Scale Means Nothing in the Internet of Manufacturing

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  • From left: Michael Chui, Mike Whitens, Mark Hatch, Jerry Foster, Raj Batra

    From left: Michael Chui, Mike Whitens, Mark Hatch, Jerry Foster, Raj Batra

  • Michael Chui, McKinsey & Company

    Michael Chui, McKinsey & Company

  • From left: Mike Whitens, Mark Hatch, Jerry Foster

    From left: Mike Whitens, Mark Hatch, Jerry Foster

  • Raj Batra, Siemens Digital Factory Division

    Raj Batra, Siemens Digital Factory Division

  • Mike Whitens, Ford

    Mike Whitens, Ford

  • Mark Hatch, TechShop

    Mark Hatch, TechShop

  • From left: Mike Whitens, Mark Hatch, Jerry Foster

    From left: Mike Whitens, Mark Hatch, Jerry Foster

  • Michael Chi, McKinsey & Company

    Michael Chi, McKinsey & Company

  • Mike Whitens, Ford

    Mike Whitens, Ford

  • Raj Batra, Siemens Digital Factory Division

    Raj Batra, Siemens Digital Factory Division

Panelists

Raj Batra
President, Siemens Digital Factory Division, U.S.

Jerry Foster
Chief Technology Officer, Plex Systems

Mark Hatch
CEO, TechShop

Mike Whitens
Director for Vehicle & Enterprise Sciences, Research and Advanced Engineering, Ford Motor Company

Moderator

Michael Chui
Partner, McKinsey Global Institute, McKinsey & Company


Session Description:
Molds. Presses. Smelters. Manufacturing was once the sole purview of those that could create, shape and assemble on a massive scale. Today, thanks to software, the cloud, builder collectives and more, scale means next to nothing. The Internet of manufacturing is here to stay, and with it, entire communities of new ideas and opportunities.

 

Chui: We have a lot to discuss here, obviously. David, thank you, and thanks to the Techonomy team, and thanks to the city of Detroit. Our panel is taking about what a terrific time to be in this city, for a number of reasons. We’re going to talk about a topic, as David introduced, which has been an important part of Detroit’s past. We’re going to talk about it and it’s manufacturing. It will be an important part of Detroit’s future, it will be an important part of the global economy’s future. When we’ve looked at manufacturing as part of the McKinsey Global Institute research globally, it’s only about %15 of the global economy, if you look at from a GPD standpoint, if you look at it from an employment standpoint. But it has an outsized amount of impact on things like exports, roughly 70% of exports. Roughly almost 80% of the world’s R&D is associated with manufacturing. And an increasing amount of the productivity growth also is related to manufacturing, so it has huge economic potential. And then, as we even did research on the Internet of Things—you know, as much as people talk about wearables and smart-home, etc. we found twice as much potential impact in B2B situations. And the setting in which the Internet of Things had the most impact was actually a factory setting. So this is clearly not just a topic for the history books, but really a topic for the future.

So, I want to allow each of our terrific panel to introduce themselves briefly, with a name and what you’re doing now. So, Mike, go ahead.

Whitens: Sure. I’m Mike Whitens, from Ford. I’m our Director of Vehicle and Enterprise Science.

Hatch: Mark Hatch, I’m the CEO of TechShop.

Foster: Jerry Foster, I’m the CTO of Plex Systems.

Batra: And I’m Raj Batra, I’m the President of Digital Factory for Siemens Corporation.

Chui: Terrific. Well, why don’t we—when we talked with each of you before this panel, what was interesting I think is, each of you sort of wanted to talk about the historical arc of how things have gone, how things have happened in manufacturing previously. So Jerry, why don’t we start with you? You know, when did you start? What did you start with? You had an interesting story about RS-232 cables in factories, very interesting.

Foster: Well, we talk about the Internet of Things often like it’s this new things, trying to connect things. But if you’re a manufacturer, you know that you’ve been connecting things as long as you can remember—and I got my start as a programmer in a forging company, just up the road in Oxford, Michigan. And one of the things that we did was, we would connect our CNC lathes to the central computer. And I had to swing this RS-232 cable through the ceiling to connect the lathe to the central computer, and that allowed us to automate uploading recipes, as opposed to the operator having to type in these recipes by hand, which is a very laborious process. So we would automate that. So I had to stretch this cable through the ceiling and down to the floor, and I remember I would get home and my wife would see all the grease and the oil and the graphite, and say, “I thought you were a programmer.” I’m like, “I am.” So, a great time doing that and connectivity has been part of manufacturing. It’s part of our DNA, connecting things, connecting machines, and automating, and getting the efficiencies, and cutting down, reducing costs as a result.

