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Micromanufacturing the future

TechCrunch TechCrunch 3/04/2016 Dmitry Slepov

Micromanufacturing. As soon as I finish typing the word, my Grammarly spell checker promptly underscores it in red and suggests a replacement: “micro-manufacturing.” But this new spelling is about to go mainstream.

When I say micromanufacturing, I don’t mean making tiny (micro-scale) components. There’s another definition: “Micromanufacturing is the manufacturing of products in small quantities using small manufacturing facilities.”

I’m talking about “tiny factories.”

How tiny is tiny? Well, right now, everything-fits-in-one-small-room tiny. Several years down the road, the size of an office copy machine will become the standard of “tiny” in micromanufacturing.

Many of us grew up in an era of giant factories. In the beginning, they were in our backyards, then they moved to China and became even giant-er. Some factory floors for making electronic boards and products are now so large you have to drive around them! So, why the heck am I talking about tiny factories? Is this even attainable or practical?

I always thought those large manufacturing facilities dotting the landscape of China and other industrialized nations were like computer mainframes of yesteryear. Built with huge capital investment, these facilities are shared between users, each one utilizing only a portion of the available capacity.

Now, what happened to mainframes? The era of these computing monsters was followed by an explosion in personal computing. PCs took something enormously expensive that was previously shared by many and placed it in the hands of individuals.

The same is going to happen in manufacturing in general, and the manufacturing of electronics in particular. Here are four reasons for why I think we are going to see an explosion in “personal manufacturing.”

The first reason is that the equipment needed to produce electronic devices is getting smaller and cheaper. Machines for producing electronic boards are not all that sophisticated. Your laser printer has more parts in it than an SMT “chip shooter” does.

As more and more people start to buy or lease their manufacturing equipment, prices will go down.

The chief reason these machines are so expensive is because they only sell in tiny volumes. As more and more people start to buy or lease their manufacturing equipment, prices will go down — as they always do when sales increase. In a perfect positive feedback loop that invariably forms around emerging technologies, SMT machines, reflow ovens and other necessary components of electronic board production will become smaller and cheaper, then cheaper still as they get even smaller.

Naturally, these compact machines will have relatively modest performance, but that’s okay. Office laser printers are very slow compared to professional printing equipment, but we rarely see this as a limitation. In any case, the laser printer in your office isn’t there to print a large volume of documents. It is there to print on demand, when you need it, without waiting and scheduling.

The same deal applies to micromanufacturing.

The second reason is Digikey. For electronic components, Digikey is like Amazon and Wikipedia rolled into one. I say Amazon because Digikey is a vast store of virtually anything and everything that goes on printed circuit boards, from humble resistors to mighty CPUs. And I say Wikipedia because Digikey also provides technical data and marketing materials for everything they offer.

When I first started working in Taiwan back in 1996, our company had a large purchasing department staffed by employees who were handling the procurement of electronic parts. A typical BOM (bill of materials) -– the list of parts needed to build a product – often runs into hundreds of entries.

Most of these parts come from different suppliers, and it was the task of our purchasing department to source the components, negotiate the price and set the delivery schedule. Sourcing is an arduous, monotonous job that requires manpower and concentration: Even a single mistake can derail your production. For this kind of work, doing it 99 percent right just doesn’t cut it. Only 100 percent suffices.

“Made in America” has once more become a favored marketing line.

Large factories in Asia still have sizeable purchasing departments. Negotiating directly with suppliers allows these factories to get the best prices, and build relationships. For specialized players, the task of sourcing parts for small production runs is a major drag on productivity. Fortunately, we have Digikey now. These days, our purchasing department is very small. For many BOMs, we just punch the list straight into Digikey.

Would we get better prices had we dealt with vendors directly? Sure, but this would come with strings attached: We would be asked to order “MOQ” (minimum order quantity), and MOQs can be relatively high. Digikey rarely demands “MOQs.” You can buy most parts in “QTY1” (quantity of one). This is more expensive, but you don’t bloat your inventory.

Understanding where things are going with micromanufacturing, Digikey has quietly started doing two things. First, most components can now be ordered in reels, even if the order quantity is very small. These reels go straight onto SMT machines, thus decreasing the time needed for production setup.

The second innovation pursued by Digikey, as well as Avnet and other players, is the scheduling service. The idea is to allow manufacturers to create parts delivery schedules and thus achieve that coveted just-in-time production.

Extrapolating into the future, I see a world where compact SMT machines automatically order electronic parts from Digikey. If HP’s inkjet printers can now order cartridges without your intervention, why won’t your future SMT machine do the same?

You see where I’m going with this? Cheaper machines, coupled with reduced labor and complexity of getting parts. This is a revolutionary combination, and I’m just halfway through my list of reasons of why micromanufacturing will take off.

The third reason is politics. The era of globalization is over. That is a bold statement, but if you look for the signs, they are everywhere. The second half of the twentieth century saw an unprecedented removal of trade barriers, cheered on by the Chief Globalization Cheerleader — the United States.

Global trade treaties ensured unprecedented access for American corporations. They also have led to the demise of American and European manufacturing, so much so that some types of factories are now entirely extinct there, and workers of certain professions have ceased to exist.

These days, the tide seems to be turning. Even the Chief Globalization Cheerleader is now trying to bring the jobs back home. Look no further than the election platform of Donald Trump. Mr. Trump makes it clear where he thinks American goods should be made — in America. He is far from being alone in touting this message. “Made in America” has once more become a favored marketing line.

