[Last] Episode: What is changing in manufacturing

Usually when we refer to production, factories and industries, we all think about the production function. As we now an output is mainly made by Labor, Capital and Land. The way they combine together is called technology. As I reported in my previous posts technology is deeply changing. During the 20^th century technology had a lot of innovations. By thinking on processes we shifted from the mass production of the beginning of the century to lean production in the 1990s. Yet we needed a huge amount of capital, land and labor. Thus, companies moved from richer countries to poorer as the process of globalization gathered pace. Poorer countries allowed the same production level for less capital, land and labor costs. Costs not technology. Yes, the famous abroad outsourcing process wasn't a technological breakthrough. It was simply a movement, allowed by transport cost reduction and internet communication, from a high-cost place to a low-cost place. The technology of production didn’t change at all or so. But now something is changing. New production machines as 3D printing allows people to produce some products (even iPhone or car parts) directly at home (at $ 1,299 you can buy a 3D printer). Furthermore, people having ideas and no money now can go online and see their ideas produced and sold, and they gain 30% of the profit. I don’t know if this is a revolution but it seems to me. For sure is big change. Let’s see what and how is changing in production.

The figure of the entrepreneur and the role of capital in production could change. Henry Ford needed heaps of capital to build his colossal River Rouge factory; his modern equivalent can start with little besides a laptop and a hunger to invent.

The factory will change. The factory of the past was based on cranking out zillions of identical products: Ford famously said that car-buyers could have any colour they liked, as long as it was black. But the cost of producing much smaller batches of a wider variety, with each product tailored precisely to each customer's whims, is falling. The factory of the future will focus on mass customisation—and may look more like the 18th century weavers' cottages than Ford's assembly line.

The geography of supply chains will change. An engineer working in the middle of a desert who finds he lacks a certain tool no longer has to have it delivered from the nearest city. He can simply download the design and print it. The days when projects ground to a halt for want of a piece of kit, or when customers complained that they could no longer find spare parts for things they had bought, will one day seem quaint.

The role of labor in production will change. Labour costs are growing less and less important: a $499 first-generation iPad included only about $33 of manufacturing labour, of which the final assembly in China accounted for just $8. Offshore production is increasingly moving back to rich countries not because Chinese wages are rising, but because companies now want to be closer to their customers so that they can respond more quickly to changes in demand. And some products are so sophisticated that it helps to have the people who design them and the people who make them in the same place. The Boston Consulting Group reckons that in areas such as transport, computers, fabricated metals and machinery, 10-30% of the goods that America now imports from China could be made at home by 2020, boosting American output by $20 billion-55 billion a year.

Source: The Economist, Special Report on Manufacturing and Innovation, A third industrial revolution, April 21^st 2012.