Chui: So, number one, what’s a CNC machine?

Foster: It does lathe work, it cuts material to specifications.

Chui: And number two, what’s different now? Now, you know, I don’t see any graphite on your hands right now.

Foster: What’s different in the industry? Or with me?

Chui: Both.

Foster: So, what’s different? I think we’ve just taken that connectivity and extrapolated it, and it’s now kind of on a hockey stick. So everything is becoming connected. Back then, everything had an RS-232 port, and now everything’s got a USB port or is API enabled. And so just about anything can be connected with the cloud and through the internet, and so we’re seeing that expand considerably, and the possibilities are endless. And so, we are providing a platform, so that when our customers come to us—because we can’t envision all of the things that people are going to want to connect. I mean, new things are happening every day, every week—so we’re trying to build platforms for ERP and for manufacturing systems that anybody can come to use and say, “We want to connect this machine, we want to connect this tool, we want to connect this Google Glass, we want to connect this to the shop floor”—and we can do that and provide that.

Chui: So, what is cloud, other than something we’re not seeing outside today? And what does it mean for manufacturing? Because, you know, people think of cloud as being some highfalutin, high tech thing.

Foster: Right, so what is cloud? For us, it’s just a platform for delivery and for innovation. People talking about cloud, “I gotta get to the cloud.” For us, we, at Plex Systems, we make manufacturing software. We have happy ERP customers, actually. And for us, being able to deliver that innovation is possible through the cloud. The cloud provides a platform for our customers to experience the innovation, because they don’t have to set up the infrastructure beforehand to make that happen. We provide that, we provide the infrastructure. And so, we go to a customer, and we say, “We have this new thing that we want to implement on the shop floor,” or they come to us and they say, “We have some ideas here,” and we can provide that without a lot of setup or infrastructure cost on their side. And the cloud enables that. It’s a delivery mechanism for us, to deliver that implementation and that innovation, real time.

Chui: So, this sounds like an awesome future, right? We just plug everything in that can be possibly connected, but, let me turn to Raj for a second. You know, we talked about an incredible future of manufacturing, but you have also said, look, let’s be realistic about where we are, particularly here in this country, with regard to the infrastructure we have in place. Can you talk a little more about where we are today, and the challenges we’ll have to overcome?

Batra: Well, you know, look. I mean, I’ve walked through thousands of factories in the States—and this is not just any one particular industry, but we talk about really an aging infrastructure here in the United States. You know, you talk about stats that will tell you that—this is even with big, progressive companies—stats that will tell you that we have the oldest, aging—

Chui: You’re not talking about us, right?

Batra: Well, no, I hope not. But, you know, we have the oldest, aging automation infrastructure since ’38, you know? That means that it’s not necessarily from 1938, but it’s the oldest since 1938, and I would argue that if you go into some factories, it probably is from 1938. So really old, really outdated—you simply can’t get productivity with a 286 computer, and that’s what it’s akin to. And think about this—I mean, if you think about what Jerry was talking about, RS-232. Think about how much patience—

Chui: What is that? What is RS-232?

Batra: It’s a serial bus, like a serial way to communicate, but it’s—I mean, just think about how much patience we had, to deal with those communication networks before. You wouldn’t even think about that today. So I would argue that we have to really address the aging infrastructure base, and so I would just make the statement that when it’s not in vogue to have your iPhone for more than 6 months, why is it okay to have an automation asset on the factory floor that’s 40 years old. That’s really at the end of its useful life. You know, somehow the manufacturing industry hasn’t caught up to what we see in consumer electronics and the consumer industry. I mean, it’s getting there, but there’s still a long way to go.

Chui: So, why not?

Batra: I think—well, I personally have some views on this, and I would say that somewhere it wasn’t strategic to the enterprise anymore. You know, we put a lot of CFOs on top of corporations, and you know, of course, Henry Ford wouldn’t be happy about this, because he started the Industrial Revolution 100 years ago, you know, and we were sort of the icon of the world when we produced the Model T. But you know, somewhere in the process—it was en vogue to outsource manufacturing. It was en vogue to get it off U.S. shores, and you know, we simply can’t make high technology, high-value goods, and innovate in environments where you don’t have manufacturing present. I mean, you have to have those two co-located.

Foster: Exactly, not only that. The auto industry, particularly, has been tightening the screws on these suppliers to drive out cost, to drive down cost, and to eliminate that cost. And so, if you’re a small manufacturer and you’re looking at your infrastructure, and you’re like, “I can patch this for this amount, or I can buy a new press for this many millions of dollars,” you’re going to try to eke that out as long as you can, and it’s caught up to us, now.

