Middle Market Manufacturing Growth Trend 15% Revenue Actual Revenue Growth Projected Revenue Growth 10.2 10.2 10.1 9.8 9.2 10% 8.9 8.8 8.7 7.9 7.5 7.3 7.2 7.2 7.1 7.1 7.1 7.0 6.9 6.8 6.7 6.7 6.6 6.5 6.3 6.2 5.5 5.3 7.7 5.2 5.1 7.2 7.2 7.2 4.6 4.4 6.8 4.1 6.6 6.6 6.6 5% 6.4 6.3 6.2 6.2 6.1 5.4 5.4 5.3 5.2 5.2 4.9 4.8 4.6 4.6 4.6 4.4 4.3 4.2 4.2 4.1 4.1 3.9 0% 15% Actual Employment Growth Employment Projected Employment Growth 10% 8.3 6.5 6.4 6.5 6.1 5.7 5.6 5.4 5.2 5.0 4.8 4.5 4.4 4.3 4.2 4.0 4.0 4.0 5% 3.8 3.4 3.3 5.9 3.1 3.0 5.6 5.3 2.7 2.6 2.4 2.4 2.2 4.7 4.7 2.0 4.4 1.7 4.0 1.4 3.9 3.9 3.9 3.7 3.4 3.4 3.0 2.9 2.8 2.8 2.5 2.4 2.3 2.3 2.2 1.6 2.2 2.1 2.1 1.4 1.9 1.5 1.2 0% 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Source: 3Q’19 Middle Market Indicator Report
Most Companies Are Growing but Signs of Weakness Are Emerging Past Year Revenue Growth Total Middle Market Manufacturing 2Q ‘19 3Q ‘19 2Q ‘19 3Q ‘19 77% 83% 71% 76% Revenue Increased 28% 38% 10%+ 36% 42% 25% 5% to 9% 24% 25% 24% 18% 1% to 4% 16% 15% 17% 16% No change 14% 17% 14% 13% 9% 6% Revenue Decreased 3% Source: 3Q’19 Middle Market Indicator Report
3Q’19 MMI: Winners and Losers Total Middle Market Manufacturers 2Q 2019 3Q 2019 2Q 2019 3Q 2019 Performance Performance 68% 60% 74% 72% improved improved Performance Performance 26% 34% 22% 25% unchanged unchanged Performance Performance 6% 7% 4% 3% deteriorated deteriorated Source: 3Q’19 Middle Market Indicator Report
3Q’19 MMI: Economic Confidence Has Fallen 100% GLOBAL ECONOMY 55% 90% 80% 58% MANUFACTURING 70% U.S. ECONOMY 76% 60% 50% 81% MANUFACTURING 40% LOCAL ECONOMY 85% 30% 20% 1Q '13 2Q '13 3Q '13 4Q '13 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q '16 3Q'16 4Q'16 1Q'17 2Q'17 3Q'17 4Q'17 1Q'18 2Q'18 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 87% MANUFACTURING GLOBAL ECONOMY NATIONAL ECONOMY LOCAL ECONOMY Source: 3Q’19 Middle Market Indicator Report
3Q’19 MMI: A Growing Desire to Save Cash WHAT WOULD YOU DO WITH AN EXTRA DOLLAR TO INVEST? Save It-Hold as Cash 1 6 11 18 9 Save It--for Making Investments 27 8 30% CapEx--Plant & Equipment 15 12 44% 11 CapEx--Facilities 3 3 Acquisitions 7 17 8 37 Add to HR--More Personnel 13 Add to HR--Training & Development IT MANUFACTURING U.S. MIDDLE MARKET Other Source: 3Q’19 Middle Market Indicator Report
3Q’19 MMI: Investment Appetites Begin to Wane Expansion Planned Next 12 Months Total Middle Market Manufacturing 60 60 50 50 40 40 30 30 20 20 10 10 0 0 4Q2018 1Q2019 2Q2019 3Q2019 Source: 3Q’19 Middle Market Indicator Report
Manufacturers Face Five Major, Interrelated Challenges New risks and Competition exposures Supply chain relationships Changing product /service mix New ways Changing manufacturing technology to win Talent
CHALLENGE #1 Intensifying, Increasingly Global Competition of middle market manufacturers say the business environment has grown much more competitive 86% in the last five years (top 2 of 5 boxes) ALL MANUFACTURERS FASTEST GROWING Expansion into adjacent industries 11% 12% 16% 20% 9% 11% 16% 12% 17% 24% 13% 14% 15% 10% Globalization Consolidation of customers Businesses from other industries starting to encroach on your business Consolidation of firms like yours Businesses like yours expanding into other adjacent industries Consolidation of suppliers Disruptive entrants into the marketplace
