Tag Archives: Productivity

Updates from McKinsey

Digital transformation: Improving the odds of success
By Jacques Bughin, Jonathan Deakin, and Barbara O’Beirne – or established companies, the pressure to digitize business models and products has reached new intensity. McKinsey research shows that the best-performing decile of digitized incumbents earns as much as 80 percent of the digital revenues generated in their industries.

Ascending to that elite group is far from easy. In a new survey of more than 1,700 C-suite executives, we learned that the average digital transformation—an effort to enable existing business models by integrating advanced technologies—stands a 45 percent chance of delivering less profit than expected. The likelihood of surpassing profit expectations, on average, is just one in ten.

The good news is that executives can decisively increase the chance that a transformation focused on digital enablement will beat performance expectations.

Our latest research shows that exceptionally effective digital transformations are distinguished mostly by the practices that executives choose to follow. Adhering to a well-defined set of transformation practices lifts the likelihood of exceeding profit expectations to more than 50 percent—about five times better than transformations that involve none of these practices. What’s more, the same combination of practices works for every type of digital-enablement effort that our survey covered. more>

The Unwinnable Trade War

By Weijian Shan – There are at least two reasons why Chinese exports to the United States have not fallen as much as the Trump administration hoped they would. One is that there are no good substitutes for many of the products the United States imports from China, such as iPhones and consumer drones, so U.S. buyers are forced to absorb the tariffs in the form of higher prices.

The other reason is that despite recent headlines, much of the manufacturing of U.S.-bound goods isn’t leaving China anytime soon, since many companies depend on supply chains that exist only there. (In 2012, Apple attempted to move manufacturing of its high-end Mac Pro computer from China to Texas, but the difficulty of sourcing the tiny screws that hold it together prevented the relocation.)

Some export-oriented manufacturing is leaving China, but not for the United States. According to a May survey conducted by the American Chamber of Commerce in Shanghai, fewer than six percent of U.S. businesses in China plan to return home. Sixty percent of U.S. companies said they would stay in China.

The damage to the economy on the import side is even more pronounced for the United States than it is for China. Economists at the Federal Reserve Bank of New York and elsewhere found that in 2018, the tariffs did not compel Chinese exporters to reduce their prices; instead, the full cost of the tariffs hit American consumers. As tariffs raise the prices of goods imported from China, U.S. consumers will opt to buy substitutes (when available) from other countries, which may be more expensive than the original Chinese imports but are cheaper than those same goods after the tariffs. The price difference between the pre-tariff Chinese imports and these third-country substitutes constitutes what economists call a “dead-weight loss” to the economy.

Beijing’s nimble calculations are well illustrated by the example of lobsters. China imposed a 25 percent tariff on U.S. lobsters in July 2018, precipitating a 70 percent drop in U.S. lobster exports. At the same time, Beijing cut tariffs on Canadian lobsters by three percent, and as a result, Canadian lobster exports to China doubled. Chinese consumers now pay less for lobsters imported from essentially the same waters.

The uncomfortable truth for Trump is that U.S. trade deficits don’t spring from the practices of U.S. trading partners; they come from the United States’ own spending habits.

The United States has run a persistent trade deficit since 1975, both overall and with most of its trading partners. Over the past 20 years, U.S. domestic expenditures have always exceeded GDP, resulting in negative net exports, or a trade deficit.

The shortfall has shifted over time but has remained between three and six percent of GDP. Trump wants to boost U.S. exports to trim the deficit, but trade wars inevitably invite retaliation that leads to significant reductions in exports.

Even a total Chinese capitulation in the trade war wouldn’t make a dent in the overall U.S. trade deficit. more>

Updates from Siemens

Electrolux implements worldwide 3D factory and material flow planning
Siemens – Based in Stockholm, Sweden, Electrolux AB sells appliances for household and commer­cial use in 150 countries around the world. With around 58,000 employees and 46 pro­duction sites, the company develops and manufactures products of numerous brands: in addition to Electrolux, the top brands Grand Cuisine, AEG, Zanussi, Frigidaire and Westinghouse enjoy a particularly high reputation.

In 1996, the German AEG brand was acquired from Daimler Benz, together with several divi­sions and locations of the group. This is how the factory in Rothenburg ob der Tauber, founded in 1964, came to Electrolux, which today produces 600,000 stoves and 1,400,000 cooking ranges per year for the European market.

