Make Things Cheaper or The Wal-mart Effect

Make Things Cheaper or The Wal-mart Effect

I have been reading a good book that I highly recommend. Food Rules: An Eater’s Manual by Michael Pollan.

This short, concise book packs much thought and makes you also think. Here, for example, is rule 44 out of 64:

With food, as with so many things, you get what you pay for. There is also a trade-off between quality and quantity, and a person’s “food experience”—a meal’s duration or quotient of pleasure—does not necessarily correlate with the number of calories consumed. The American food system has for many years devoted its energies to increasing quantity and reducing price rather than to improving quality. There’s no escaping the fact that better food—measured by taste or nutritional quality (which often correspond)—costs more, because it has been grown or raised less intensively and with more care. Not everyone can afford to eat well in America, which is a literal shame, but most of us can: Americans spend less than 10 percent of their income on food, less than the citizens of any other nation. As the cost of food in America has declined, in terms of both price and the effort required to put it on the table, we have been eating much more (and spending more on health care). If you spend more for better food, you’ll probably eat less of it, and treat it with more care. And if that higher-quality food tastes better, you will need less of it to feel satisfied. Choose quality over quantity, food experience over mere calories. Or as grandmothers used to say, “Better to pay the grocer than the doctor.”

As with food, so with other things.

Pondering this section, I recalled the Wal-mart effect. Are you old enough to remember when Wal-mart’s message was “Made in America”?

Suddenly its message was “Low Prices”.

The low prices translated to “No Longer Made in America.” The company’s buyers forced supplier manufacturers to chase ever lower costs. How could you make stuff even cheaper? Quality meant nothing. Buying a brand name product at Wal-mart you received a completely different product than if you bought one directly from the manufacturer’s distribution channel.

The idea spread everywhere. And buyers didn’t always play fair, either.

Once many years ago, I was at a Starbucks in Mount Prospect, IL doing something on my Palm Pilot (told you it was a while ago). A guy beside me asked to see the stylus.

Turns out he owned a small manufacturing company in the area that had bid on manufacturing the stylus. He quoted according to the specs as low as he could go–pretty much just to keep the machines in his plant busy. They told him “do not change the specs.”

He examined my stylus from the finished product. It was made much more cheaply than the spec. The Chinese supplier convinced Palm to change the spec, cheapen the product, and got the sale. Probably for a profit.

Tells me a couple of things:

  1. Be wary chasing the low cost supplier and customer
  2. Don’t be afraid to suggest changing the specs in the quest for business

Oh, and buy the book and practice the “rules”.

Survey Sees 4th Industrial Revolution Moving From Buzz to Reality

Survey Sees 4th Industrial Revolution Moving From Buzz to Reality

The popular saying holds that the future is here just unevenly distributed. According to a survey released by PWC and The Manufacturing Institute, that thought is certainly true about the Fourth Industrial Revolution (which PwC labels 4IR but many others label Industry 4.0). This research confirms my observations that many manufacturers have projects at a variety of stages, while many others have adopted a wait-and-see attitude.

The report notes that fourth industrial revolution has been met with both enthusiasm and fence-sitting. While sentiments and experiences have been mixed, most business leaders are now approaching 4IR with a sense of measured optimism. Indeed, larger systemic changes are underway, including building pervasive digital operations that connect assets, developing connected products and managing new, real-time digital ties to customers via those products.

While manufacturers recognize the potential value of advanced technologies and digital innovation—particularly robotics, the Industrial Internet of Things (IIoT), cloud computing, advanced analytics, 3D printing, and virtual and augmented reality—they are still deliberating how and where to invest and balancing the hype with their own level of preparedness. Meanwhile, they’re also well aware of the significant changes 4IR will bring to a new manufacturing workforce—that is, one that is increasingly symbiotic and increasingly beneficial for many workers and manufacturers alike.

This narrative is reflected in a new survey of US-based manufacturers carried out by PwC and The Manufacturing Institute, the workforce and thought leadership arm of the National Association of Manufacturers. We see a definitive—and, indeed, inevitable—shift to 4IR as companies seek to integrate new technologies into their operations, supply chain, and product portfolio. At the same time, they acknowledge that scaling, justifying 4IR investments, and dealing with uncertainty surrounding use cases and applications usher in a new set of challenges.

