This is the most exciting time in manufacturing since Henry Ford put the Model T on a moving production line. A wave of new technologies is emerging, maturing, and converging in a way that will reshape product design and manufacturing, shifting from a world defined by hardware and logistics constraints to one that is largely defined by software. Yet despite these exciting new opportunities, the supply chain leadership at some of the world's top companies is more focused than ever on perfecting an increasingly obsolete business model.
Unless they are prepared to change their product manufacturing and design processes, an entire generation of supply chain leaders could lose out on the "software-defined supply chain" revolution.
![[Figure 1] Current vs. planned supply chain strategy by surveyed supply chain leaders (N=55)](/media-library/20140110software-defined-supply-chain-ex1.jpg?id=53612077)
[Figure 1] Current vs. planned supply chain strategy by surveyed supply chain leaders (N=55)Enlarge this image
Three transformative technologies
Recent research conducted by IBM has identified three critical technologies that are transforming manufacturing: three-dimensional (3-D) printing; a new generation of intelligent assembly robots; and the rise of open-source hardware.1 Individually, each of these trends is transformational; together, their power is multiplied.
The most important of these trends is 3-D printing. Three-dimensional printers use technology that is similar to ink-jet and laser-jet printers to deposit materials like plastics and metals in very thin layers one atop the other, gradually building up an object one layer at a time. With this technology, solid parts are convertible from software design to reality at the touch of a button. These printers thus enable a new level of flexibility and scalability in manufacturing. They make desktop manufacturing feasible, and they demand no economies of scale. Three-dimensional printers are rapidly moving from useful tools in prototyping studios to essential machine tools on the production line.
The second key emerging technology is a new generation of intelligent assembly robots. Where past robotic systems required massively complex installations—typically starting at US $250,000 per assembly station—this new generation costs around $25,000 per robot and can be installed in less than a day. Suddenly, efficient, effective manufacturing automation is within the reach of even small companies.
The final transformational force is the rise of open-source hardware. As 3-D printers and low-cost, standardized electronics have become accessible to hobbyists and the very smallest businesses, the shared-resource model of open-source software development has spread into the realm of hardware design. From mechanical systems to networking equipment, hundreds of product designs are now available to anyone, no reverse engineering required.
Collectively, these technologies are taking physical constraints of manufacturing—building molds, ordering parts, reconfiguring assembly machinery—and turning them into processes that can be defined, managed, and executed through software. We call this the "software-defined supply chain."
Over the last year, IBM conducted an in-depth analysis of how these technologies will transform the global supply chain. The research team disassembled a range of products and looked at the design of each one, including the ability of each component to be 3-D printed, of each manual assembly step to be replicated with a new generation of robotic assembly systems, and of proprietary components to be replaced with open-source alternatives.
The project looked at four products representing a huge range of size, volume, and complexity. At one extreme, the researchers used a hearing aid that is small and personalized as a test case, since hearing aids are already being manufactured using 3-D printing technologies. At the other extreme in size and mechanical complexity was a washing machine, which the researchers tore down. They also disassembled a mobile phone and a liquid crystal display (LCD) monitor.
Based on product roadmaps for 3-D printers and robotic assembly systems, we believe the cost of manufacturing all of these products in a software-defined supply chain will become competitive with traditional manufacturing costs in the next five years. More strikingly, the scale required to achieve a competitive cost structure will drop by about 75 percent in the coming five years, and by as much as 90 percent over the coming decade.
The implications of these technologies go far beyond simply product pricing—they will shift entire patterns of global trade, investment, and competition. Not every industry and process will be disrupted, and it will not happen overnight, but the list of industries that will be affected is large and seems to be growing daily. Almost anything requiring computer numerical control (CNC) machine tooling, plastic injection molding, or metal stamping is subject to disruption, as are those industries that use large amounts of low-cost assembly labor. This certainly includes many parts of the electronics industry, where IBM focused its research, but it is also likely to include automotive, aerospace, and industrial products, and many consumer goods as well.
