that is superior in some dimensions to mass production and able to be delivered quickly and cheaply.

Another key component of the Internet of Goods is the concept of a manufacturing platform. As seen in the digital world, platforms can be either open or proprietary. Startups can create them or anchored by large decentralized multinational manufacturers. Manufacturing platforms will host a variety of design, production, and distribution services, riding on the packet-switched network for moving goods and components. The key feature is that they provide a structured environment in which businesses and individual users can interact with each other.

The combination of digitized distribution, digitized production, and new manufacturing platforms - the Internet of Goods - allows the creation of new business models for manufacturing that are capable of expanding the market and changing the geography of production.

Just as the internet would not be possible without fast connections, the Internet of Goods would not be possible without digital distribution, Mandel says. Of course many commodity goods will still be mass-produced and shipped around the world. But the ability to easily move around goods and parts means that economies of scale in production are no longer quite so compelling. Instead, there will likely be a move towards pushing manufacturing to the edge, into local facilities that can easily engage in short production runs.

How fast will the shift happen, and how far will it go? It depends on the creation of new business models rather than the technology itself. Remember that no one knew how to monetize search until Google paired it with targeted advertising. Ecommerce didn't take off until Amazon realized that free two-day delivery was a big deal for consumers. When Steve Jobs and Apple created the first smartphone, no one knew that mobile applications and the App Store were going to be so important.

Keeping in mind the essential unpredictability of innovative business models, what might the future of manufacturing look like? One key is customization. US consumers are more ethnically and culturally diverse than in the past, and they have high expectations for quality, low prices, and variety.

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Some consumer products—such as clothing, shoes, and furniture—are substantially more comfortable if fitted to the individual. One can imagine a subscription plan where you are measured once, and then when you need a new piece of apparel, you order it online, and it's delivered the next day from a local manufacturing facility.

The same principle applies to industrial components. Parts can potentially be precisely tailored to the particular application and situation—say, a piece of HVAC equipment in a tight space –rather than constrained by the demands of mass production. Embracing this business model would require a substantial rethink of design, sourcing, and production, but the gains could be enormous.

Another key might be accelerated innovation and introduction. A company designing a new product can source the needed parts simultaneously from nearby local production facilities. Once the design is approved, then the new product can quickly go into production around the country with critical parts being sourced from one location and distributed through the ecommerce fulfillment network.

Another potential business model might be built around environmental sustainability. Mass production from a central location inherently imposes an extra burden on the environment due to added pollution from transportation. By some calculations, just one container ship can produce as much pollution as 50 million cars. Digitized local production could substantially reduce that environment burden.

Finally, one logical business model might be the franchising of local production facilities, similar to the franchising of restaurants or other businesses. The franchising company supplies the technical knowledge and materials through the manufacturing platform, while the franchiser makes the sales and operates the equipment.

As a result of all this, Mandel says, could be a revitalization of US manufacturing, where the advantages of local trump the existing efficiencies of low cost offshore manufacturing.

“The result will be a thickening network of small-batch and custom factories taking hold around the country,” Mandel concludes. “The new business models will give a sustained competitive advantage against foreign competitors, because who wants to buy a custom item from a supplier 10,000 miles away that will take two months to arrive? This will enable the US. to rebuild its industrial networks in areas like the Midwest and upstate New York.”

Can you see a digital revolution that transforms much of US manufacturing? Let us your thoughts at the Feedback section below or the link above to send an email.


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