CHALLENGE #1 Tariffs Are Making Global Competition Harder Impact of Increased Tariffs (by industry) Positive No change Negative WHOLESALE TRADE 8% 29% 62% RETAIL TRADE 17% 41% 41% CONSTRUCTION 24% 42% 34% MANUFACTURING 24% 48% 29% HEALTHCARE 22% 51% 27% OTHER 19% 56% 26% SERVICES (BUS., 9% 66% 26% PROF., TECHNOLOGY) FINANCIAL SERVICES, 18% 55% 27% INS. RE Source: NCMM, Middle Market Manufacturing, 2018; Middle Market Indicator Report 3Q 2018
CHALLENGE #1 Tariffs Affect Manufacturers’ Costs and Relationships Financial Impact Business Relationship Impact Increase No Change Decrease Will explore new No change Will renegotiate Margins Customer Base Costs Supplier Base Prices Source: NCMM, Middle Market Indicator Report 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% 3Q 2018
CHALLENGE #2: More Demanding Supply-chain Relationships Role of Company in Supply Chain Over Past 5 Years • Speed, inventory policies, and transparency have driven increased collaboration – upstream and downstream • Increased integration brings about additional requirements, services, and responsibility Source: NCMM, Middle Market Manufacturing, 2018
CHALLENGE #2: Speed and Digitalization Are Reshaping Supply Chains ALL MIDDLE MARKET MM MANUFACTURERS MANUFACTURERS GROWING 10% + Our customers expect faster cycle times than they 36% 81% 47% 90% have in the past We expect faster cycle times from our suppliers than 28% 79% 36% 90% we have in the past Regulations make supply chain management 20% 69% 18% 76% more complicated Digitization has made supply chain 14% 65% 22% 76% management simpler Import tariffs would likely have a major negative 23% 60% 30% 63% impact on my supply chain Digitization of the supply chain has resulted 12% 58% 12% 66% in shorter timelines Agree completely Agree somewhat Top 2 Box Source: NCMM, Middle Market Manufacturing, 2018
CHALLENGE #3: Changing the Mix: Value-Added Services VALUE-ADDED SERVICES HAVE BEGUN OR INCREASED AVE. REVENUE GAIN 8% Total 68% 8% CPM 64% 8% 71% OEM 12% Growing 79%% 10%+ Source: NCMM, Middle Market Manufacturing, 2018
CHALLENGE #3: Changing the Mix: Smart Products PROPORTION O OF PRODUCTS M MADE T E THAT ARE ”SMART RT P PRO RODU DUCTS” ( (IOT) ALL MIDDLE MARKET MM MANUFACTURERS MANUFACTURERS GROWING 10% + 3% 4% 18% 23% 37% 32% 42% 41% Source: NCMM, Middle Market Manufacturing, 2018
CHALLENGE #4: Rapid Technology Change on the Factory Floor TECHNOLOGY SPENDING LAST YEAR Cybersecurity 18% New Materials or Composites 19% Advanced Process Control 18% Robotics and Other Advanced Automation Additive Manufacturing and Rapid Prototyping 19% Embedded Sensor Technology (The Internet of Things) 13% 10% Other Technology Not Mentioned 3%
CHALLENGE #4: Technology Trends IMPORTANCE OF TECHNOLOGY ISSUES: NEXT YEAR ALL 10%+ GROWTH 31% 70% Cybersecurity 30% 66% 21% 72% Advanced process control 21% 61% 21% 59% New materials or composites 19% 52% Additive manufacturing / 14% 54% 13% 48% rapid prototyping Robotics and other 20% 43% 17% 45% advanced automation Embedded sensor technology 18% 37% 13% 37% (the internet of things) Extremely Important Very Important Top 2 Box Source: NCMM, Middle Market Manufacturing, 2018