We attach great impor­tance to implementing in detail the essential product characteristics of each brand in development and production,” reports Bernd Ebert, director of Global Manufacturing Engineering − Food Preparation at Electrolux. Based in Rothenburg, Ebert ensures that all Electrolux cooking appliance factories imple­ment uniform processes and systems.

As part of a comprehensive digitalization strategy covering all areas, 11 digital manu­facturing projects are on the agenda of the Swedish global corporation. Ebert has assumed responsibility for two global proj­ects with the highest priority. They aim to create “digital twins” of all manufacturing sites: In the virtual manufacturing project, an advanced planning tool was selected and introduced for early design verification to develop products that are production- and assembly-friendly. For example, assembly sequences and movements will be planned and optimized three-dimensionally to pre­vent collisions. The prerequisite for this is the development of three-dimensional fac­tory layouts, which is the focus of the sec­ond project, 3D factory layout. The layouts will be created using a standard factory planning tool that can simulate both the plant and the material flow on the basis of 2D data in order to optimize capacity and efficiency.

Software selection began in 2014, when only a few had powerful software for 3D factory planning. A small, specialist team led by Ebert worked closely with the company’s IT department in Stockholm. Starting in 2015, Teamcenter from Siemens PLM Software was deployed there as a strategi­cally important product development plat­form for product lifecycle management (PLM) at Electrolux.

Discussions about Siemens’ future strategy led to an offer to test a pre-release version of the 3D layout software Line Designer in an early adopter program. more>

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National Security: Keeping Our Edge

By James Manyika, William H. McRaven and Adam Segal – The United States leads the world in innovation, research, and technology development. Since World War II, the new markets, industries, companies, and military capabilities that emerged from the country’s science and technology commitment have combined to make the United States the most secure and economically prosperous nation on earth.

This seventy-year strength arose from the expansion of economic opportunities at home through substantial investments in education and infrastructure, unmatched innovation and talent ecosystems, and the opportunities and competition created by the opening of new markets and the global expansion of trade.

This time there is no Sputnik satellite circling the earth to catalyze a response, but the United States faces a convergence of forces that equally threaten its economic and national security. First, the pace of innovation globally has accelerated, and it is more disruptive and transformative to industries, economies, and societies. Second, many advanced technologies necessary for national security are developed in the private sector by firms that design and build them via complex supply chains that span the globe; these technologies are then deployed in global markets.

The capacities and vulnerabilities of the manufacturing base are far more complex than in previous eras, and the ability of the U.S. Department of Defense (DOD) to control manufacturing-base activity using traditional policy means has been greatly reduced. Third, China, now the world’s second-largest economy, is both a U.S. economic partner and a strategic competitor, and it constitutes a different type of challenger.

Tightly interconnected with the United States, China is launching government-led investments, increasing its numbers of science and engineering graduates, and mobilizing large pools of data and global technology companies in pursuit of ambitious economic and strategic goals.

The United States has had a time-tested playbook for technological competition. It invests in basic research and development (R&D), making discoveries that radically change understanding of existing scientific concepts and serve as springs for later-stage development activities in private industry and government.

It trains and nurtures science, technology, engineering, and mathematics (STEM) talent at home, and it attracts and retains the world’s best students and practitioners. It wins new markets abroad and links emerging technology ecosystems to domestic innovations through trade relationships and alliances. And it converts new technological advances into military capabilities faster than its potential adversaries.

Erosion in the country’s leadership in any of these steps that drive and diffuse technological advances would warrant a powerful reply. However, the United States faces a critical inflection point in all of them. more>

Updates from Siemens

Siemens Case Study: Lean Digital Factory Project

By Gunter Beitinger – In October 2017, Siemens launched their Lean Digital Factory (LDF) program. Combining a group of experts from different business functions and technology units, its purpose is to define a conceptual holistic digital transformation roadmap for all factories of the operating company Digital Industries (DI).

To fully capture the value of using big data in manufacturing, the plants of DI needed to have a flexible data architecture which enabled different internal and external users to extract maximum value from the data ecosystem. Here, the Industrial Edge layer comes into the picture, which processes data close to the sensors and data source (figure).

The Industrial Edge and data lake concept will enable a more powerful solution than any other data storage and utilization concept:

  • The MDP will be a colossal storage area for all manufacturing data and will be tremendously powerful for all user levels
  • The MDP data platform is a centralized and indexed aggregation of distributed organized datasets
  • Big data will be stored in the MDP independently of its later use, this means as raw data
  • In combination with Industrial Edge, the MDP is the pre-requisite for effective and scalable cloud computing and machine learning
  • The Industrial Edge is used in this architecture for multiple purposes like data ingestion, pre-preparation, security-gate, real-time decisions.
  • Highly integrated, but module and service-based ecosystem functionalities.