Chui: So Raj, what does this mean? What’s the future if this is the challenge?

Batra: Well look, I mean, I think today manufacturing is becoming much more strategic to the enterprise. So companies realize that it’s a creator of  jobs, it’s important to corporations, you know, and we’re using this now as a competitive weapon versus a necessary evil. You know, so before people had spreadsheets and said, “How many low-cost countries can I manufacture in?” And if you didn’t have the chart that said you were in X percentage of low-cost countries, you know, you really didn’t pass the litmus test of being a good executive or being a good CEO. And I think today we certainly won’t be the country that manufactures cotton shirts and produces cotton shirts. We certainly will be the country that is innovative in design, in visualization, in simulation. So these are all technologies today that the internet lets us bring to the manufacturing age, you know? The internet lets us connect devices. It lets us simulate—these are big, decisive advantages and I would say the biggest factor that manufacturing companies deal with right now is time to market. I mean, how fast can you get to market? It’s not about proprietary things, but it’s about getting to market quick. I mean, you have auto companies, you have aerospace companies, you have companies that just, simply the first guy out of the gate that gets there, gets this business. Because sooner or later, people are going to catch up. So time to market is the decisive advantage.

Chui: And what is it that’s causing this mindset shift for manufacturing to be a strategic thing rather than something the CFO should try to be cutting?

Batra: Well, I just think we have this $12 trillion dollar beast called the America consumer. And this consumer, you know, needs goods, needs services, you know, the utilization rates of factories are really high today. So even feeding our own domestic demand is really impressive, and the guys that are really good at what they do will get out to market quicker, you know, will have better efficiency, will lower their cost to produce products, will connect the design of a product to the manufacturability of a product. So these were sort of looked at in different spaces, previously. You know, the design guys worked on the design, the manufacturing guys worked on the manufacturing and somewhere in the middle you had the demilitarized zone, you know, then you tried to connect the floor to the IT organization. So I think this is starting to merge, and you can only get increments of productivity to automate a little more. You have to change the whole approach and look at this holistically.

Chui: So, Mike, you represent one of the leading manufacturers in this country and the world, to be frank. And I’d love to get your perspective on how things have changed over your career. Hilariously, I talked to one of your colleagues last night, who—I think he was a short-timer at Ford, only 35 years or something like that—and he remembers when they retired the last punch-card computer out of one of the plants. Can you explain? You’ve talked about an inflection point now, that’s happening.

Whitens: Well, I’m a new entry into Ford. I’ve been at Ford 28 years, so I’m in good shape. So essentially, when I started—when we talk about the war stories of how we started—we used to assemble when we were designing a vehicle, and we’d set up a master layout review. And I don’t know if any of you in the audience remember mylars. Well, what we used to do, if you took a door system, is you would overlay the detail drawings of each of those parts, hundreds of parts that make up a door system, and you’d all look at it, to find out if you had clearances and everything what proper. Then you’d invite your manufacturing counterpart over to try to look at it. Imagine trying to figure out something you didn’t design, actually give 3D feasibility and hand clearance. It was quite a challenge, and part of the issue with infrastructure is because we had those issues, we drove change downstream, which is Hughesian inefficiency. The way we’re set up today, just like Henry Ford did in the past. You saw Elizabeth Baron go through our five process last night, which is our Ford Innovation Immersion Lab—and essentially what we do, is take all of that digital data, and be able to look at it in real time, and put your headsest on and actually give feasibility. And what’s really been great within the company—we talk about the partnership with manufacturing and engineering and design, right? Well, historically what happens, the designers make a beautiful aesthetic model in the studio, and here comes Mike Whitens’ engineering, walking in and saying, “Well, wait a minute, it’s not feasible.” and when we get done, it’s square and ugly, and now it’s feasible. And that’s how we iterate it back and forth. Now we can immerse ourselves in the data with our manufacturing people, with design, and with engineering all in the same room digitally and also globally. The efficiency is massive, and where it’s really most efficient is for our downstream suppliers. Because when you take a look—and we’ve done studies on tooling—a significant amount of investment in churn, in the supply base is managing the late changes that come from us. So if we can leverage the cloud, leverage technology and this data, and eliminate those downstream changes, then our supply base all the way down through the tiers can work on efficiency in their facilities prior to job one, versus that 90-day launch curve after job one, because they’ve just gotten tools in place in time. So that’s the vision that we see and something that we’re starting to implement at Ford.

Chui: And why is this possible now? What are the things that are actually changing?

Whitens: Well, the significant access that we talked about, the cloud, the digital space, the memory and computing space, where we can actually put all this data together in one spot and share it simultaneously around the globe. Even five and six years ago, it wasn’t possible, the time delays that you would have to try and do it. So technology is changing so fast, and we’re truly at an inflection point in all areas of the business.

