(Originally posted on Dec 16, 2020 on the Drishti blog)
I recently reflected on what 2020 meant for Drishti. In this three-part miniseries, I’m examining trends and shifts in manufacturing that will have far-reaching implications throughout the industry at both a global and domestic level, starting at the macro-level.
Countries will trend toward regionalizing their supply chains
If 2020 taught us anything, it’s the importance of national self-sufficiency, driven by security concerns in a post-COVID-19 world. Personal protective equipment shortages exposed to governments around the globe the vulnerability of their populations. As challenging as it is, dealing with the novel coronavirus has been a bit of an equalizer — giving countries, big and small, rich and poor, the unexpected opportunity to rethink and redevelop their own local supply networks; to (re-)take control of manufacturing and distribution; to replace cost with self-sufficiency, resilience and responsiveness as the primary drivers of the optimization process.
In 2021 and beyond, manufacturers — prodded by their local governments — will begin to prioritize developing agreements with neighboring regions/countries and building hybrid (part onshore, part offshore) manufacturing models, where more actual production happens in-country (or in-region) versus being outsourced to low-cost, often distant countries.
For the last 50 years, the driving consideration in where to put a plant has been labor cost. That’s why countries like China, Indonesia, Bangladesh, Malaysia, India, etc. have had the majority of the new factories. A trend that periodically garners attention but has not gone anywhere in the face of lower labor costs is that of “reshoring” manufacturing to the local economies, including the U.S., to provide jobs and ensure supply, even during global disruption. COVID-19 together with a diminishing labor arbitrage opportunity might have finally given this trend legs.
It’s an important caveat that not everything will be moved within a country’s borders or regional vicinity. Nations will prioritize items that are paramount to their security, both in their physical (health, e.g. vaccines) and their economic (access to goods) security.
To that end, PPE, vehicle components, electronics and other high value items will likely migrate — back to the U.S. or its geographic “neighborhood” of Canada, Mexico, etc. Meanwhile, manufacturers of lower value, lesser differentiated items like toys and disposable goods will continue to prioritize low costs, and therefore production will remain in countries like China.
In a neighborhood scenario, the U.S. can coordinate with Canada and Mexico to get whatever it needs to manufacture products. For example, to build an airplane, maybe Mexico makes the engines and Canada makes the fuselage, while the U.S. manages final assembly — to the benefit of all three nations, giving them control over their ability to produce critical goods that are necessary for the country to function. Apply this model to groups of countries around the world and you have manufacturing neighborhoods!
To enable these “neighborhoods,” countries will need the infrastructure
So why haven’t plants been set up in these areas all along? Because there’s a fundamental lack of infrastructure — physical to move product and digital to move the corresponding information — that’s needed to make manufacturing possible. While the U.S. invested heavily in the intercontinental highway system in the 1950s, and China in high speed rail, ports and roads more recently, there are many countries that just don’t have the infrastructure.
On the digital front, while 5G is taking over parts of the world, it’s not clear when rural America — where many plants are — will have broadband access. In 2021, we’ll see the Biden administration called to make heavy investments in broadband infrastructure across the country.
The driving technology behind this shift: Video
I start with an assumption: local authorities, with sufficient motivation, will solve the physical infrastructure problems. After all, they’ve been doing it for years. I will therefore focus my attention on the digital infrastructure; specifically, the ability to move video around. Ultimately, video will become the technology that will become pivotal to manufacturing success, because it transcends language and cultural barriers, making remote plant access and rapid communication possible. Whatever digital investments are made, they must support video.
In many countries, manufacturing jobs aren’t common. People aren’t used to working in factories. Digitization enabled by companies like Drishti provides a language- and culturally agnostic way to train, disseminate standardized work and share best practices. We help simplify collaboration and information coordination, even in areas that were never outfitted for manufacturing. And in that sense, Drishti will play a key role in manufacturing moving forward.
Let’s revisit the earlier example of building an airplane in the U.S.-Canada-Mexico “neighborhood.” The engineering team in Huntsville, Ala. needs to make a process change to the engine line in Caborca, Mexico. The industrial engineers share video with the plant team that quickly and easily demonstrates the change, without the need for linguistic translation. Meanwhile, the fuselage plant in Dauphin, Manitoba — typically a three-hour drive from Winnipeg, which is a 10-hour, 2+ layover flight from Huntsville — can see the final assembly line in Huntsville remotely and advise on any issues or make design changes as needed to create a beautiful plane.
The side effect of neighborhood-centric manufacturing and distribution? Thriving local communities and, consequently, wealth distributed more equitably across the planet.
In part two, we’ll look more closely at what these shifts mean for manufacturing in the United States, and in part three, we’ll examine changes on the technology front that will have implications for manufacturing for years to come.
