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The National Association of Manufacturers (NAM), a lobbying organization (http://www.nam.org) working on behalf of the US manufacturing community, has published the following data about small and medium sized manufacturers:
Small manufacturers are companies with less than 500 employees Medium-sized manufacturers are companies with 500 up to 2000 employees There are hundreds of thousands of small and medium-size manufacturers in the US SMM's make up about half the manufacturing work force in the US About 95 percent of all manufacturers are small and medium size manufacturers The rate of productivity growth within the SMM sector is much higher than in the rest of the US economy Wages for workers in the SMM sector average 20-25% higher versus non- manufacturing jobs Seventy (70%) of the business R&D that drives innovation and new products comes from the SMM sector
Thanks to the SMM, the manufacturing sector is the backbone of what America represents in terms of a leader in R&D, innovation, new products, technology, and people. Manufacturing certainly includes the large automotive companies and others, but for the purpose of this text many of the examples are specific to the SMM.
Manufacturing has a negative stigma at times because of union battles, layoffs, and the fatalistic media portrayal about offshore manufacturing pummeling the US manufacturing sector. The media thought the transition from 1999 to 2000 was going to stop all computers. We know how that turned out. The US has lost jobs to off-shoring but the impact is minimal, and thanks to the resilience of SMM managers, owners, engineers, and operators in finding ways to increase productivity, the Bureau of Labor Statistics (BLS, http://www.bls.gov) indicates that productivity is higher than ever.
Experts state that productivity, not off-shoring, has the greatest effect on job losses, or rather the lack of job growth, in manufacturing. In fact, China and other countries have lost significantly more jobs than the US because of productivity.
The age of industrial robotics, modeling software and simulation, combined with computer-driven manufacturing software, have provided productivity tools for the manufacturing engineer that never existed before. Productivity performance programs such as Six Sigma, Lean, and Kan-Ban, are yielding immediate results when implemented. The days of the shop floor operator performing redundant tasks such as loading a machine, lifting a box, operating a press, or welding a sub-assembly are diminishing because of innovation. One aspect of innovation as reviewed in this text, focuses on utilizing industrial robotics for the purpose of achieving unmanned "lights-out" production. Manufacturing is a great place to be if you're interested in applying robotic technology for real world applications.
The importance of small and medium sized companies is also critical to the US government, as can be imagined, for the tax base alone. The US government agency Manufacturing Extension Partnership (MEP, http://www.mep.nist.gov), is a wonderful organization that has been working for years to support SMM all over the nation. MEP is a nationwide network of resources, transforming manufacturers to compete globally, supporting greater supply chain integration, and providing access to technology for improved productivity. MEP implemented a study about barriers to productivity improvement for small manufacturers. The study was completed in February 2004, and its conclusions were as follows:
The regulatory environment creates a competitive disadvantage for the small manufacturer
Small manufacturers are often unfamiliar with changing technology and business practices
Small manufacturers are generally isolated, and few have opportunities for interaction with other companies in similar situations It’s difficult for owners and managers of small companies to find high quality, unbiased, advice and assistance
Operating capital and investment funds for modernization are difficult to obtain for small and medium-sized companies
Other challenges facing the small and medium-sized manufacturing sector are lack of skilled labor and low-cost labor, global competition, and lack of productivity improvement plans.
Not all is gloom and doom, however. According to the Bureau of Labor Statistics, US manufacturing has shown the highest rate of productivity performance over the 1990's and 2000 period, as compared with previous periods. Among factors that contributed to the increased productivity growth rate over the last decade has been the adoption of lean manufacturing strategies, as well as other programs (i.e. Six Sigma, Kanban, and 5s). Fgr. 1 shows a list of various lean principles.
Lean Manufacturing Principles
--->Pull System (Kanban)
Reduction of variation (Six Sigma)
--->Machine process capability
Right sized equipment
Quality at the source
Value stream mapping
Error proofing (Poka Yoke)
Fgr. 1 Lean Manufacturing Principles
-- Productivity Can Save the Factory--
A trend that continues to contribute to manufacturing productivity gains is the growth in implementation of robotic systems. The Robotic Industries Association (RIA, http://www.robotics.org) tracks the installed base of North American robot sales, and reports that in 1994- 1996, sales of robots averaged 8,000 units per year. In 2004-2006, sales of robotic units exceeded 12,000 units per year with 18,000 sold in 2005.