Where these new technologies do have a role to play, the disruption they are likely to cause is substantial. They suggest that the era of offshoring and outsourcing is coming to an end, as is the global search for low-cost assembly. On a competitive level, the domination of manufacturing industries by a small number of large global organizations may also be at an end, as a wave of nimble start-ups can operate with far less capital or scale and still be competitive. We believe the implications of these changes are as big as the wave of change Henry Ford started a century ago.
Missing out on "good enough"
Given the sweeping changes that lie ahead, you would expect the supply chain leaders of the world's top manufacturing companies to be preparing for significant transformation. This isn't the case, though. As part of the research project mentioned earlier, IBM interviewed more than 50 chief supply chain officers in the automotive, aerospace, and electronics industries to assess their readiness to adapt to and leverage these new technologies. The survey results showed that 70 percent had little awareness of the coming changes, and no significant plans to handle them.
When asked about their plans for the next five years, supply chain leaders stated that their top priorities are more of the same. Specifically, they expressed a desire to increase the level of standardization in the component supply and to raise the proportion of assembly work done in modules rather than with piece parts (see Figure 1). Both of these strategies are being rendered obsolete by 3-D printing and robotic assembly.
On the surface, this lack of interest on the part of current supply chain leaders might make sense. Anyone who has picked up a newly minted knick-knack from a consumer 3-D printer or watched one of the new generation of robots unpack a box might find the whole thing a bit underwhelming. The fit and finish of a consumer 3-D printer's output looks amateurish (the surface can be rough, and therefore the way in which printed pieces fit together may also seem rough), and the pace and dexterity of the new robots seems slow and clumsy.
To conclude that these technologies are not yet viable, however, is to repeat a pattern that has become nearly standard in recent technological revolutions: to miss out on "good enough" while waiting for perfection. The expectations of supply chain and factory managers are rooted in current products in the same way that information technology and telecommunications experts anchored their thinking in an era of mainframes and landlines. By those standards, personal computers (PCs) and mobile phones seemed like low-quality, unreliable toys right up until they dominated the computing and telecom markets.
Just as happened with cell phones and PCs, the shortcomings of the emerging technologies discussed in this article are overstated by many: three-dimensionally printed plastic items may not be pretty, but that is not a requirement for millions of industrial products, or even for the parts hidden inside consumer products. Likewise, the new generation of assembly robots may be slow, but that criticism misses the fact that they can work all night, unsupervised and for no incremental cost.
Not only are these technologies being judged based on unrealistic expectations, but today's supply chain leaders are failing to see how the convergence of these technologies will create entirely new markets. Think about how PCs eventually became pocket-sized and mobile phones went digital; now making phone calls is just a secondary application on our hand-held computing platforms.
Like the PC and mobile revolutions that preceded it, the software-defined supply chain has its own set of "killer applications" that have yet to be fully exploited: speed, scale, and customization. The ability to manufacture unique products in tiny volumes without having to worry about long-term spare-parts storage or long lead times is a revolution that is just now taking hold.
Lessons from the software world
As in the software space, some of this work will be done by consumers and hobbyists, but much of it will be done by and for corporations. Open-source designs will become the foundation for many products and a mechanism by which companies will accelerate their time-to-market and eliminate investment in undifferentiated engineering and manufacturing processes. Cooperation between "friendly" competitors will become the norm in every business, as it is in software and technology.
This will help companies cut out cost and reduce the time it takes to bring a new product to market, but it also will radically change the competitive landscape in almost every manufacturing business. It will be possible for even very small companies to offer a wide range of products built on a competitive foundation. In the past, the combination of manufacturing scale requirements and proprietary designs helped limit competition in many businesses. Both of those barriers are now crumbling.
The result: a flood of new competition. Some industries have spent decades consolidating down to three to five dominant companies. Those companies are now going to find themselves facing as many as 10 to 20 times more competitors, all serving up distinctly differentiated solutions—including some at price points that are radically lower than those for existing offerings. In short, the world of hardware competition is about to start looking like software's competitive landscape.
Despite the prospect of vastly more competition, supply chain managers and corporate strategists should not abandon hope. The existence of free and open-source software has not ended life for most large software companies. To survive and thrive in the era of free software, those companies have had to adapt, and many of these same adaptations can be applied in the software-defined supply chain.