In DI, it can be challenging to harness the potential of digitalization at full scale due to installed proprietary software solutions, customized processes, standardized interfaces and mixed technologies. However, at Siemens, this doesn’t mean that we ran a large standardization program before leveraging the possibilities of data analytics and predictive maintenance in our plants.

To get rubber on the road at large scale, we required an architectural concept which allowed us to develop applications, scale up and transfer solutions from plant to plant, from engineering to shop floor as well as supplier to customer and reuse identified process insights from one application to another. more>

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No, Productivity Does Not Explain Income

Marginal productivity is a thought virus that is sabotaging the scientific study of income.
By Blair Fix – Did you hear the joke about the economists who tested their theory by defining it to be true? Oh, I forgot. It’s not a joke. It’s standard practice among mainstream economists. They propose that productivity explains income. And then they ‘test’ this idea by defining productivity in terms of income.

The marginal productivity theory of income distribution was born a little over a century ago. Its principle creator, John Bates Clark, was explicit that his theory was about ideology and not science. Clark wanted show that in capitalist societies, everyone got what they produced, and hence all was fair.

Clark was also explicit about why his theory was needed. The stability of the capitalist order was at stake!

Clark created marginal productivity theory to explain class-based income — the income split between laborers and capitalists. But his theory was soon used to explain income differences between workers.

In the mid 20th century, neoclassical economists invented a new form of capital. Workers, the economists claimed, owned ‘human capital’ — a stock of skills and knowledge. This human capital made skilled workers more productive, and hence, made them earn more money. So not only did productivity explain class-based income, it now explained personal income.

Given the problems with comparing the productivity of workers with different outputs, you’d think that marginal productivity theory would have died long ago. After all, a theory that can’t be tested is scientifically useless.

Fortunately (for themselves), neoclassical economists don’t play by the normal rules of science. If you browse the economics literature, you’ll find an endless stream of studies claiming that wages are proportional to productivity. Under the hood of these studies is a trick that allows productivity to be universally compared. And even better, it guarantees that income will be proportional to productivity. more>

Updates from Adobe

Reality-Defying Photo Composites Master the Impossible
By Jordan Kushins – Juan José Egúsquiza is based in Brooklyn, New York, but he spends much of his time as a man of the world. From Paris to San Francisco to Barcelona to Lucerne and beyond, the Lima, Peru-born multimedia artist and Adobe Creative Resident makes his way across the globe with his camera in hand. While exploring, he captures ordinary moments with a click, and these images become the basis for what he calls “Impossible Stories”: brain-bending composites that challenge the way we relate to and interpret our surroundings.

When I was young, I played music—percussion, mostly—and was in a band with my twin brother, who’s also an artist. He was so creative, and making things all the time, often grabbing trash and turning it into sculptures or instruments. That idea of recycling—of taking elements that were meant to be for something and then using them to build something else—was super, super cool to me. At some point I realized I wanted to start creating my own special things as well.

I was 19 or 20 when I first started taking pictures. I’d be traveling, mostly alone, and all of a sudden I’d be somewhere I’ve never been before: walking around, seeing new things, observing ordinary moments. I’ve always liked those the most; like, someone throwing a cookie away in a garbage can. Once you take a picture of it, it becomes something totally different.

At first, I wouldn’t edit my images at all, but eventually I started thinking: “What if I grabbed one element from this image and put it on something else?” Now that kind of photo compositing is a daily practice. more>

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Updates from Siemens

Digitalize battery manufacturing for a greener future with electric vehicles

By Vincent Guo – The electrification of automobiles is gaining momentum globally as many countries have laid out plans to prohibit the sales of internal combustion engine (ICE) cars. The closing deadline is 2025 for the Netherlands and Norway, with Germany and India to be the next down the line in 2030, followed by UK and France in 2040. Other major economies in the world provide aggressive initiatives to push the electric vehicle (EV) to the market. For example, USA, China, Norway, Denmark, and South Korea have been implementing cash subsidiaries to EV buyers over $10,000 per vehicle, with Denmark and South Korea paying the consumer almost 20,000 Euro for each car purchased.

