2 management - School of International Business and ...

Hans H. Steinbeck
SUMMARY
With the start of industrialization and mass production at the end of the 19th century, the outline
and role of the production factories has changed significantly over the last 100 years. In the be-
ginning the variety of the parts produced in one factory was very limited, and a significant part
of the work was done by manual labour. In addition the number of suppliers was limited, mainly
supplying the raw materials.
Over the last 100 years, the importance of manufacturing goods as compared to Service has
been reduced significantly. It does not mean there is less production today, but growth in hard-
ware manufacturing is compensated by the decrease in prices and increase of productivity. Tak-
ing the employment in North America for example, the number of people working in production is
flat over the last 60 years, while the output has increased by the factor of eight. Looking at todays
revenue growth it is primarily for Solutions, linking Hardware with Service, with the growth being
in the Service.
Today the established countries focus mainly on premium product manufacturing, with healthy
profit margins. If the products become commoditized, the production is moved to the emerging
countries, and there especially to China. As part of Globalization, the flow of finished goods be-
tween the emerging and established contries is going in both directions, and not just importing
raw material and exporting finished goods from the established countries. In addition there are
more and more companies, who just produce, or even develop and produce products, which are
then sold under well established brand names. So there is a trend of outsourcing production.
The biggest changes after introducing MES in the early Sixtieth, are the changes in Supply Chain
Management, enabled by the capabilities of IT. Today a factory is part of a fully integrated global
supply chain, from the suppliers to the customers. Through Advanced Planning Systems the pro-
duction and inventories are managed with very little manual interaction. Taking a modern Semi-
conductor factory for example, most of the production and management of the flow of products,
is done by computer control, and the customer has a visibility into the logistics to track his orders
all the way down to the shopfloor. So with the increase in productivity and the high level of auto-
mation today, just moving to low cost countries for lower labor arbitrage does not make sense, if
these countries are not offering large new market opportunities as well.
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