Chui: So, Mark, it’s great fun that you’re sitting next to Mike, right? Because if you think about the company that Mike—how many employees is it at the Ford Motor Company?

Whitens: A lot.

Chui: A lot.

[LAUGHTER]

Chui: I think it’s like 190,000 or something like that.

Whitens: Yeah, 190,000.

Chui: And then, Mark, you run this company that allows all kind of people to become manufacturers. Can you talk a little bit about what you do, and then what’s going on in the TechShops? What’s the technology now that allows people to do all kinds of things they haven’t been able to do?

Hatch: Sure. For those of you who may not know, TechShop is—we have eight locations across the U.S., including one sponsored by Ford up here in Dearborn. Each one is 20,000 square feet, and has every tool you need to make anything on the planet. Machine tools, woodworking, plastic, electronic, textiles—you name it, we’ve got it. We also teach classes on how to use it, and this is not your grandfather’s industrial revolution. Everything has changed. These tools are easy to use, incredibly powerful, and actually very cheap. And you combine that with the internet to get access to markets, you combine that with social media to get access to capital through Kickstarter and Indiegogo, and you combine that with the ease of use, which—you can actually learn how to use a tool in the next week to produce what it is that you want. Everything around innovation, I believe, has fundamentally changed in the last decade. That’s a slight overstatement, because you still need Fords and so forth, to do three years of research, but we’re having people come in and learn how to use a computer numerically controlled tool in a week, and then getting on a machine and making a product that they can imagine, and then getting it dropped shipped from somewhere else around the world—ship the designs off, and start bringing it in. And we have this inflection point where labor is no longer the arbitrage that it used to be. Energy is cheaper here than anywhere else in the world and automation is coming to machines that are actually incredibly cheap. And so the unit of production needed to have a competitive product that meets a particular consumer’s need in a customized way is more attainable today than it has ever been in all of human history. And our platform enables that.

Chui: Can you talk about, literally, some of the tools that somebody would have access to in a TechShop, and what they could do with them?

Hatch: Yeah, so we have a computer numerically controlled mill and lathe, and they used to be a quarter million dollars, a half a million dollars. We’re getting them drop shipped and installed for $17,000 bucks. Plus, we then resell it for $150 a month. So, our members, on average, are saving 97% of their hardware startup cost, in a lean way, by coming and leveraging our facility. What that means is the cost of failure is no longer $500,000 or a million. It’s $1,000 bucks, or $5,000 bucks. And when you quote/unquote “fail” for $1,000 bucks, I call that cheap learning. It actually costs less than a semester at a local junior college.

Chui: And so, what type of companies are—talk a little bit about who your clients are.

Hatch: Of course, we have lots of startups, you know—so Square, famously, came out of our Menlo Park location. So, the original design for the three prototypes—James McKelvey learned the skills he needed on-site, in a matter of weeks, to be able to build the prototype. He did not know how to use a mill, he did not know how to use a lathe, he had never done injection molding before, he actually wasn’t an electronics guy. He picked up all of the skills that he needed, leveraging the communities and online in our classes and within six weeks had enough skill set to build the original prototypes. And then went into the shop and actually built them and then launched the company. What’s important here is that they had pitched the venture capital community the idea. Jack Dorsey and James had gone into the Valley and had been turned down. Then James came in, learned the skills he needed, built the prototypes, went back to the community, and just asked for $50 bucks off each of them. Actually demonstrated the prototype—and here’s the difference: asking somebody to give you money outside of your domain with a PowerPoint slide, you will fail every time. Asking somebody to give you money when you can demonstrate the physical prototype functioning in their hand—it’s very difficult for even an engineer to say, “I don’t think it’s going to work,” when it’s working in your hand.

[LAUGHTER]

Whitens: Seems like a good insight.

Chui: Well, you know, Mark, that’s what the “Shark Tank” does.

Batra: I was just going to say that.

Hatch: Yeah, we’ve had a couple of “Shark Tank” successes—yeah, we had—I carry this one, because this is one of the examples, right? So, this is a simple iPad case made out of bamboo and bookbinding. Patrick Buckley came in and asked, “What classes do I need to take to learn how to use the tools to manufacture this in small quantities?” And it was Introduction to Computer Numerically Controlled Programming. That’s a three-hour class. Introduction to the machine. That’s another three-hour class. 20 hours of using software that’s, by the way, connected to the web so that you can do high-quality, very high resolution simulation and then bring it down to the computer—90 days later, he had sold a million dollars in product. He did 4 million in the first year, 10 million in the second, 35 million in the third, he now owns his own manufacturing facility in San Francisco producing these.

