The Rise of the Internet of Goods: A New Perspective on the Digital Future for Manufacturers >> HOME

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But the future of manufacturing, having come more slowly than expected, may now be on the verge of happening all at once. The ability to digitize the actual manufacturing and distribution process is rapidly approaching the point where new business models and new markets will emerge. Digitization of production and digitization of distribution will lead to a renewed emphasis on local manufacturers, which will provide rapid response customization and distribution that foreign competitors cannot. Moreover, we are entering a new era of manufacturing platforms, both open and proprietary, which may boost global productivity and innovation in manufacturing.

Recent research has identified several trends that may lead to a revival of localized manufacturing. First, the rise of ecommerce fulfillment centers is revolutionizing distribution. This factor cannot be underestimated in the next wave of manufacturing. For years, the efficiencies of scale associated with standardized shipping containers gave the entire manufacturing system a bias towards scale. It was often cheaper to ship a single container from Shanghai to New York than to ship the same goods in small lots by truck from Ohio.

But the advances in distribution technology introduced by Amazon change the economic equation. A technology designed to sort and ship packages to consumers efficiently can give industrial businesses the ability to ship individual items directly to customers without going through distributors.

Second is the growth of robots and 3D printing. In different ways, these two technologies give manufacturers the ability to efficiently fulfill small-batch or custom production runs without incurring heavy retooling costs. That greatly expands the types of business models that are possible. For this paper, we will focus on 3D printing, but the extensions to robots are obvious.

Third, and most important, industrial companies now have the capability to create manufacturing platforms, both open and proprietary. These platforms would be analogous to today’s multi-sided internet platforms, like app stores, social media, or advertising networks. Platforms are built upon a ceaseless flow of small packets of data that are rapidly routed to the desired destination. By contrast, these new manufacturing platforms would be mixed cyber-physical systems consisting of functions such as design, production, and distribution running as separate services on top of an advanced distribution network of goods. By analogy with the digital world, it is useful to think of this new physical network of goods as being “packet-switched,” indicating greater flexibility and lower costs than the previous generation of distribution.  

This next wave of manufacturing is usually called Industry 4.0, but it is more descriptive to call it the Internet of Goods. The result: anticipate a thickening network of small-batch and custom factories taking hold around the country. The new business models will give a sustained competitive advantage against foreign competitors, because who wants to buy a custom item from a supplier 10,000 miles away that will take two months to arrive? This will enable the U.S. to rebuild its industrial networks in areas like the Midwest and upstate New York.

Research also suggests that there is going to be a new wave of industrial startups, which take advantage of the new technologies. Carbon®, a 3D printing startup in Redwood City, is emblematic of this new wave of startups. The company offers its cutting-edge 3D printers on a subscription model—Hardware-as-a-Service. The printers connect to Carbon through the internet, allowing Carbon to offer printer upgrades and optimization on the fly.

Similarly, there will be a new role for large industrial companies as the global hub of manufacturing platforms. Like the large tech companies that currently form the hubs of digital platforms, the global industrial giants will do much of the R&D and investment developing new technologies and take much of the risk. In exchange, they will take a share of the gain from increased productivity.

As the Internet of Goods takes hold, state and local policy will play a powerful role in determining which areas are the big winners. The gains will depend on whether the local workforce is prepared for tech-enabled physical industries; the availability of capital for local entrepreneurs to start new businesses or expand existing ones; and the regulatory environment.