Some key survey findings include:
• While the sector as a whole is making assertive forays into 4IR, many manufacturers still inhabit the awareness and pilot phases. Nearly half of manufacturers surveyed reported that they are in the early stages of a smart factory transition (awareness, experimental, and early adoption phases).
• Manufacturers do expect the transition to accelerate in the coming years—73% are planning to increase their investment in smart factory technology over the next year.
• While we see a number of fence-sitters, the bulk of manufacturers are indeed prioritizing 4IR, the digital ecosystem, and emerging technologies. 31% report that adopting an IoT strategy in their operations is “extremely critical” while 40% report that it’s “moderately critical.”
• About 70% of manufacturers say the biggest impacts of robotics on the workforce in the next five years will be an increased need for talent to manage in a more automated, flexible production environment and the opening of new jobs to engineer robotics and their operating systems.

…While adopters have identified clear signs of success. Though most manufacturers are still climbing the 4IR adoption curve—albeit at different speeds—those that have made progress are reporting a modicum of performance boosts measured by productivity gains, reduced labor costs, new revenue streams from IoT-connected products and services, as well as improved workforce retention and worker safety. Those that have effectively defined their use cases with a focus on outcomes rather than technology are seeing early wins, and are looking for ways to generate even more value.

The Takeaway
Manufacturers are seeking to balance 4IR hype and reality. And most acknowledge that sitting back and waiting for the inevitable may not be an option.

The road may be longer than the hype would have companies believe, but preparing for and embracing change is a muscle many of today’s manufacturers are ready to flex. Those that can build on their ad hoc pilots and prioritize investments and strategies with their long-term desired business outcomes will be better positioned to create lasting value for their organization.

Government versus Business

Government versus Business

I saw this note in today’s Espresso from The Economist, “France’s finance minister pledged to save jobs under threat at General Electric’s plant in the country’s north-east. The American industrial conglomerate, which made a loss of $23bn last year, had said it would cut around 1,000 jobs. Earlier this year GE paid France a €50m ($56m) fine for failing to create jobs after it took over Alstom’s energy business.”

Meanwhile in the US, officials are taking a second look at the results of Foxconn’s supposed multi-billion dollar investments. Politicians made great PR hay in 2017 with the announcement of a large investment in Wisconsin. Two years down the road, maybe the investment may not be so large and the employment a few thousand shy.

Governments can preach and give breaks and whatever, but market forces and bad management mean much more than governments for success. Take Alstom, for example. Perhaps there is French pride involved, but GE discovered that that particular acquisition was not all that it hoped for. One of a string of GE missteps. The French government can fine all it wants, but job creation depends upon good management and proper economic tailwinds.

I recently reported on the “success” of re-shoring manufacturing jobs, as the Reshoring Initiative would have it. Most likely it’s a result of financial analysts taking a closer look at supposed savings from only low wages discovering that other costs, such as logistics, insurance, loss of intellectual property, longer lead times, inability to quickly respond to changing markets all combined to make manufacturing offshore unappealing.

Most of the ills of manufacturing society I read about have a common root cause—less than competent management. I don’t see any quick fixes for that! And it won’t come from government fines generated by disappointment at lack of political gain.

Effects of Industry Consolidation

Effects of Industry Consolidation

I just received my Spectrum invoice for the month. It was up 15% over last month. Last month it was up 10% over the month before. I called. The guy told me, yes, and it will increase another 15% next year.

However, if I were a new customer, I’d receive a 30% discount. I said, if I quit and come back, then I’d reduce my bill. But, I’d have to go 30 days without cable. I said, that must be why I’m seeing so many signs popping up all over my neighborhood proclaiming a switch from Spectrum to the only competitor in town.

The cable TV business is tough these days. Therefore, consolidation is not surprising. Spectrum (Century) acquired Time Warner Cable. So, they raise rates to pay for the acquisition. In the end, consolidation does not benefit the customer with lower costs.

Unfortunately for them, there is another alternative. I can keep the Internet cable connection, which isn’t bad, and drop the phone (who needs “land line” anymore anyway) and drop TV. Most of what we watch we can stream over Amazon Prime and Netflix. I just have to discover where to get my soccer fix.

The reason I relate this story involves treating it like a fable—a story with a moral.

I also see much consolidation in the controls and automation market. This is inevitable. It reveals the state of maturity of the market. I used to earn some money consulting with companies about potential acquisitions in industrial instrumentation, control, and automation. The deals have been done. I haven’t had an inquiry for a year.

Check out how ABB, Emerson, and Schneider Electric are all growing through acquisition becoming more viable all-around competitors to Siemens. Look at how the stock prices of Emerson and Rockwell Automation shot up last fall when Emerson was pursuing an acquisition. Rockwell’s board turned down the offer and both stocks dropped. But both stocks have been on quite a rise for the past few weeks. One wonders? That combination would really shake things up.

I have no inside knowledge, and I’m definitely not telling you to rush out and buy stock. However, for all of you who are customers, I’d keep my eyes open and contacts updated.