So, we now live in an era where you can pick up the skills that you need to be able to go to market in three months. I mean, I ran a Stage-Gated new project development process at a large manufacturing company, I couldn’t get the decision-makers in a room to make a decision to move into the first stage in less than three months. And now we have people who have gone through the entire process, basically for less money than my meetings, and actually launching companies. I mean, everything is fundamentally changed. We have a lot of assumptions that we go into manufacturing now that are simply no longer true. The tools are cheap, they’re easy to use, they’re incredibly powerful, and they’re coming back to the United States.

Foster: And they’re connected.

Hatch: Absolutely.

Chui: So, Jerry, I’m curious, right? I mean, we had a discussion before, and you said, “Everybody thinks this sexy thing is just like writing some App, and getting lots of downloads,” right? But you have a view that manufacturing actually might be more exciting than that, right? And I think Mark is illustrating that. I’d love to get your views on where you think, you know?

Foster: Yeah. I mean, I see manufacturing from the technology side, and it’s not just technology for technology’s sake. We have to deliver value to our customers, especially on the shop floor. And we do some exciting stuff with technology. We have a wearables program. We’re looking at augmented reality. I think Carl from AutoDesk earlier had talked about that, where Microsoft has the HoloLens product that we are looking at to really deliver some really cool functionality on the shop floor, that the workers can use. So, there’s a lot of exciting things, and we heard a little bit ago about this gap, this perception problem with manufacturing and the excitement there. And there’s so much, as Mark said, there’s so much cool stuff going on in the manufacturing space, I don’t think we’ve done a good job of communicating that. So, when someone says, “Do you want your little Johnny to grow up to be in manufacturing?” it’s usually, “No, I’m going to send him to liberal arts camp when he’s three, so he doesn’t have to do that.” But there’s so much cool stuff going on that we see, actually enabling the shop floor workers to wear these cool devices and improve their productivity, and do fun cool stuff while they’re doing it. But there’s a skill and perception level there that we have to continue to work on and increase, make it happen.

Chui: Yeah. And Raj, you had already mentioned this fact, that this integration of research, development, manufacturing, maybe even customer support and IT, in terms of the CIO role—how is that going to happen, right? Because if you look at a traditional organization, like you said, these people don’t talk to each other.

Batra: Yeah, you know, look—and I think these environments are certainly starting to merge. I mean, if you look at—and let’s just take the advancements that have occurred in the ERP environment, enterprise resource planning, where you see SAP, you see all the big systems. I mean, you just can’t—

Foster: Plex, another ERP company.

Batra: Yeah. You can’t get the five DVDs for SAP and decide to get rolling. You have to do a business process optimization, change your business processes, and fundamentally, when you talk about digitalizing manufacturing environments and when you talk especially about product design—because it’s a known quantity that 80% of manufacturing costs are predetermined in the product design phase. So if you don’t get the design right, you don’t get the manufacturability of that product right. And these were two very disparate environments before, so I think, just by virtue of digitalization—and the key there is to have a digital backbone. So you know, people say, “How do we go about doing it?” And I can tell you—first off, it’s very scalable. You know, I mean, people think that this is a billion-dollar project, when you’re getting into IOT and you’re getting into digitalization, and they just, you know, SAP hits them square in the head. They say, well, you know, “I’m a small company, I can never do this.” You know, and I think Mark just gave all the great examples of where usability is increasing, the tech savvy of the individual is increasing. And all these things really make a big, big difference when you talk about moving into the internet age, moving into the digitalized age, And I, again, really believe here that simulation is going to be the decisive advantage, because if you don’t have a manufacturing line, you don’t have a physical place to go test it out—I mean, how do you open your laptop up and simulate a product, look at how that product runs, look at what improvements you could make in the manufacturing process? You could all do this in a very virtual way, and so this technology—

Chui: What does that mean, yeah?

Batra: Well, this technology is bringing those environments together. You just won’t survive being isolated in the CIO environment, and the manufacturing guy being isolated in the manufacturing environment. I mean, this has to be an integrated whole.

Chui: So, what’s a virtual factory?

Batra: Well, look, you have a lot of great examples of customers and certainly, the auto industry is one of the pioneers in it, the aircraft industry. You know, I mean, they’re using advanced simulation technologies to model and build vehicles and figure out if these vehicles, you know, when you look at parts, you look at components, you look at aero-structures, you know, you look at how do you simulate the manufacturing line itself, to look at robot movements and travel. It’s another increment of efficiency when you’re able to simulate, and what happens there is, you cut the time to market. But to simulate, you have to digitalize. You have to have things on a digital backbone, and that’s the key. Just like you’re moving into—I mean, look at the camera environment. I mean, once you get everything in pixels and you get it all digitalized, you can do a lot with a photograph.