Whenever there is a new business or societal trend, America is always quick to come up with a flashy title, a phrase or a word that tries to capture the very essence of that trend. Well, there is a new word for bringing the factories home, and the word is “reshore.” Reshoring is the opposite of “offshoring” — the term that was hot two decades ago when everyone was shifting their production to China.

If language is the herald of things to come, the new term sends an unequivocal message. Manncorp, a well-established supplier of SMT equipment, has recently run a banner on their website. It read: “Helping American businesses to reshore.” There also is reshorenow.org, with its Reshoring Initiative, and hundreds of other outfits that are promoting the idea.

What’s suitable for domestic manufacturing today is the production of niche, specialized products.

This budding movement to bring the manufacturing back home is not restricted to America alone. Across the globe in Russia, the government has started to eliminate tariffs on electronic components and simultaneously created significant barriers to using imported goods in government projects. The trend is clear, and countries big and small are beginning to follow suit.

Now, what kinds of factories have a chance to come home? Donald Trump seems to think that just about anything can be reshored, even the production of iPhones. I doubt that, and so do industry experts. Bringing iPhone factories home would require an enormous expense and effort of automating the manufacturing process with robots, and this is not feasible just yet (see my article titled The real cost of robotics). So, let’s leave the dream of bringing all production home to politicians and their election-year politics.

What’s suitable for domestic manufacturing today is the production of niche, specialized products. America and Europe have a lot of those, and gigantic Chinese factories are not a good fit for manufacturing them anyway. Compact, agile production facilities are much more suitable. This is where politics will meet the practical demands of business.

Politics aside, many countries now have a small but influential and quickly growing group of people referred to as “makers.” These guys just want to build cool things. They want to make stuff, and they want to do that personally, not outsource to faraway places like China the process of making.

Aided by immensely popular crowdfunding platforms like Kickstarter and Indiegogo, these young entrepreneurs have already figured out how to collect the funds for their projects. Now they are figuring out how to build their products locally. They don’t need large factories. Instead, they require compact, personal manufacturing facilities tailored to small, flexible production runs. For many makers, micromanufacturing will be the key to their commercial success.

Reason number four is this: Many folks are tired of dealing with China.

I will argue that many companies relocated their production to China for reasons far removed from the hard economic necessity. There was a romantic component: “I’m a globe-trotting entrepreneur.” There was a bragging component: “Look, I’m so international that my office is in L.A. and my manufacturing is in China.” There was the usual herd mentality: “Everyone is going to China. I must go, too.”

That was then. These days, many are tired of the long intercontinental flights. It’s not fun, and not exactly romantic after you do it a couple of times.

Then there is China’s rampant disregard for intellectual property. As one of my Swiss customers says: “We don’t just see copies of our products. We see copies of copies.”

Then there are quality issues. The only way to get good quality in China is through constant inspections and monitoring. It is costly and tiresome, and the moment you stop looking is the moment you get quality issues.

Then, there are “night runs.” These are unauthorized production runs that produce the same goods, then sell these goods through illegal channels. The problem is enormous. Countless major brands are affected by it. Last week, I was presented with a Salvatore Ferragamo scarf. I was assured that the scarf was “100% real.” “OEM” smirked the guy who gave it to me, OEM being a polite, tongue-in-cheek code for the “night run” production items.

The micromanufacturing future I’m imagining is still far off, but the revolution has already begun.

Several other factors add to the overseas customers’ pains. The standard of living and wages have improved dramatically in China. This spells all kinds of positive changes in the Chinese society, but also drives up manufacturing costs. The government there has gotten much better at accessing and collecting taxes, and instituted some new ones as well. Foreign companies that were once lured to massive manufacturing parks and zones with low costs and rebates now feel at a disadvantage compared to local manufacturers who seem to be increasingly favored by the government.

Finally, consider the generational factor. The generation of entrepreneurs who went to “open” China in the 1980s is now getting old. Many of these guys are itching to come home. For a lot of them, micromanufacturing and automation offer a real hope of reshoring.

There you have it, my four reasons for why micromanufacturing is about to take off in a big way. Think anyone here in Asia gets it? Absolutely not! It took me two years to put my own micromanufacturing facility together. There are thousands of machinery suppliers, but very few had anything remotely useful for my mini-factory project. I had to combine things in unexpected ways and invent my own gear where none was readily available. Two years on, my mini factory is alive and working well, but the effort turned out to be much larger than I anticipated.

One day I was on the elevator in our office building in Taipei. The guy standing next to me was a rep from a stencil maker (solder paste stencils are used in the production of electronic boards). This guy just delivered new stencils to my office. Suddenly he laughed and said: “I just saw your factory. It is soooooooooooooo tiny! Before coming here I went to my other customer, he has an assembly line that runs the entire block”! He opened his arms as wide as the elevator walls allowed and looked at me with unbridled curiosity. To him, I was a grown-up playing with toys.

Well, I’m wondering if he will still be laughing in, say, 10-15 years. By then, SMT “chip shooters” will shrink to the size of a large office copy machine. They will come with sophisticated management software that will automatically order parts from global distributors. Ovens and other necessary equipment will be available in vertical form factors to save floor space. Affordable robots will be summoned to insert large components, tighten screws and do all that other stuff SMT machines cannot do.

Yes, that micromanufacturing future I’m imagining is still far off, but the revolution has already begun. Compact SMT machines are almost affordable now, and we are only at the very beginning of a powerful cycle.

This cycle has repeated countless times before. Once you bought a car, you were much less likely to take a bus. As soon as you had a laser printer in your office, you were almost entirely gone as the print shop’s customer. Once you purchased your micromanufacturing equipment… I leave finishing this thought to you.

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