US Manufacturing Needs AI-Driven Efficiencies

We in the United States excel at new product introductions, but the US long ago ceded its position as a top manufacturer to countries that excelled at turning our innovations into cheap products. Now, as the US works to rebuild its manufacturing might, finding ways to harness innovations in technology will be the key to success.

Why US Manufacturing Is Late to the Game

Manufacturing in the US has lagged behind its international counterparts largely due to the higher cost of doing business here. In addition to lower labor and materials costs, manufacturers in countries like China enjoyed a laxer regulatory environment and subsidies not available in the US. 

Until now.

The massive supply chain failures during the pandemic served as a wake-up call for the US.

Most major US manufacturers have, since the pandemic, increased onshoring and nearshoring their parts because they are now considering the true costs, including risks, of offshoring their production parts. Before the pandemic, there was only a small handful of manufacturers that were thinking of onshoring. 

Support for US Manufacturers

Determined to help disaster-proof the country against future catastrophic disruptions, the Biden Administration devoted $600 million from the American Rescue Plan (ARP) to strengthen US ports and budgeted nearly $200 billion toward investments in semiconductor, electric vehicle, and battery manufacturing in the US.

An additional $10 billion in ARP funds was deployed by the Treasury Department under the new State Small Business Credit Initiative (SSBCI), along with more than $70 billion in additional lending and investment for small businesses, including small manufacturers.

And the Department of Energy (DOE) is offering $44 million in funding to provide commercial-ready technologies that give the US a net-zero or net negative emissions pathway toward increased domestic supplies of copper, nickel, lithium, cobalt, rare earth elements, and other critical elements required for a clean energy transition. 

How Do We Catch Up?

This renewed interest in and federal support for bringing manufacturing back to the US is all great news for this sector, but it’s playing catch-up. So, how can manufacturers, especially small and medium-sized businesses, get ready to compete at a higher level?

Technology, of course.

That is, intelligently deploying new technologies that can help manufacturers cut costs, improve efficiencies, and increase profits without the type of huge up-front investment only the mega-corporations can afford.

The first things to go digital in an industry like manufacturing are the ones everyone else already knows how to digitize: things like purchase orders and catalogs. Changing a paradigm for a piece of paper is an awful lot easier than changing a paradigm for a generator. And even a piece of paper can be hard to digitize in the manufacturing sector.

For example, in my previous company, our products were certified to certain safety standards (ETL). To prove that our products had been certified, we were required to affix a specifically formatted, printed label to every product we shipped. We ordered these from the Brady Corporation in Milwaukee, and, even in this day and age of digitization, there was no way we could electronically receive our certification and print the labels ourselves. The labels were produced with anti-fraud features, and we had to comply with other compliance regs. So, if we ran short or forgot to order, production would simply stop. We couldn’t ship without that label. Even though it was “just” a label, it could not be digitized.

That’s just one tiny example of how the complexities and the interconnectedness—the physical-ness—of manufacturing makes digitizing more difficult.

Most manufacturers have already digitized the easy stuff, like purchase orders and catalogs. But after the “easy stuff” is done being digitized, it gets a lot harder and more expensive. 

Gaining Visibility

The supply chain breakages during the pandemic dramatically underscored the need to gain full supply chain visibility; not just one level down, but all the way down to commodities like cotton or molybdenum. One of the biggest problems in manufacturing today is the lack of visibility into the supply chain. One late delivery can shut down an entire production line.

But gaining visibility into the supply chain had been an insurmountable challenge, with no magic tech bullet to solve this issue.

However, smart companies are doing it right now. Rather than blather on about supply chain resiliency (which I think is a red herring), they are doubling down with their best suppliers and demanding real time visibility into their suppliers’ supply chains. 

Why do I dismiss resiliency? Resilient means multi-source. The advice is: “don’t just have one source for parts—have a backup!” However, managing multiple providers is cost-prohibitive and flies in the face of every lean manufacturing best practice we’ve relied on for the past 50 years. Double your vendors, double your OpEx. 

Following Microsoft’s Lead

Gartner’s 2022 Supply Chain awards lauded Microsoft for its work in this area. Its award was for “Real-Time Visibility Enabling a Sentient Supply Chain.” 

Here’s how they did it (and how every manufacturer should be doing it): They updated their purchasing contracts to gain real-time visibility into their suppliers’ order statuses (and their suppliers’ order statuses). They also used headless architecture to programmatically interface with their suppliers’ supply chain management systems.  

Without knowing the exact recipe for Microsoft’s “special sauce,” one way to achieve this is by requiring that suppliers accept APIs by adding a compliance verification requirement, in the form of an API, and directing suppliers to require the same from their suppliers in your purchase order’s compliance verification clause.

The headless architecture side of the equation is like Shopify for industrial commerce. It can currently be achieved via industrial commerce offerings like Microsoft’s Dynamics headless ERP architecture and Inxeption’s iCommerce platform, with more sure to come. 

Is Change Too Risky?

Manufacturers are as willing as anyone to take risks. 

Even though the sector seems stodgy, I have never found it to be.

The biggest impediment to change comes overwhelmingly from the regulatory-heavy nature of the sector. Regulations affect almost every physical product sold in the US, and adherence places an extra burden on any proposed change. This is a huge impediment to innovation in this sector, and it’s the second biggest reason—after the “physical” product problem—why manufacturing is a digital laggard.  

So, no, change isn’t too risky. It’s just harder in manufacturing.

That said, the profusion of manufacturing-on-demand companies like Protolabs, Rapid Axis, and Xometry show that you can bring Amazon-like speed and convenience to the manufacturing space, making it easier to not only manufacture in the US, but also to innovate.

Speed and innovation are another key to outperforming foreign competitors. When I was working in manufacturing in the lighting industry, for example, we were able to successfully compete with cheaper overseas manufacturers by customization and new product introduction.

When our overseas competitors’ primary driver is to take an existing product that has a good market and make it cheaper, our own path forward is to continue introducing clever new products—that we can manufacture here with less risk of supply-chain interruptions.