These incentive plans, however, also indicate that the price of EV is still high comparing to traditional cars. Independent research shows that the cost of the electrical powertrain is roughly 50% of the EV while, while the cost of the powertrain for ICE cars is only 16%. While it is largely true that the components of a car, whether it is an EV or ICE car, are largely similar except for the powertrain, the source of the difference in total cost is obviously the powertrain. The most expensive component is the battery pack, which accounts for roughly half of the powertrain and a quarter of the entire car.

Fortunately, the cost of the battery is going down steadily in the past 10 years. It is about to hit the point that the total cost of an EV is competitive to an ICE car and the point is about 125-150 USD/kWh.

As a result, battery manufacturing capacity has been ramping up quickly. Tesla is leading the way by its Gigafacotry in Nevada with target annual capacity of 35 GWh. Yet the race is tight as the battery manufacturing in Asia is catching up. CATL of China had recently announced a plan to boost its capacity in Germany to 100 GWh. more>

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Takers and Makers: Who are the Real Value Creators?

By Mariana Mazzucato – We often hear businesses, entrepreneurs or sectors talking about themselves as ‘wealth-creating’. The contexts may differ – finance, big pharma or small start-ups – but the self-descriptions are similar: I am a particularly productive member of the economy, my activities create wealth, I take big ‘risks’, and so I deserve a higher income than people who simply benefit from the spillovers of this activity. But what if, in the end, these descriptions are simply just stories? Narratives created in order to justify inequalities of wealth and income, massively rewarding the few who are able to convince governments and society that they deserve high rewards, while the rest of us make do with the leftovers.

If value is defined by price – set by the supposed forces of supply and demand – then as long as an activity fetches a price (legally), it is seen as creating value. So if you earn a lot you must be a value creator.

I will argue that the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls.

What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.

This is not an abstract debate.

It has far-reaching consequences – social and political as well as economic – for everyone. How we discuss value affects the way all of us, from giant corporations to the most modest shopper, behave as actors in the economy and in turn feeds back into the economy, and how we measure its performance. This is what philosophers call ‘performativity’: how we talk about things affects behavior, and in turn how we theorize things. In other words, it is a self-fulfilling prophecy.

If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth. The understanding of value, then, is critical to all the other conversations we need to have about where our economy is going and how to change its course. more>

Updates from Siemens

Gruppo Campari: Brand spirits leader digitizes its business operations with the SIMATIC IT suite
Using Siemens technology, Gruppo Campari has created a unified repository for all product specifications and increased the efficiency of product development and manufacturing processes
Siemens – With so much talk about securing the Italian control of key businesses, a few companies play offense and take the Italian lifestyle and “Made in Italy” all over the world. Among them is Gruppo Campari, which closed 26 acquisitions in the spirits industry in the past two decades to become the world’s sixth player, with over 50 premium and super-premium brands. Besides aperitifs of international renown (Campari, Aperol), the portfolio includes bitter liqueurs (Averna, Cynar, Braulio) and spirits (Skyy, Grand Marnier, GlenGrant, Wild Turkey, Appleton). In 2016 the group exceeded €1.7 billion in consolidated revenues, with most sales in Americas and the Southern Europe, Middle East and Africa (SEMEA) region.

With each acquisition, Gruppo Campari needs to integrate new products, plants and assets into its operations management systems. Recent examples include J. Wray & Nephew, a company with more than 2,000 employees producing Jamaica’s 225-yearold top rum Appleton Estate, Grand Marnier in France acquired in 2016 and Bulldog London Dry Gin in 2017. Currently, the group operates 58 sites: 18 owned factories, 22 co-packers and 18 distribution centers, counting up to thousands of materials and specifications.

The turning point for the management of such a complex and constantly evolving organization came in 2012. Until then, Gruppo Campari had maintained an unstructured approach to the management of product specifications, which were created locally using Microsoft Word documents or Microsoft Excel® spreadsheets. Besides creating documents in different formats and languages, there was no standard workflow for document authoring and validation, and information was shared via email or phone.

In 2012, the Group launched an extensive digitalization of operation processes, selecting SIMATIC IT Interspec from Siemens PLM Software, a configurable solution for product specification management in process industries, and embracing the Siemens “digitalization” philosophy.

SIMATIC IT Interspec allows the company to develop, configure and manage all product specifications (raw materials, intermediate and finished products and packaging materials), storing all specifications in a single, controlled data repository. more>

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