MT Magazine May/June 2022

FEATURE STORY

JOB SHOPS ISSUE

16

for manufacturing to be close to the consumption point of the product.” This is not just something for large operations but even for Tier 2 and Tier 3 suppliers to major corporations. A key factor that this provides, Bergstrom says, is resiliency – to which smart manufacturing can contribute. In recent years, the sourcing decisions of many manufacturing companies were largely predicated on labor arbitrage: where the lowest cost can be achieved. This is why there are so many components and products shipped from Asia. Does Bergstrom think U.S. operations can be as competitive as those in places like Southeast Asia? “I absolutely do.” He adds: “You have to define ‘competitive’ differently.” Beyond Per-Unit Cost Bergstrom says that “competitive” was historically defined as the “per-unit cost.” “That is the wrong definition. If that is your definition, then it is likely your products are sitting in 40-foot containers off of Long Beach right now.” Yes, he says, cost is an important factor. But there is the resiliency factor, too: “You have to look across your supply portfolio. What are the choices you can make to assure a certain service level at a certain cost?” Let’s take the proverbial widget. Let’s say it can be produced in a country like Vietnam for 3 cents and 10 cents in North America. Historically, the decision would be made to have all the widgets produced in Vietnam. But let’s say that because of the deployment of smart manufacturing technology, an operation that is either based in North America or near-shore can produce the widget for 5 cents. So, Bergstrom says that a company can build a portfolio with half its widget supply based in Vietnam and the other half from a domestic or near-domestic operation. “Now you have a resilient supply of product at 4 cents rather than 3 cents. You may be taking a cost hit, but you’re doing it in a way that probably quadruples your resilience to market shock.” He adds: “I would say it only works if you’re paired up with smart manufacturing.” New Tech for New Tech According to the American Automotive Policy Council (AAPC), “automakers and their suppliers are America’s largest manufacturing sector, responsible for 3% of America’s GDP. No

other manufacturing sector generates as many American jobs. Not only are they America’s largest exporters, they also buy hundreds of billions of dollars worth of American steel, glass, rubber, iron, and semiconductors each year.” Which means U.S.-based automakers and suppliers make a lot of products and buy a lot of products to make those utility vehicles, trucks, and cars. Presently, GM is investing $35 billion in the development of electric and autonomous vehicles. It started the spend in 2020 and will complete by 2025. Ford recently announced that it is spending $50 billion on electric and other vehicle technologies by 2026. Those AAPC stats didn’t take numbers like these into account because this is a space that is changing rapidly. The point is that there are hundreds of suppliers that are going to be affected by this transition from 100% internal combustion engines (ICEs) to propulsion systems that are either all-electric or significantly electrified (i.e., hybrids). So, what happens to one’s business if it has been 100% dependent on ICEs? It is significantly downsized – or completely downsized – unless there is a transition to producing something else. Bergstrom points out: “Depending on how close the new product is to the one you’re making, you do have more agility with the smart factory.” Having advanced tech in place and an upskilled workforce won’t mean the transition to producing for the electrified auto industry will be easy – but it will mean that it will be easier than it would be otherwise. Time Compression To pull the focus out to encompass other industries, Bergstrom says that they’re seeing a compression in the amount of time that companies are taking to transition to smart manufacturing – regardless of the size of the company. “There used to be a large amount of time between early adopters and call it your ‘second tranche’ of followers. That’s no longer happening.” He adds, pointedly, “The lion’s share in tranche two or three have had their time compressed – they can’t afford to wait. The pandemic has driven a lot of this, and a lot of it is about supply chain. “They’re having to really accelerate their thoughts about digitizing operations in order to be successful.” He sums it quite succinctly: “Time is of the essence to compete and be successful.”

If you have any questions about this informat ion, please contact Gary at vasilash@gmail.com.