Hatch: In another step we’re partnering with Fujitsu on a range of projects, so I had an opportunity to see their manufacturing line, and they’re one of the few companies that explicitly chose not to chase cheap labor into Asia and India, and instead to invest in robotics lines, digitization, and modulization. So they’ve got, I think, some really interesting technology, where they’ve basically said, “We’re going to Lego-ize our phone manufacturing line, and by Lego-izing it, what that enables us to do”—and I’m using a term that they wouldn’t have used, but that’s how I described it. It’s like, okay, this one does screws. This one does this form of automation, this one does this, and now I’ve got a virtual chain where I can say, “Okay, I need this for this product, and I need this, and I need one of those, and I need one of these, and I need a human here, and here are the instructions they need to do, and here that.” And they can deploy this thing inside of weeks. And they can manufacture things, like 10,000 to 50,000 units, they can be profitable at. That is remarkable. And as you continue, okay, it’s like, we’re going to continue to automate that, and they’re looking to now, like a lot of folks, “Okay, can we make this regional? Can we make this local? Can we move this modulization concept,” because, by the way, these modules are no longer a million dollars each, they’re now $50,000 and soon they’ll be $10,000. So you’ll be able to assemble, in almost real time, the manufacturing components you need to make a very sophisticated device and be able to produce it in very low volumes. And that is really amazing, and it’s all enabled because of the software and digitization and cost.

Foster: And it’s coming to the point where machines optimize other machines. And we call that concept “cyber-physical”—so, cyber-physical, autonomous production. So, if you go in—there are some state-of-the-art manufacturing facilities. I mean, we have, you know, 300 plants, almost 300 plants in Siemans. We introduce tens of products daily, and I’m talking innovation-wise, and we have a factory in Hamburg that produces PLCs. 12 million PLCs a year, in 12,000 variants, and we have probably 1,000 workers in that factory. We obviously have a lot of high-tech machines there that are very connected, very digitalized, on a digital backbone. And you’re talking about a factory now that is 75% controlled by robots and machines.

And if we think about defects per millions, because that means something. Defects per million—you talk about a good employee generating 500 defects per million, and with this factory that was fully digitalized we have 12 defects per million. You talk about a 99.X% quality rate. And so it just shows you how powerful it is when you digitalize it. And I got to tell you—and what the workers do in that factory is not tell the machines what to do. The machines tell the other machines what to do and the products tell the machines what they want done. So this is self-healing systems and cyber-physical systems. This is sort of the state of where things are going and that’s what you can really get out of digitalization, when you talk about quality rates and time to market and efficiency.

Chui: Terrific. We’re going to come to questions in a moment, so get ready with them, but before then, Mike, we’ve talked a lot about some pretty amazing technology, whether it’s, you know, less expensive, virtual, or machines even teaching machines. But in your large organization with a lot of people you’ve also talked about the importance of culture and experimentation. Talk a little bit more about what it takes to make this manufacturing happen, with regard to people and culture.

Whitens: Well, I think culture is one of the most important things, and what’s really key is embracing the new technology and being open to it. Part of our mindset at Ford is innovating in every part of the business, and what’s really important when you do that is you embrace the digital world, and you also look—when we talk about the virtuous circle—we have to do feasibility up-front digitally so that manufacturing can be more efficient, but we also need from each of the tiers, that digital feasibility fed backward, so we get the feasibility initially, up-front. So, both of us together, working together. That means our people reaching out to people that they never reached out to in the past, and embracing that And also embracing way up front in the design process that feasibility from the manufacturing floor, that input that you never got before, in your whole career. So it’s really changing the culture, and as senior leaders, making sure you embrace the change, allow people to fail quickly, and ask them, “What did you learn from the issue, and how can we correct it right now?” And that’s a big change in how we work, but one of the real critical ones for us to accelerate progress.

Chui: What’s the key? What’s the hardest thing to do? I mean, change in large organizations is hard, right?

Whitens: Well, I think it’s not that hard when you’re aligned at the leadership level. All of us want to innovate, we want to innovate in all areas of the business, and we embrace that and cascade that throughout the organization. I think that’s really the key.

Chui: Terrific. Let’s open it up to questions. Anything that people want to ask from the audience, here? You have a mic, or?

Audience1: Okay, my name’s Drew Costakis—disclosure, I work for Microsoft, but I like to work on physical products as well, and Mark, I’m a member of TechShop. Thanks for sponsoring our great deal as a vet—I really appreciate that.