Manufacturing advances will continue to go to the companies that embrace automation and productivity performance initiatives.
There are numerous case studies that demonstrate how US companies beat Chinese firms, and the US is in the best position to win the war against offshore low-wage producers. The primary issue facing US manufacturers, that unfortunately is more difficult to control, is the lack of skilled labor. Companies like Caterpillar Inc., and John Deere will experience a significant amount of retirements among shop floor personnel. The retirement of the baby boomer generation, undeniably will create a supply and demand gap for manufacturing jobs. Today the challenge is finding "skilled" operators (meaning trained, and reliable workers), and almost every industry struggles with this task. FANUC Robotics, along with a community of robotic integrators and users, started an initiative appropriately named Save Your Factory. The initiative creates awareness about how small and medium-size manufacturers can utilize technology, robotics, productivity, and quality programs, to overcome challenges facing US manufacturers. Within the Save Your Factory (http://www.saveyourfactory.com) presentation there are examples of the farming and steel industries using technology to increase productivity while reducing the labor force. Fgr. 2 illustrates the impact of technology on the farming and steel industries.
Fgr. 2- Save Your Factory Excerpt on Technology Impact to Farming and Steel
Some experts believe that productivity and efficiency gains are the reason for manufacturing job losses, and not off-shoring.
Additionally, there are predictions that the manufacturing shop floor will be different in the near future than it’s today and has been in years past. The trend will shift the manual tasks on the shop floor to non human operators in the forms of automation including industrial robotics. This trend has and will continue to grow through all industrial nations because of the economies gained by innovation.
The manufacturing shop floor stereotype will be a memory. The shop floor operator will be a technically skilled worker who will manage a series of automated cells, perform various levels of inspection, and maintain the flow of material through the area.
All firms would love to grow their business without having to proportionally grow their workforce. Firms that have grown their business while decreasing the labor cost in making the end product have enjoyed significantly higher profitability than those firms that have not. As a point of interest, using robotics does not result in layoffs. Simply put, the role of the shop floor operator will change, and firms that are savvy at automation will exhibit greater throughput with the same amount of resources. For example, a US firm manufacturing machine tools in the US wants to become a $2 billion dollar-organization while still maintaining about a 1200-employee headcount. Today the firm's revenue is about $1 billion with 1200 employees. This firm is implementing two robotic systems per month, and when their goal is reached it’s easy to imagine how much labor content will be reduced in the overall cost of producing a machine? No firm in the world will be able to touch them in terms of cost to produce a similar style machine.
Like the examples of farming and the steel industry, robotic innovation and other technologies will enable manufacturers to grow their businesses while reducing the robot-to-employee ratio. For example, the ratio of robot-to-employee for a typical US company is 1 to 240. Some of the premier manufacturers in the US, that serve as real examples for this text, have been able to achieve 1 to 6 ratios.
It’s no surprise that these companies are extremely profitable. The Save Your Factory website sponsored by FANUC Robotics America goes into detail about the hidden costs of doing business off-shore.
In addition, there are examples of how US firms have achieved lower costs to produce the same product here in the US, versus low-wage countries, by automating.
There are countless examples of manufacturers keeping work in the US because the labor factor was eliminated altogether when the process was automated. Chasing low-cost labor is an exercise in futility, so why not take the labor component out of the equation? The reality is that the hidden costs of doing business overseas or somewhere other than your own backyard can be a problem. By leveling the playing field with robotics, the SMM and certainly the large manufacturing firms, can stay globally competitive.
Industrial Robots Reduce labor Costs and Increase Productivity
The value of a firm equals total assets minus total liabilities. The first and most important goal of every firm is to make profit, unless the firm is a not-for-profit organization. The efforts injected into successful robotic systems are micro examples of how manufacturers working alone or together can drive production costs lower than a competitive organization or supply chain that is not engaged in driving to a lower-cost philosophy. Manufacturing, like sales and marketing, is a strategic tool, and one that will provide a sustainable competitive advantage when implemented correctly.
