Manufacturing in Australia

There are currently two future models for manufacturing:

Industrial Revolution Gen 4.0 – this is the German model where there are large automated factories which can be reconfigured on the fly and can take orders from customers over the internet. This plays to the German strength in the development and sale of factory-scale manufacturing equipment to the world.

Industrial Revolution Gen 5.0 – this is distributed and localised manufacturing using high-cost and small-footprint systems such as 3-D printers. What this approach lacks in the cost benefits of scale it picks up in low IP costs, high levels of customization and near-zero distribution costs for the finished products. Over time I expect Gen 5.0 to nibble away at market share of factory-produced products.

I have written more comprehesively about these at http://bit.ly/1LqD5XM

My own personal hybrid between these two models I call Gen 4.5. This name is not particularly imaginative so it may change.

I have instigated a project at UTS which we are currently calling the UTS Watch MiniFab. I should note that the project is still at the planning stages.

What we are developing is a wrist-watch supplier that is very different to any other.

From a customer’s point of view they will go onto a website. At this website they will be able to use some design tools to design their own watch, including variations in metal colour, shape, dial colour and shape, and other features. These designs will then be fabricated using a fully automated mini-fab comprising automated CNC machines, coaters, and other readily available tools. All product handling and assembly will be done by robots. All the key parts, such as metal blanks, watch movements and the like, will be delivered to the fab in ready-to-use cartridges thus also requiring minimal handling. After customer design, all the way through to the delivery of the watches our grand plan is to have no human intervention other than the odd postal worker.

In many ways the business model is more interesting than the technology. The development of the mini-fab capability will be know-how intensive but use entirely off-the-shelf tools. After the first mini-fab is completed and working the designs for these will be franchised to anyone with the capital and the will to operate them for a fixed profit. However the company formed to control this grand plan will continue to own and develop the brand, the customer portal, the web design tools and the purchasing gateway. This company will simple transfer orders to partners that have franchised the mini-fabs.

So who is the manufacturer in this scenario? The Australian company that owns the web portal and brand, or the franchisee in India that has invested in a mini-fab and acts solely to fulfil orders from the Australian company?

In my world view the larger share of the profits will be retained by the Australian company which took on all the risk to develop the capability in the first place and controls the customer engagement. The low risk deployment of a proven manufacturing capability by the Indians will have a lower return on capital but of course also a much lower risk since this investment won’t be made until the whole shebang is proven.

So when someone says to me that we hardly have manufacturing in Australia anymore and that this is a terrible thing, and I then describe this scenario to them, they typically get very confused by it. It doesn’t create manufacturing jobs and the actual physical manufacturing is very unlikely to take place in Australia (because of the high regulatory costs for a business of just existing here) and yet a substantial share of the profits will land in Australia.

This why I coined the term Gen 4.5 to distinguish this approach from Gen 4.0 and Gen 5.0; these models both assume that the capital equipment is owned by the ‘manufacturer’. Now that we have the internet we can start dreaming up new business models that are more efficient with respect to how risk and investment are deployed throughout the development of manufacturing opportunities and also during their exploitation.

More updates later, as the project progresses. But the principle here is quite simple to understand me-thinks and totally aligned to this scoping paper I wrote in 2013 which can be found at http://bit.ly/1LqD3PH