Innovation in U.S. Manufacturing

Innovation in U.S. Manufacturing Robert D. Atkinson President, ITIF September 19, 2017 @RobAtkinsonITIF @ITIFdc

About ITIF Independent, nonpartisan research and education institute focusing on intersection of technological innovation and public policy, including: Innovation and competitiveness IT and data Telecommunications Trade and globalization Life sciences, agricultural biotech, and energy Top science and tech think tank in the U.S., number two in world, according to University of Pennsylvania Go To Think Tank Index 2

Relevant ITIF Reports Trade vs. Productivity: What Caused U.S. Manufacturing's Decline and How to Revive It Ten Principles to Guide the Trump Administration's Manufacturing Strategy The Myth of America s Manufacturing Renaissance: The Real State of U.S. Manufacturing A Critique of CRS s U.S. Manufacturing in International Perspective Worse Than the Great Depression: What the Experts Are Missing About American Manufacturing Decline A Policymaker s Guide to Smart Manufacturing How Cloud Computing Enables Modern Manufacturing 3

Today s Presentation 1 What s Happened to U.S. Manufacturing? 2 Manufacturing Innovation 3 Role of Government in Helping Manufacturers 4

Employees in Thousands U.S. Manufacturing Jobs on a Downward Ratchet 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Labor Statistics All Employees Production and Nonsupervisory Employees 5

High Productivity Did Not Lead to Most Manufacturing Job Loss Manufacturing employment has fallen because of productivity growth, not a decline in output. Congressional Research Service REALITY: Then why did we lose 2.4% of manufacturing jobs in the 90s when manufacturing productivity growth was similar? 80% 65.6% 60% 53.0% 40% 20% 24.5% 17.8% 0% -2.4% -20% -40% -33.2% 1990-2000 2000-2010 Employment Productivity Productivity Delta 6

Lack of U.S. Competitiveness Did Real manufacturing value added grew 2% from 2008 to 2015 Rest of the economy grew 11% 14 of 19 manufacturing sectors lost output -30%-20%-10% 0% 10% 20% 30% 40% 50% Manufacturing Primary metals Computer and electronic products Miscellaneous manufacturing Chemical products Food and beverage and tobacco Machinery Nonmetallic mineral products Apparel and leather and allied products Textile mills and textile product mills Furniture and related products 7

Why Did Manufacturing Jobs Go Overseas? Aggressive foreign innovation mercantilism High U.S. corporate tax rate Limited industrially relevant R&D Poor workforce training Limits on export financing No manufacturing strategy 8

Today s Presentation 1 What s Happened to U.S. Manufacturing? 2 Manufacturing Innovation 3 Role of Government in Helping Manufacturers 9

Average Annual Percentage Growth We Don t See Innovation in the Productivity Numbers Average Labor Productivity Growth, Manufacturing Sector 4.0 3.72 3.65 3.5 3.0 2.5 2.557 2.0 1.5 1.0 0.5 0.0 1990-1999 2000-2009 2010-2016 Source: BLS Labor Productivity and Costs 10

But a New Manufacturing Tech Paradigm is Emerging Source: Rebecca Taylor, National Center for Manufacturing Sciences, Do It In Digital: Virtualization and Tomorrow s Manufacturing 11

Evolution of Manufacturing: Tomorrow "Smart manufacturing will generate $371 billion in global value over the next 4 years: by 1) creating value from data and 2) streamlining design processes, factory operations, and supply chain risks. (IDC) 12

Smart Manufacturing & Smart Design All smart products share three key components: Physical components: e.g., Mechanical and electrical parts. Smart components: e.g., sensors, microprocessors, data storage, controls, software, an embedded operating system, and a digital user interface. Connectivity components: e.g., Wireless connectivity, ports, antennas, etc. 13

IoT & Supply Chain Management IoT can help manufacturers better manage their supply chains. BMW: Knows the real-time status of all machines producing all parts/components from all suppliers going into vehicles. Toyota: Reduces recalls by knowing exactly what machine produced which components of which vehicles. HP: Integrates network analysis and data visualization into its supply chain management and monitoring; has reduced the time for supply chain management projects by up to 50%. 14

IoT & Manufacturing Operating Efficiency IoT provides manufacturers a comprehensive view of what s occurring at every point in the production process and helps make real-time adjustments. Will increase manufacturing productivity by 10-25%. Producing up to $1.8 trillion in global economic value by 2025. 15

IoT & Manufacturing Operating Efficiency Explosion of low-cost sensor technologies has made every manufacturing process and component a potential data source. Ford: Placed sensors on virtually every piece of production equipment at its River Rouge facility. GM: Uses sensors to monitor humidity conditions during vehicle painting; if unfavorable, the work piece is moved elsewhere in plant or ventilation systems adjusted. Raytheon: Keeps track of how many times a screw has been turned in its factories. Merck: Improves vaccines by conducting up to 15 billion calculations to determine what environmental and process factors influence quality of final product. 16