CHALLENGE #5: Talent, Talent, Talent Extremely / Very Challenging ALL 10%+ GROWTH Finding workers with the technical 64% 76% 20% 23% skills needed Selecting and implementing health 13% 46% 13% 51% coverage for workers Implementing automation in the 7% 40% 9% 42% manufacturing process Finding workers with basic vocational skills 11% 39% 12% 45% Finding workers who meet basic requirements (e.g. 12% 37% 22% 52% drug free, physically able to do the job) Dealing with an aging workforce 6% 37% 7% 44% Fostering a safe work environment 4% 22% 6% 23% Source: NCMM, Middle Market Manufacturing, 2018
CHALLENGE #5: Digital Skills Are in Highest Demand Only 1/3 of U.S. Jobs created in the United States jobs created since between 2010-2016, by digital score 2010 are attainable for workers with low digital skills Source: Brookings Low Medium High
The Impact of Technology Is Overwhelmingly Positive Lower Productivity 4% 76% Higher Productivity Less Customization More Customization 10% 55% Less Need for Capital Greater Need for Capital 12% 50% Less Security Risks Higher Security Risks 22% 46% Manufacture Smaller Batches Manufacture Larger Batches 22% 42% Smaller Factories Larger Factories 14% 32% Smaller Workforce Larger Workforce 27% 28% Source: NCMM, Middle Market Manufacturing, 2018
Manufacturers Are Exposed to a Wider Variety of Risks • Playing a more important role in the supply chain leads to greater responsibility • The geopolitical climate is increasingly important • Digitization opens new doors • Adding new services leads to continuing responsibility • IT and operations systems must become more integrated
What High-Growth Manufacturers Are Doing • Achieving an ideal mix of international vs. domestic sales (less than 25% of revenue international) • Incorporating strong relationship management mindsets and tools across the organization • Offering higher levels of value-added services; these companies experience 9.7% average revenue growth vs. 7.7% for the entire sample – services component of these businesses growing at 17% of annual sales • Implementing a variety of technology and advanced manufacturing – cybersecurity, APC, robotics, additive manufacturing, and IOT devices/wearables • Tackling the workforce challenges with stronger employer brands and value propositions, stronger HR and recruiting capabilities, and leveraging public-private systems
middlemarketcenter.org
REFRESHMENT BREAK We will reconvene in 15 minutes
TECHNOLOGY TRENDS IN MANUFACTURING Jerry Foster Chief Technology Officer Plex Systems Anurag Garg VP, Analytics & IoT Plex Systems
WHY ARE WE HERE?
THE INDUSTRIAL REVOLUTION People Algorithms Machines Software Products Technology 1 st 2 nd 3 rd 4 th Steam Electricity Automation Cyber-Physical
INDUSTRY 4.0 We Make Stuff!
Jerry, I don’t care what you do, but you better not bring down that press. If it’s not going up and down, if we’re not making parts, we’ll go out of business.”
Robotic Process Analytics Additive Automation (RPA) Printing Big Data Ubiquitous Augmented Connectivity Industrial Reality Automation Blockchain Internet & Robotics of Things Cloud Generative Design Cognitive Artificial Computing Intelligence INDUSTRY 4.0
WHY IS INDUSTRY 4.0 A THING NOW? CONVERGENCE OF CLOUD, DATA, AND COMPUTE.