The focus of this text is primarily the implementation of industrial robotics for the non-farm manufacturing sector that consists of manufactured durable and non-durable goods. Durable goods include primary metals, fabricated metal products, industrial machinery and equipment, transportation equipment, and glass and stone products. Durable goods are defined as products that don’t quickly wear out and have a life of at least three years. Non-durable goods have a life span of less than three years and include cosmetics, food, textiles, clothing, and paper products.
The robot work-cell won't necessarily affect the cost of raw material such as steel coils or castings that are purchased. Nor does the robot affect the cost of the packaging, insurance, or shipping freight. Robots exploit two primary targets, reducing labor costs, and increasing productivity. A secondary group of benefits from implementing robotics includes reductions in process changeover and lead time, maintained capacity, costs of operator safety, and consistent quality. The first group of categories result in what the world measures as a gage of manufacturing success and that is productivity. The US Department of Labor's Bureau of Labor Statistics (BLS, http://www.bls.gov) defines productivity as a measure of economic efficiency that shows how effectively economic inputs are converted into outputs. Simply put, productivity is the ratio of output to hours worked. The BLS measures productivity using a North American Industry Classification System (NAICS), six-digit code to classify industries. Productivity, described in output per hour, is the benchmark for how the media reports productivity statistics. Fgr. 3 illustrates the relationship between productivity and labor costs from 1970 2004.
The graph to the left shows productivity and unit labor costs in the nonfarm business sector Productivity and unit labor costs vary over the business cycle Trends in productivity and labor costs look more favorable in the 1990s and 2000 than earlier periods The graph to the right shows average annual rate change of productivity based on specific NAICS industry codes.
The productivity annual rate of change of for the manufacturing sector is highest in the 2000 period compared to the 1990s.
Fgr. 3. Trends in Manufacturing Productivity Changes
X % (labor contribution) + Y% (mat'l. and overhead) = Costs of goods sold Metal cutting Metal sorting Metal forming Welding Blasting Painting Assembly Pack-out/Packaging
Machining Gauging/ inspection
Drilling/Milling De-burring/ Washing Part cleaning
Labor components that need to be included: Rework in reprocessing product, transportation costs moving product from one process to the next, moving product into and out of inventory
Costs: Greater than 80%
-Benefits (sick days)
-cost of non-arc time tasks
-cost of changing employees
-cost of change-over
-cost of setup
Costs: less than 20%
-Consumables ( torch assembly )
Fgr. 5 Example of Cost of Arc Welding
A manufacturer's goal to drive costs lower can be achieved by producing the same amount of output with less input. For example, before deciding to purchase another lathe for additional machining capacity, it’s wise to make sure that productivity is optimized with the current lathe(s) because the operation is probably not as efficient as it could be if lathes are left to manual operation. Direct labor is a major contributor to the input side of costs and one that is easily exploited by robotics. Robotic automation dramatically increases productivity in performing a specific task because of the rise in the efficiency of asset usage (i.e. the machine tool) resulting from the availability of the robot to perform the task 24/7 without breaks, lunch, vacation, and other causes for downtime that always happen.
Robotics will provide a double-dip effect on productivity by reducing labor and increasing throughput with the existing assets.
According to the BLS, the non-farm business sector labor cost in the US represents more than 60 percent of the value of output produced. Assuming that this statistic is accurate, the remaining 40 percent of the cost to the firm lies in material cost, and manufacturing overhead. All three components; direct labor, direct material, and manufacturing overhead, contribute to costs of goods sold and cost of inventory. Fgr. 4 describes a typical manufacturing "value" chain consisting of various process steps, each with its own direct cost labor and material components. The direct labor component will vary for each step in the chain. The BLS statistic merely states that the aggregate direct labor measured as a function of productivity is greater than 60 percent. In the author's opinion, based on talking to firms, the percentage of direct labor is toward 30 percent on average, with firms that have implemented lean principles, and with robotic automation it’s lower than 15 percent and often less than 10 percent. For some applications that are rather process intensive with manual labor, such as grinding castings in a foundry, or arc welding, according to manufacturers their labor costs approach the 60 percent and higher figure as a percentage of costs of goods sold.
Fgr. 5 shows a more detailed cost breakout for the welding process step from the chain of manufacturing events shown in Fgr. 4. The welding cost example has been validated through studies, which indicate that the welding process typically involves greater than 80 percent labor-related cost versus 20 percent material cost to produce a finished product in the welding area. Most labor-intensive projects that include manipulating a tool such as a welding torch, grinding wheel, or cutting knife, by taking the tool to the work-piece or the work-piece to the tool, have a higher direct-labor component than picking and placing work-pieces from one location to another. Arc welding would certainly rate higher than most processes in terms of the labor cost percentage as a function of the manufacturing process.