IoT & Predictive Maintenance IoT expected to reduce factory equipment maintenance costs by up to 40%. Expected to reduce equipment downtime by up to 50% and is expected to reduce capital equipment investment costs 5%. Generating economic value of $630B annually by 2025. 17

The Coming Rise of Industrial Robots. A new generation of cheaper and more flexible factory robots is on the horizon. But the U.S. lags behind many nations in robot use. 600 500 400 300 200 100 0 Republic of Korea Singapore Japan Germany Sweden Taiwan Denmark USA Belgium 18

New Manufacturing Occupations Digital Design Specialist Manufacturing Systems Modeler Digital Manufacturing Analyst Collaborative Robotics Technician Machine Learning Specialist Worker Experience Analyst Manufacturing Analytics Manager Virtual Reality System Modeler Automated Guided Vehicle Systems Engineer User Experience Architect Supply Network Quality Data Analyst Digital Manufacturing Technician Source: Digital Manufacturing and Design Job Roles Taxonomy, Manpower Group and DMDII 19

Today s Presentation 1 What s Happened to U.S. Manufacturing? 2 Manufacturing Innovation 3 What is the Role of Government in Helping Manufacturers? 20

Other Nations Focused on Smart Manufacturing Policies Country Smart Manufacturing Policy/Program Investment Level Austria R&D projects associated with Industry 4.0 250/$300 Million China Germany United Kingdom European Union United States Made in China 2025 Program Implementation Plan for the 2016 Intelligent Manufacturing Pilots Special Project To help industry associations, research institutes, and companies create Industry 4.0 implementation strategies. High-Value Manufacturing Catapult, a network of seven advanced manufacturing technology institutes, including a Manufacturing Technology Centre (MTC). Horizon 2020 allocates funds for leadership in deploying key enabling and industrial technologies. 2 Related NNMIs Digital Manufacturing and Design Innovation Institute (DMDII) and New Smart Manufacturing Institute Enormous 200/$300 Million 140/$220 Million (Over next 5 years) 16B/$23B (Total seven years to 2020) $140M in federal funds, matched 2:1 21

Weak U.S. Manufacturing Skills Systems Global leaders (Austria, Germany) have systems of industry-led industry training centers and apprenticeship programs. 22

Anemic U.S. Investment in SME Support Systems Competitors invest much more on per-gdp basis (Canada 10x; Germany 20x; Japan 40x). Other nations invest in innovation voucher programs for small manufacturers (Austria, Belgium, Canada, Denmark, Germany, the Netherlands, Ireland, and Sweden). 23

What Should States Do? Support Innovative Skills Programs More engineering in high school (e.g., Purdue s High School evgrandprix; FIRST; SkillsUSA; SMU s Infinity Project; Purdue Polytechnic Charter High School) 24

What Should States Do? Support Innovative Skills Programs Advanced Manufacturing Training Centers (e.g., Francis Tuttle Technology Center in Oklahoma City; Learn Work Earn, MN; National Coalition of Certification Centers). University programs that emphasize manufacturing (e.g., Haley Barbour Center for Manufacturing Excellence at University of Mississippi; Georgia Tech s Manufacturing Center; University of Louisville engineering Co-op program). 26

What Should States Do? Skills Are Not Enough Expand R&D tax incentives (LA, VA). 28

What Should States Do? Skills Are Not Enough Expand R&D tax incentives (LA, VA). Create innovation vouchers (e.g., CT; IA, NN, RI, TN) 29

What Should States Do? Skills Are Not Enough Expand R&D tax incentives (LA, VA). Create innovation vouchers (e.g., CT; IA, NN, RI, TN) Support manufacturing R&D centers at universities 30

What Should States Do? Skills Are Not Enough Expand R&D tax incentives (LA, VA). Create innovation vouchers (e.g., CT; IA, NN, RI, TN) Support manufacturing R&D centers at universities CEO self-learning networks. Fund state match for the NIST Manufacturing Extension Partnership and the Manufacturing USA program and the Manufacturing Universities program. 32

MEP s National Network 33

MEP Impacts The $130 million invested in MEP in FY2016 generated an 8.7:1 increase in federal personal income tax ($1.13B For every 1$, MEP generates $19 in sales growth and $21 in client investment. For every $1,978 of federal investment, MEP creates or retains one manufacturing job. Since 1988, MEP has worked with 94,033 manufacturers, leading to $98.7 billion in sales and $17.1 billion in cost savings, & has helped create or retain 884,596 jobs. In 2015, MEP interacted with 29,100 firms, helping them to generate $8 billion in new and retained sales, make $3.2 million in new investments, realize $1.2 million in cost savings, and create or retain almost 70,000 jobs. 34

Thank You! Robert D. Atkinson ratkinson@itif.org @RobAtkinsonITIF @ITIFdc