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Two hundred years ago, agriculture employed 90 percent of Ameri­cans, but today employs just 3 percent. Agriculture did not, however, go away. It became industrialized, which increased productivity and enabled a general economic shift toward manufacturing. In the present information revolution, manufacturing employment has dropped from 40 percent of the total U.S. workforce in 1950 to less than 15 percent today. Services now lead the economy. Again, manufacturing is not going away. It is becoming "informationalized." And these trends span Western Europe and Japan as well.

How will these trends affect manufacturing firms, particularly in the automotive, aerospace, high tech, and process/energy industries? Critical assets such as relationships with suppliers, customers, and em­ployees will edge out traditional owned assets as a core source of value for manufacturing firms. The rise in importance of such nonowned or connected assets will revolutionize manufacturing.

In this world of connected assets, innovation will greatly acceler­ate. A firm's main competitor will be the business life cycle itself. Rather than invest in a broad array of physical assets, manufacturing firms will outsource more production beyond the traditional factory to net­works of suppliers. Manufacturing firms will also harness information technologies throughout the value chain to enable real-time collabora­tion and innovation among customers, suppliers, and employees. Such strategies will not just reduce costs, they will allow firms to reach broader markets more rapidly and effectively than traditional manu­facturing allows.

Fifteen years ago, the general pattern of manufacturing in industri­alized countries was 20 percent produced outside the company, 20 per­cent produced outside the country. Today, those figures are closer to 80 percent produced out of company, 80 percent out of country. Clearly, we are rapidly entering this world of connected assets.

Two critical uncertainties, however, persist as to where the economy is heading. These center on connectivity and concentration. For con­nectivity, continued expansion of networks among customers, suppli­ers, and employees is expected, but issues of trust, reliability, and le­verage will need to be overcome within and between firms. To over­come such barriers, new incentive structures, third-party mediation, cross-investing, and contractual agreements are among the most prom­ising strategies.

From these two uncertainties emerged four alternative scenarios for the future of manufacturing to 2008, depicted in figure 1. Taken together, these four scenarios captured more than 90 percent of pos­sible future states, confirming the overall strength of this model. The most likely scenario is "Silicon Valley," a world of highly connected, highly dispersed firms. Next most likely is "Keiretsu," a world of highly connected, highly concentrated firms. Third is "Trench Warfare," wherein highly concentrated, highly unconnected firms predominate. And least likely is "Microbreweries," comprised of highly dispersed, highly unconnected firms. Note that the two most likely scenarios are in a connected world.

 

Our findings indicate that all four industries examined here are moving toward greater connectivity and greater dispersion by 2008. The automotive, aerospace, and process/energy industries are all today in an unconnected, concentrated world much like Trench Warfare, and are expected to be in a connected world by 2008, though with varying degrees of concentration. Only high tech, which largely drives the in­formation economy, is today in a highly connected, highly dispersed Silicon-Valley-like world and is expected to be even more connected and more dispersed by 2008.

The best strategies for each industry to pursue address the growing importance of connected assets. These strategies focus on

     customers by including them in real-time customization and by sub­
stantially increasing marketing investment to strengthen global brand
name

     suppliers by integrating them in manufacturing operations and new
product development and by investing in new processes to reduce
coordination costs

     new "informationalized" manufactured goods that bundle services
with products.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 12


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