Manufacturing processes that exhibit higher labor content such as welding, paint, or material removal, should be prioritized as areas to exploit with robotics and to be made lean, when an entire manufacturing facility is being audited. Not only can significant productivity gains be achieved, but these three applications rely on a higher level of labor skills to achieve consistent quality. Other applications, including machine tending, assembly, and palletizing, are certainly as important to automate as welding, painting, or material removal. Again, increased productivity is a core benefit to the user, but the ergonomic benefits for these types of redundant, task-focused applications are just as important.
Partnering with your customer and supplier to reduce costs
According to the BLS, output per hour is the statistic most cited in the media about the state of manufacturing. Assuming robotic systems don’t exploit cost reductions for the direct material cost portion, or manufacturing overhead, everything would be great if the cost stopped there and producing the commodity was then complete. In terms of global competition, it could be assumed that the material costs are somewhat consistent for a manufacturer anywhere on the globe. Maybe not in some places, but let's assume this is more or less true. What is interesting to pursue is the concept of Network-Centric Manufacturing in terms of the example of the community of suppliers and OEMs partnering to drive costs lower, and increase performance for the marketplace. The manufacturing value stream example in Fgr. 4 also makes the point that, assuming material costs to be relatively even in a global sense, then the competitive war begins as soon as the manufacturing process starts, meaning that someone or something adds value along the manufacturing value stream that is producing the commodity. Each operation in the manufacturing process creates cost. Each process step of the manufacturing value stream for the individual manufacturer allows the lowest labor cost producers, wherever they are, to take advantage of every competitor that is not engaged in driving the value stream to its lowest common cost denominator. As an example, take the production of a tic-tac toe game with machined aluminum X and 0 pieces, and an aluminum fabricated base for the tic-tac toe board.
If two producers, in China and the US, both have the same raw material cost for the aluminum bar stock for the game pieces, and aluminum plate for the game board, then the competitive advantage in terms of the low-cost producer will go to the company that drives to the lower cost at each step of the manufacturing chain to machine game pieces, as well as cut, form, clean, and assemble the game board and final assembly. The US simply cannot compete from a wage standpoint with countries like China. Even with the freight of shipping the tic-tac toe game back the United States, the cost to build the game will be far higher in the US, due to the wage gap.
The manufacturing engineer's task is to level the playing field by driving the manufacturing costs at each step as low as possible, using industrial robotics, lean principles, and other productivity tools to take cost out of the process. The Network Centric concept takes the value stream to a big-picture level, where suppliers of aluminum work with the OEM of the game to jointly develop ways of enhancing the product in terms of functionality, options, delivery, or some other competitive advantage for the end-user.
Thinking in the big picture, the engineer needs to apply the principle of driving cost lower at each step, for each manufacturer in the supply chain feeding the OEM materials that are provided to the end-user. The community of tier 1, 2, and 3 suppliers in the supply chain, all add value and costs. A strategy that outwardly focuses on reducing costs at each supplier and OEM, creates a large compounding effect on the overall value to the end-user. Imagine the competitive advantage that the supply chain companies can achieve through collaboration, as each organization in the chain understands its individual role, to provide value through productivity, delivery, or other attribute. Organizations such as the National Council for Advanced Manufacturing (NAFCAM, http://www.nacfam.org/), and MEP are actively sharing these concepts with industry, and manufacturers need to know about these organizations to be able to make broader decisions concerning business practices.
Chasing lowest-cost labor is an endless exercise because there is always a region in the world that will have lower-cost labor.
Exploiting the fact that greater than 30 percent of manufacturing costs are associated with direct labor, and for some applications the labor costs can exceed 60 percent, allows the manufacturing engineer to have considerable control over cost reduction and continuous improvement. Industrial robotics is one tool that allows the firm to achieve the elusive cost-competitive advantage by leveling the playing field for cost per work-piece as compared with producers using low-cost labor. Manufacturing will go to the organizations that embrace automation and are engaged in lowering costs and improving quality.