Digital and Autonomous Highlight ABB Strategy

Digital and Autonomous Highlight ABB Strategy

It starts with digital then moving toward autonomous processes. I’ve written about the strategy ABB has followed for the past four years since Ulrich Spiesshofer assumed the CEO post. We can summarize much of the strategy and also technology roadmap from those two words.

Spiesshofer brought in Guido Jouret in 2017 from Cisco for the role of Chief Digital Officer with the task of bringing digital to all business units. He has made a lot of progress in this short period of time.

Jouret elaborated, “We aren’t trying to be a software company, but hardware requires software.”

Kevin Kosisko, business unit managing director power generation & water, industrial automation and my interview about all things digital at the ABB Customer World conference. We talked about what autonomous meant. “Things we can do without sending people,” he told me. “For example, consider an oil platform taking the first step toward autonomous. Say they must take down a well for routine inspections and then bring it back up. It’s a difficult task, not to mention danger of flying crew to platform and being in the environment. So a combination of digital + autonomous to remove as much human intervention as possible. They took 2 days out of the entire process. That’s 2 additional days of production.”

Two things he told me that highlighted themes I would hear later. The first as “autonomous” being toward the end of a continuum going beyond preventive and predictive. Second, to use the digital twin model to help operators and engineers remove manual steps from a process.

Later I found a spot at the back of a full house for a panel on autonomous—The Journey Towards Autonomy in Industrial Operations Panelists were:

  • Matthias Roese, Chief Technologist Manufacturing & Automotive, HPE
  • Hakon Berg, Technology Development Manager, ABB
  • Dr. Zied Ouertani, Global Digital Lead, Chemicals, ABB
  • David Funderberg, Technology Manager, Chemical and Refining, ABB

Businesses in the industrial space have undergone a paradigm shift to move from isolated operations to collaborative and ultimately more autonomous operations. By 2025 we will witness humans working with systems in a collaborative way, leveraging artificial intelligence (AI) seamlessly. Disruptive technologies like AI, machine learning and augmented reality (AR) have all changed the way we do everyday tasks and in some cases made them autonomous. Hands-free collaboration can help repair remote issues or predict plant incidents.

The goal does not include taking humans out of the loop. I’m afraid I instigated a post-panel discussion where an editor argued that very definition of autonomous is “without humans”. So, he was asking the usual question you get from newspaper reporters and politicians—are they doing away with humans in production and manufacturing. Rebuttal came from one of the panelists who suggested he look at autonomous as part of a continuum, e.g., preventive->predictive->prescriptive->self-healing->operates with minimal supervision. This is applicable probably not to an entire plant, but to certain processes.

Digital

Guido Jouret spoke later on the status of digital at ABB following two years into his digital transformation leadership. He said the digital emphasis has led to more interactions with customers. And there are 185% 18.5% more customers year over year. ABB gets invited at earlier stages of the project process allowing it more input and influence. The company also has better C-level conversations with customers. ABB Ability should be considered a new technology platform.

ABB Reveals Future Course at ABB Customer World

ABB Reveals Future Course at ABB Customer World

ABB Customer World began Monday, but keynotes began Tuesday. Uli Spiesshofer, ABB CEO, described a renewed and refocused business model. ABB is all in for the Fourth Industrial Revolution and digitalization with ABB Ability, says Spiesshofer.

ABB Ability is essentially a platform with APIs connecting field, edge, and cloud with Analytics as a Service built in.

Spiesshofer noted 2014 business plan for ABB was to No. 1 or 2 in the world in each of its businesses. With move of power grid business with Hitachi, by 2018 the goal had been accomplished.

ABB took three action steps in its latest corporate makeover—Focus on digital business, Simplify organization, and Shape four leading businesses that include power, electrification, industrial automation, motion, robotics and discrete automation. The simplified organization took the company from its historic matrix structure to solidify four business units with strong leadership. The move also reduced corporate overhead.

The recent partnership with Dassault adds digital twin capability enhancing digitalization. Later discussions talked about how this capability helps ABB have customer conversations earlier in the project lifecycle.

The featured partnership at ABB Customer World was with HPE with President and CEO Anthony Neri speaking. Neri says HPE is built with partnerships—some 70% of the business. He told the approximately 11,000 attendees that the partnership of the two companies was a great blending of IT and OT for the benefit of customers.

Neri discussed the importance of Edge to Cloud. The Edge defined as “places where we live and work” is also the primary source of data only 6% of which is utilized right now.

He concluded saying HPE wants to work for solutions to the world’s biggest problems. “We have an insatiable desire to understand everything.”