When one door closes, another one opens. These are optimistic words by which many live. While the manufacturing sector has long been considered a steadfast, conservative market, industry players are operating by this motto.
The reason? The global economic recession hit the manufacturing sector hard. While optimism is up, the industry hasn’t quite reached levels seen before the financial slump. Like many businesses, manufacturers have had to do more with less.
The window that has opened for manufacturers comes in the form of the Internet of Things. According to experts, as the manufacturing industry tightens its belt, businesses are looking at new ways to boost profits. As it turns out, manufacturers are in a better position than most to capitalize on the rise in Big Data analytics and IoT connectivity; the trend has given struggling manufacturers a new source of income.
Optimism has been on the rise regarding the economic recovery since the 2007 Great Recession in the U.S. Analysis released by Experian and Moody’s Analytics earlier this year revealed some of the most optimistic financial behavior by small businesses that have been seen in years.
But when the numbers are assessed, the reality is a bit less cheery. On Wednesday (June 10), reports explored earlier findings from nonpartisan group the Information Technology and Innovation Foundation, which found that manufacturing has declined by 3.2 percent, and the industry has seen 15,000 of its production facilities disappear compared with 2007 levels. What’s more, there are 2 million fewer manufacturing jobs than there were before the recession.
The study was outlined in the ITIF’s report, “The Myth of America’s Manufacturing Renaissance: The Real State of U.S. Manufacturing.” The title alone suggests the sector has a long way to go to meet the expectations of the U.S. economy.
“We’re concerned about the overall decline of the manufacturing industry since around the turn of the century,” ITIF economic research analyst and report co-author Adams Nager recently told CNBC. “We’re seeing stable and slow recovery in demand, and that explains the growth in manufacturing, but that doesn’t necessarily mean that growth will continue or that we’re in a state of renaissance.”
Along with co-author Robert Atkinson, Nager found that as manufacturing has decreased its contribution to national GDP, services like financial services and real estate have done just the opposite.
The mix of a low U.S. dollar rate, the natural gas boom, and increasing labor costs in China combined to provide an optimistic view of the manufacturing sector among experts, reports said. But according to the ITIF, these factors can be debunked.
For example, according to researchers, despite rising Chinese labor wages, today’s levels are still just 12 percent of the average U.S. wages. Global shipping costs are on the rise, and the trade deficit has displaced the would-be benefits of the rising dollar.
Despite the struggle to regain its strength, manufacturing has, in many ways, bucked its conservative trend and embraced new technology to make the most of the current market climate. A report published by The Wall Street Journal earlier this month described the sector as “nimble” thanks to its ability to take advantage of the Internet of Things boom.
By their nature, manufacturers are in a position to access troves of data direct from the devices they produce, even after they leave assembly lines. “All of a sudden, we have a whole new way of making money that doesn’t rest on a customer throwing something out and buying new,” said Harvard University business school professor Michael Porter in an interview with the WSJ.
Instead, he added, manufacturers are finding new ways to make money by selling the information they obtain through the IoT-connected products they make. That information can then be used to fuel the replacement parts and repair market. “You can fix it before it fails and get paid for that,” Porter added.
Other experts, like Sanjay Ravi, who serves as Microsoft’s worldwide managing director for discrete manufacturing, agree. “Traditionally, manufacturing has been a very conservative industry,” he told The Irish Times in an interview last week, “but over the last two-to-three years, with the technologies of the Internet of Things, they’ve been able to unleash a new level of productivity.”
Ravi added that as many as 30 billion manufacturing devices are already connected to the IoT and facilitating the flood of data. Reports note that unlike the B2C market, manufacturing doesn’t have to rely on individual consumers to generate data.
According to The Wall Street Journal, citing Gartner Inc. research, the number of manufactured machines, vehicles and other types of equipment connected to the IoT increased by more than 10 percent last year compared with 2013. Consider the mining sector; according to reports, the industry is expected to see a 25 percent growth rate every year in the number of mining equipment products connected to the IoT.
With manufacturers in a unique position to access Big Data – more-so than the B2C sector – experts note that companies must not just store this information. They must put it to good use.
“Analytics are about finding correlations, and seeing what are the driving factors,” said SaS business expert in manufacturing Christoph Hartmann to The Irish Times. For example, a tire manufacturer should be focused on the Big Data that offers insight into temperature and pressure to assess the quality of tires being produced. Information flowing in from the assembly line itself can also be used to make manufacturing processes more efficient and cost-effective, he added.
The opportunities are practically limitless. While industry players may be waiting for manufacturing to return to pre-recession levels, the latest insight suggests that they may be doing so in vein: thanks to Big Data, manufacturing may never again look the way it once did. But despite the challenges of a shrunken industry, manufacturers appear to be stepping up to the plate and finding ways to make Big Data profitable.
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