Successful software companies have focused on enabling industry-specific business processes rather than on providing specific technological functions. Anyone can capture a credit card number from a Web page, but managing product configuration and payment, and linking the two from order to delivery to cash takes significant expertise.
Successful software companies have also shifted their business models from one-time software licenses to providing services. They have the specialized knowledge required to integrate end-to-end business processes, and they can expertly handle the constant maintenance of software and systems required to keep everything up-to-date with evolving technology and changing government regulations.
On top of end-to-end integration and process-enabling services, the largest software companies have added analytics into the mix. This allows them to provide their clients not only with a deeper understanding of how their businesses run, but also with the ability to make insightful predictions about how markets and customers will react to specific offers.
Every one of these service categories—integration, service, and analytics—can be applied as effectively to manufactured products as it can to software. Printing and copying companies, for example, are already selling "business process enablement" rather than merely producing printed material. The makers of physical fitness tracking devices are really selling the quantified, fitness lifestyle, complete with nutrition and sports coaching—not just a pedometer.
The end of "end-to-end"
For the last decade, supply chain leaders in large enterprises have led a huge wave of transformation of their own: the rise of global collaboration and sales and operations planning (S&OP). As supply chains have become ever longer and more complex, planners have had to contend with the enormous complexity of bringing hundreds of suppliers across two dozen time zones into a tight web of electronic collaboration.
Software-defined supply chains will undo many of the complex collaborations that are currently necessary. In the case of a hearing aid, one of the sample products the IBM research team looked at, shifting to 3-D printing will eliminate more than 70 percent of the discrete components and materials—which inevitably will lead to a much simpler supply chain. That does not mean that supply chain leaders can afford to sit back and relax, because even as one wave of challenging interactions is mastered, a new set of challenges will arise.
One of the first casualties of the software-defined supply chain revolution will be end-to-end enterprise process concepts. Enterprises have learned to think about and align their processes in a set of "end-to-end" interactions, such as "idea to market" and "market to order," and, most importantly in the supply chain, "order to cash." These are all obsolete—for electronics now, and for most manufacturers, eventually.
Startups are proving again and again that these end-to-end models, now hard-wired into many enterprise resource planning (ERP) systems, are not necessary. Have you backed a Kickstarter or Indiegogo project? If the answer is yes, then you have participated in the disruption brought on by "crowdsourcing." Crowd-based funding of business concepts and products gives small companies both customers and cash before the products are fully developed or manufactured. A large marketing budget isn't necessary, either, thanks to word-of-mouth that can now occur on a global scale via the Internet. Moreover, using open-source designs and building an online community allows developers to quickly validate specifications and build prototypes, compressing the whole development/test cycle as well as cost. Finally, technologies like 3-D printing mean that initial production runs can be very small but still price-competitive.
The result is processes that "break" the rules: "idea to cash" followed by "design to delivery." Enterprises have been dabbling with open innovation and crowdsourcing for some time now, but it is consumer sites like Kickstarter and Indiegogo that have integrated and scaled these concepts and leveraged changing economies of scale in manufacturing. So far, this has been largely for the benefit of small entrepreneurs, but there is no reason why large enterprises cannot do the same.
Supply chain leaders will need to facilitate a new wave of collaboration between manufacturing and design as well. The software-defined supply chain will drive a radical compression of cycle time, from concept to first product, and potentially to a lot more product variants, without added supply chain complexity. Parts and assembly processes will have to be redesigned to cleverly work around limitations in 3-D printing's fit and finish and the dexterity and speed of new robotic assembly tools.
To build a new supply chain or take advantage of the huge opportunities that will come with these new technologies, or simply to stay competitive, supply chain leaders will have to "unlearn" a century of assumptions and internalized concepts built on the foundations of Henry Ford's work in mass production. Success in the future will require developing and adopting a new set of mental models, business processes, and enterprise technologies. For supply chain leaders, that will be the single most critical challenge they will face in the coming decade.
Notes:
1. The new software-defined supply chain—Preparing for the disruptive transformation of Electronics design and manufacturing, IBM Institute for Business Value, 2013. (Also available on the IBM IBV app).
