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Labor productivity, automation, and the case for digital manufacturing

Supply chains are vast and complex. With the need for semi-conductors and rare earth metals, and the country’s deep consumer markets, the likelihood of reducing economic dependence on China seems unlikely. But as labor costs in the People’s Republic have increased, manufacturers are searching for the next fruitful labor market.

The Economist recently pointed to “Altasia” – a pan-Asian alternative supply chain – as a potential threat to Chinese manufacturing. For example, Foxconn is reportedly investing $700 Million in a 300-acre plant in southern India as a push to diversify its production. At Foxconn’s scale, any reduction in cost can be a massive boon to their bottom line. However, companies like Foxconn are well ahead of the curve. In 2016, the manufacturer reduced a single factory’s workforce by more than half by introducing robotic automation in that plant. For Foxconn, a 20% reduction in headcount and a 6.7% reduction in the number of operators since 2020 has paralleled an almost 13% increase in operating revenues.

For North American manufacturing to compete with China and Altasia, plants need to multiply the productivity of the average worker just like Foxconn and other high-tech manufacturers have. Capital investments in operational technologies, supply chain visibility, and production automation can push the boundary of productivity.

Based on our research, only a few industries in the United States have had significant productivity gains over the last decade. Labor productivity has stayed stagnant in industries like automotive manufacturing, food manufacturing, and computer and electronics products. The outliers in the supply chain – industries like heavy mining and wholesale distribution – have made significant investments in advanced technology capabilities, both operational and informational, that have made the individual worker more than 10% more productive since 2012.

To compete and make reshoring viable, North American manufacturers need to outpace the rest of the world in digital innovations that increase labor productivity exponentially in a market with ever increasing labor costs. While advancements in large-scale systems like ERP, MES, and SCM systems are table stakes, strategic and practical digital investments to create smarter factories and supply chains can make an immediate difference.

  • Don’t chase shiny objects. Digital transformations begin with digitization. Small, practical, and measurable projects with achievable business cases can be more impactful than sprawling, time-consuming digital investments in the short term. By targeting achievable goals, manufacturers can see immediate incremental returns on their digital transformation rather than waiting 18-24 month before realizing value.
  • Automate both OT and IT. Reducing manual tasks on the shop floor as well as in the back office are imperatives. Increasing the productivity of the individual employee starts with process automation on and off of the shop floor.
  • Connect the Shop Floor to Core IT. Data is abundant in every manufacturing plant, but the integration of OT data to IT systems still lags. Manufacturers can create quick productivity wins by connecting shop floor data to analytics platforms using IIOT.

North American manufacturers have an opportunity to gain traction on the global scale, an opportunity that relies on the expansion of digital manufacturing and smart factories. While large-scale technology investment is still needed, targeted and practical digital investments can provide intermediate and immediate productivity gains on and off the shop floor.

For North American manufacturing to compete with China and Altasia, plants need to multiply the productivity of the average worker

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