Robotic Process Analytics Additive Automation (RPA) Printing Big Data Ubiquitous Augmented Connectivity Industrial Reality Automation Blockchain Internet & Robotics of Things Cloud Generative Design Cognitive Artificial Computing Intelligence INDUSTRY 4.0
ALWAYS THINK IN TERMS OF “BUSINESS VALUE” VALUE DRIVERS
FOUR BROAD TECHNOLOGY TRENDS IN MANUFACTURING Automation / Robotics Leveraging Data Connecting More Things Additive Manufacturing
Maybe the problem with all this new technology emerging on the scene is that there is too much: too much data, too many decisions to make, too many vendors to choose from, too many case studies to read. And there’s never enough time. -- John Hitch, IndustryWeek
NOW THAT WE UNDERSTAND THE TECHNOLOGY TRENDS… … HOW DO WE LEVERAGE TECHNOLOGY TO SUCCEED?
BACK TO THE BASICS PEOPLE TECHNOLOGY PROCESS
ON TECHNOLOGY: START SMALL. PICK ONE PROBLEM. ITERATE. FAIL FAST Provide detailed Timely, accurate data genealogy for for decision-making customers Monitor suppliers for Predict and disruptions pre-empt downtime Correlate Accurately quality w/ record causality production Piece-level Supply Chain quality traceability monitoring
MAKING A SMART MACHINE Actively Establish Use data collect and infrastructure to guide analyze for data design and performance collection functionality data
ON PEOPLE: RECOGNIZE THE EVOLVING DEMOGRAPHICS 40% of the manufacturing workforce will retire in the next 10 years
Manufacturing’s Challenge with Millennials Reasons that people wouldn’t encourage Industry preference among people ages Millennials who said a sense of purpose is a child to pursue a career in manufacturing 19 – 33 if they were starting their careers Part of the reason they chose their current today employer
(Except for Manufacturing)
Solving the “People” Problem The challenges of IIoT are NOT TECHNOLOGICAL . They are BEHAVIORAL . Getting manufacturers and heavy industry to the ideal state of smart manufacturing is a problem to be overcome through HABITS ; encouraged by GOOD DESIGN , INCREMENTALISM , and TRAINING .
ON PROCESS: BUILD THE RIGHT HABITS!
CASE STUDY: WHEN THE HABITS DON’T EXIST
When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates. -- Pearson’s Law
CASE STUDY: TRIGGERS, ROUTINES, AND REWARDS Spindle Speed Spindle Load Speed 10 times load 700 250 exceeded exceeded 600 150% of max 100% 200 Speed [rpm] limit 500 Average Max Speed = 400 rpm Load [%] 150 400 Max Load = 100% 300 100 200 50 100 0 0 5/21/2017 5/23/2017 5/25/2017 5/27/2017 5/29/2017 5/31/2017 6/2/2017 6/4/2017 6/6/2017 6/8/2017 6/10/2017 5/21/2017 5/23/2017 5/25/2017 5/27/2017 5/29/2017 5/31/2017 6/2/2017 6/4/2017 6/6/2017 6/8/2017 6/10/2017 Date Date
WHEN IT ALL COMES TOGETHER Lessons from other industries
CONTACT INFORMATION Jerry Foster Chief Technology Officer Plex Systems jfos@plex.com Anurag Garg VP, Analytics & IoT Plex Systems agarg@plex.com
TAKING INNOVATION TO THE NEXT LEVEL Jeff Simek General manager operations RCO Engineering and RCO Aerospace jeff.simek@rcoeng.com Eric Haiss Executive vice president Continental Structural Plastics Eric.Haiss@cspplastics.com
TAKING INNOVATION TO THE NEXT LEVEL Jeff Simek General manager operations RCO Engineering and RCO Aerospace jeff.simek@rcoeng.com Eric Haiss Executive vice president Continental Structural Plastics Eric.Haiss@cspplastics.com
Operational excellence secures the present – Innovation excellence secures the future Robert Niemiec Managing Partner, Twisthink UHY Innovation Conference October 23, 2019