But one of the question I have is, I see a bit of a gap from this prototyping and learning how to build physical objects to connecting that to somebody can manufacture that for you, or somebody who can provide capital, or a mentor. And I was just at TechStar’s Mobility last week and they do a great job in the software incubation business, of kind of connecting that next mile, once you’ve got a good prototype and a good idea, to get ideas. And I’m wondering what your thoughts are on that.

Hatch: Yeah, that’s a great questions, and it’s one of the more difficult problems that we’re currently facing—at least on the products that require scale. There’s a dearth of manufacturers who can manufacture 500 or 1,000 of something and actually make it work. The good news is, this is a known problem now, and there are a lot of folks working on it, and I’ve got a couple of examples.

So, PCH, Liam Casey’s company. They do billions of dollars in manufacturing for large electronics companies, and he’s now got an accelerator in San Francisco, as well as a site in Shenzhen, to get to that solution set. Another thing that’s interesting, though, is there are huge pieces of the economy that don’t need scale. You don’t need to produce 10,000 of something, or a million of something, you know? You can get started with 1,000 or 5,000 or 10,000, and there’s a lot of margin and opportunity in those parts of the space. It’s really when you start thinking, okay, “I’m going to do a Kickstarter campaign,” and it’s like the bane and excitement of overselling your hardware product. Like, “Oh my gosh, instead of having to produce 60 of these, I have to produce 6,000.” And I’ve seen this, like, I had the Gantt chart of here’s how I’m going to produce the 60, it’s going to take me 6 weeks. Then this thing went, you know, hyper on him, and he was loathe to turn it off and say, “No, I don’t want your orders.” That’s a very difficult thing to do. And so he had to figure out a way of making 6,000. He sorted it out, but it’s a very difficult problem. I think we’re making some progress. The Whitehouse is concerned about it. We’re getting interest from folks like Plextronics and Fujistsu and others, that are also looking at it, trying to understand what their particular place in the ecosystem is going to be. I think we’re going to get a solution here sooner than we may think, actually.

Chui: Sounds like a business opportunity.

Hatch: A huge, huge business opportunity.

Chui: Any other questions from the audience? Anything else, people? I know it’s right before lunch, so, come on. Yes, please.

Audience2: [INDISCERNIBLE— 0:31:59.8] Thank you. Just curious what you guys think about sort of the downfall of Quirky, and what that means for this middle ground between inventing something and really bringing a product to market.

Hatch: I loved Quirky, Ben is a friend of mine, so I think it was an unfortunate demise. It obviously got way out over the skis. Producing a new product every week is an interesting mental exercise, and somehow he managed to attract $180 million dollars around that, but you’ve got to be able to produce a product that consumers actually want. And so there were parts of it that I really enjoyed. The front end of his process, where he aggregates both experts and consumers, and then, I liked the GE alignment, where then they actually informed it with people who had deep expertise in the field. That’s what Quirky was lacking. They had this democracy of folks that came together and said, “Yeah, we like that,” and then they ended up—most of their products didn’t sell, many of them cost hundreds of thousands of dollars just to develop, and they would sell like five or ten. I think there were some interesting marriages there. The particular project I enjoyed the most was the GE air conditioner, and the reason is, essentially what happened was, GE and Beth Comstock in particular used the front end of the Quirky process to cut two years out of their design process. They set the specification in 60 days by leveraging the crowd’s information as well as their expertise. That is interesting. They took two years out of the development cycle. And then, because they had consumer feedback, and they actually knew the distribution channels and they knew the stuff that Ben didn’t have access to in a lot of the other categories, she was able to commit, they were able to commit, say, “We’re going to do this in volume.” So rather than doing a test in a market somewhere in Peoria and spend another year trying to figure out whether or not they got the features right, they cut another year out of the process. So she essentially took two and a half to three years out of the process of producing a product, and she did it in, like, six months, soup to nuts. That is really fascinating. If you’re now competing with GE in that particular space, if they can figure out how to continue to tap into the expertise of the crowd, marry it with their distribution and understanding of the market, I think you’ve got an entirely new way of going to market. And it’s a different kind of cut on the internet of manufacturing, but it leverages everything about access to social media and capital to be able to really shorten cycle times.

Chui: Any other questions? Otherwise, we’ll go to the dangerous lightning round. All right, lightning round. We’re going to start with you, Mike. Who is the most interesting thinker on the future of manufacturing, present company excluded?

Whitens: The most interesting thinker?

Chui: Most interesting thinker.

Whitens: That’s very interesting. I think present company is actually very good. I think the thinking around manufacturing, and when you look at the Internet of Things, and how we do it, is very, very important.

Hatch: Carl Bass

Chui: Carl Bass, yes, another Techonomy participant.

Foster: Boy, that’s a tough one. I’m not sure. I had a mentor, his name was Rob Beatty, who helped start Plex. Incredible thinker on what it meant to make manufacturing on the shop floor.

Chui: Terrific. Raj?

Batra: Musk, I’m watching him work at the GigaFactory—it’s pretty amazing.

Chui: All right. What process in the manufacturing value chain is most in need of being digitized and/or modernized? Raj?

Batra: What part of the manufacturing floor is most in need?

Hatch: Process.

Batra: I would say the production processes. The actual plant floor itself.

Chui: Yeah. Jerry?

Foster: I would say connecting all parts of the supply chain. When you see big pockets of connectivity inside, but connecting the whole thing front to end, that still needs to be worked on.

Chui: Mark?

Hatch: So there’s this middleware piece called CAM, computer-aided manufacturing software, so, you’ve got the design software, which is universal, and you have a particular machine. And it turns out to create the machine code, there are, for us, five different CAM packages that our members may have to learn in order to make it work there. So it’s the biggest conversation I’ve had with Karl is, we need to solve the CAM problem. It needs to be in Adobe postscript. This design software shouldn’t need to be able to understand the file, it should just be able to create a postscript and the machine can read it. And we are nowhere close.

Chui: Mike?

Whitens: The computer-aided manufacturing of the process tied to the computer-aided feasibility of the components—the molding, the assembly, the welding, all tied together.

Chui: Where do you get your best information about the future of manufacturing?

Whitens: We get it from our people and from all of our suppliers in the supply chain. So basically, you get ideas for the future from all the different chains, and the key thing is for us to assemble, connect the dots, and put it all together.

Chui: Mark?

Hatch: I get it from panels like this, at phenomenal locations like this.

Foster: Our customers, hundreds of hardcore manufacturers, and we meet and talk with them regularly, and we get great insight into what’s going on in their life.

Chui: Raj?

Batra: I have to clearly say that it’s absolutely our very diverse slate of customers across industry, and our own manufacturing plants.

Chui: What company, other than your own, is doing the most innovative things in manufacturing? Raj?

Batra: The most innovative things? I would say, I would probably say BWM.

Chui: Jerry?

Foster: We have a customer that I can’t name. They make diesel engines and they’re yellow and they have a three-letter name that’s not DOG, but it’s incredible what they’re doing at their facility.

[LAUGHTER]

Chui: Mark?

Hatch: I’m going to go in a completely different direction here—you know, we’re in the middle of a revolution, and in revolutions you have arms suppliers, and I’d say Haas out of Oxnard, which is producing just stunning amounts of CNC machines, probably one of the largest arms suppliers for the digital revolution that we currently have.

Chui: Mike?

Whitens: I saw some interesting things in 3D printing that American Standard was doing around faucets, basically combining physics and aesthetics, creating their parts and creating an aesthetic feature to the tub and bath. Just saw that last week, and I thought it was very interesting.

Chui: Wow. What region in the world, other than Detroit, will be the most competitive in manufacturing in the next five to ten years?

Whitens: I think Asia. I think there’s significant change and significant things coming together with the population explosion.

Chui: Mark?

Hatch: I think it’s a complete jump ball. We see a lot on the West Coast, increasing there. Toss up. But my point was, it’s a huge opportunity. Because the entrenched players are not making the investments, and they’re not aggressively going after things that they should be doing now. As a result, it’s a jump ball. Silicon Valley is asleep to it. Shenzhen is still trying to figure out what it means. Detroit’s got an opportunity, Brooklyn’s got an opportunity, Milan’s got an opportunity, Berlin’s got an opportunity. It’s a jump ball.

Chui: If you were to start a manufacturing company today, what would it manufacture? Raj?

Batra: It would harness the power of data.

[LAUGHTER]

Chui: Jerry.

Foster: Automotive supply. That’s where I’m—where my bread and butter is.

Hatch: I’m manufacturing TechShops.

[LAUGHTER]

Chui: Mike?

Whitens: Digital automotive supply and manufacturing.

Chui: If you had one piece of advice for Detroit to improve its manufacturing future, what would it be? Mike?

Whitens: Embrace change.

Chui: Mark?

Hatch: I would engage the kids, get them in front of a 3D printer and some AutoDesk’s new software.

Chui: Jerry?

Foster: That’s what I was going to say. Bring the kids in the manufacturing facilities and show them what they can do with their hands.

Chui: Raj?

Batra: Digitalization.

Chui: Please thank our panel.

[APPLUASE]

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