Chapter 2 Chapter 1 A Proven Process Why Innovate Chapter 3 Chapter 4 Digital Opportunity Take Action UHY Innovation Conference October 23, 2019
Chapter 1 Why Innovate UHY Innovation Conference October 23, 2019
“ Operational excellence secures the present – Innovation excellence secures the future. Roger Milliken ” UHY Innovation Conference October 23, 2019
Innovation Opportunity 9 % INNOVATION Embrace Difficult Only 9 % of all US public and private companies are doing any kind of serious innovation. Harvard Business Review COMMODITY Fear Easy UHY Innovation Conference October 23, 2019
Chapter 2 A Proven Process UHY Innovation Conference October 23, 2019
Lean Manufacturing PHILOSOPHY Process To build a customer driven product sequence in a predictable and stable manner at the lowest total cost, highest quality, and the shortest lead time with the best safety. STABLE & STANDARD INSTATION WASTE CONTINUOUS PROCESSES QUALITY REDUCTION IMPROVEMENT START TOOLS/METHODS (100+) Standardized Work Flow Error Proofing In Station Quality Go-and-see Level Production Quick Changeover Pull System Problem Solving Visual Factory UHY Innovation Conference October 23, 2019
Human-Centered PHILOSOPHY Design Process Human-Centered Design (HCD) is a mindset and a strategic process for problem solving that places the users at the heart of the development efforts. DISCOVER ANALYZE CREATE DEVELOP START TOOLS/METHODS (100+) Framing workshop Visual research tool 2D/3D visualization Models/prototypes Knowledge transfer Journey maps End user co-creation Stakeholder evaluation Contextual site tours Era mapping Business model canvas Initial business plan UHY Innovation Conference October 23, 2019
Innovation and Product Development Process INNOVATION PRODUCT DEVELOPMENT DISCOVER CREATE DESIGN VALIDATE ANALYZE DEVELOP REFINE LAUNCH UHY Innovation Conference October 23, 2019
3 Lenses of HCD 1 USER DESIRABILITY The What User Experience Design 2 TECHNICAL FEASIBILITY 3 BUSINESS VIABILITY The How The Value User Experience Delivery Method User Experience Value UHY Innovation Conference October 23, 2019
Innovation Sweet Spot Usability + Business Technical Desirability Viability Feasibility STARTUP COMPANIES ESTABLISHED COMPANIES SMART COMPANIES Intellectual property tends Business viability is the Understand their customers and their needs, then align new to get all the attention. dominate force. technology to support those needs, while creating a new “Hammer looking for a nail” scenario. business model. UHY Innovation Conference October 23, 2019
“ Design centric companies show a 211% return over the S&P 500. Design Management Institute ” 211% S&P UHY Innovation Conference October 23, 2019
Chapter 3 Digital Opportunity UHY Innovation Conference October 23, 2019
“ “ The global number The global number of IoT-connected devices of connected devices is is projected to reach projected to reach 43 BILLION BY 2023, 43 BILLION BY 2023, 3x the amount from 2018. 3x the amount from 2018. McKinsey McKinsey ” ” UHY Innovation Conference October 23, 2019
The internet of things (IoT) is a system of physical objects embedded with technology IoT Overview for the purpose of gathering insights to enhance user experiences. USER EXPERIENCE Dashboards • Controls • Alerts • THE CLOUD Database Security • • Scalable API • • Storage • EDGE DEVICES Analytics at the Edge Sensor • Analytic • Micro Insight • UHY Innovation Conference October 23, 2019
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