Revitalizing American Manufacturing
Sridhar Kota
White House Office of Science and Technology Policy
Dr. Kota said he would describe the Obama administration’s priorities for advanced manufacturing, beginning with the assertion that “the President ‘gets it’ in terms of the importance of manufacturing.” He noted the topic’s high position among White House priorities, and quoted President Obama from the Report to the President on Ensuring American Leadership in Advanced Manufacturing that had been released by the White House in 2010: “When new technologies are developed and new industries are formed, I want them made right here in America. That’s what we’re fighting for.” This report was written by PCAST, the President’s Council of Advisors on Science and Technology, in response to the President’s request.10
He referred also to A Framework for Revitalizing American Manufacturing, a report issued by the White House in December 2009 that laid out fundamental platforms for a revitalized manufacturing, including cost drivers, access to capital, training and education, tax policies, and investments in technology. In terms of technology investments, he identified in particular several items in the NSF budget to pursue funding for manufacturing technology and the creation of advanced manufacturing centers.
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10According to the PCAST report, “Advanced manufacturing involves the manufacture of conventional or novel products through processes that depend on the coordination of information, automation, computation, software, sensing, and networking, and/or make use of cutting edge materials and emerging scientific capabilities.” Executive Office of the President, A Framework for Revitalizing American Manufacturing, Washington, DC: Executive Office of the President, 2009.
ADVANCED MANUFACTURING AS A PRESIDENTIAL PRIORITY
The PCAST report, Dr. Kota continued, had been shaped by the President’s request to explore and identify opportunities and challenges in advanced manufacturing. He said that the report distinguished two common aspects of advanced manufacturing: the use of new abilities to create new industries, and the use of new abilities to strengthen existing industries. He emphasized that while these two aspects are not truly different, but tend to merge in response to innovative ideas, they provide a convenient framework to discuss technologies that are truly new from those that develop incrementally through the application of new techniques.
Many of the most innovative ideas, he said, including radical new technologies, were emerging from universities and federal labs, and leading to technology-based start-ups. For this process of innovation to create new industries, it usually must evolve through the stages of discovery, invention, technology development, scale-up, manufacturing, and finally commercialization.
A serious challenge faced by start-ups as they attempt to prove and scale up their technologies is to raise the financing they need to reach the marketplace. This is the familiar “valley of death,” or investment gap, that must be traversed if a promising idea is to become practical and profitable. This journey can be speeded by early adoption by federal agencies or by partnerships with larger firms, but few other resources are available to even the most promising small firms.
The second aspect of advanced manufacturing, technology that sustains business growth that is more incremental in nature, is the more common use of R&D and the process that actually leads to most new products and practical solutions. Dr. Kota cited four “essential elements to grow and sustain existing industries.” These include technology innovation, which may include both incremental and radical innovation; business innovation, which may influence adjacent markets and adjacent products; tools and resources, which include a skilled workforce at all levels and tools to improve quality, flexibility, and efficiency; and low structural non-production costs, such as taxes and regulations.
AN EROSION OF THE INDUSTRIAL COMMONS
Dr. Kota returned to the concept of innovation. A recent National Academies report, he said, has suggested that innovators are defined by three achievements: they are the first to acquire new knowledge, the first to apply it through world-class engineering, and the first to introduce it to a commercial or
other market.11 Traditionally, U.S. firms had excelled in being first to acquire knowledge, he said, thanks to the steady emergence of good ideas and “the best innovation infrastructure in the world.” This excellence was fueled by the substantial ongoing investments by the federal government in basic research.
U.S. policy has been less successful in supporting the application of new ideas through engineering and the commercialization of new products in the market, Dr. Kota said. The United States has lost out in many cases to foreign competitors whose governments have devoted more resources and policy support for these two stages of innovation. For advanced manufacturing, the latter two stages of innovation require complex and enduring partnerships among universities, technical colleges, firms, research institutes, financing entities, and other links in the supply chain, known collectively as the industrial commons. He noted that the U.S. industrial commons is in decline, leading to the recent trade deficits in advanced technology products.
In the realm of manufacturing, the weakening of the industrial commons was reflected in some loss of the knowledge base, skills, and technology to make certain competitive products. He listed many products invented and developed in the United States that are no longer made here;12 some of them cannot be made here, he said, because U.S. firms no longer have the engineering and application skills needed to scale them up and develop prototypes. Many other products in which U.S. companies were once dominant are today at risk, including LEDs for solid-state lighting, next-generation “electronic paper” displays for portable devices, thin-film solar cells, blade servers and mid-range servers, and carbon composites components for aerospace and wind energy applications.13
THE ‘MISSING MIDDLE’ OF INNOVATION: TECHNOLOGY DEVELOPMENT
If technology development is viewed schematically as a process beginning with scientific knowledge and culminating in output to the market, he said, the kinds of developmental skills needed to develop products for market
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11National Academy of Sciences/National Academy of Engineering/Institute of Medicine, Rising Above the Gathering Storm, Revisited—Rapidly Approaching Category 5, Washington, DC: The National Academies Press, 2010.
12Examples include products in the categories of semiconductors (“fables” chips), lighting (compact fluorescent bulbs), electronic displays (LCDs for monitors, TVs, and handheld devices), energy storage and green energy production (lithium-ion, lithium polymer, and NiMH batteries for cell phones, portable consumer electronics, laptops, and power tools), computing and communications (desktop, notebook, and netbook PCs; low-end servers; hard disk drives; consumer networking gear); and advanced materials (advanced composites used in sporting goods and other consumer gear; advanced ceramics; integrated circuit packaging). Gary Pisano and Willy Shih, “Restoring American Competitiveness,” Harvard Business Review, July 2009.
13Ibid.
are the “missing middle” of innovation. He showed an illustration indicating the strength of the U.S. federal investment in basic research, led by agencies such as NIH, NSF, and DoE. But this investment weakens in the stage of applied research, where the NSF virtually disappears, and in the development stage, where the DoD, NASA, and DoE are significant investors. By the stage of prototype and systems development, virtually all federal funding goes to the DoD, primarily for weapons testing. One way to view this imbalance, he said, was to tally the total federal investment in S&T—about $100 billion—with the annual trade deficit in advanced technology products—about $80 billion.
Dr. Kota cited the common misconception that the United States is falling behind in advanced manufacturing primarily because it has higher labor costs. While this might be true for many products, he said, from shoes to T-shirts, it is seldom true for high-technology products. He said that this point becomes clear in a comparison between the United States and Germany, which has higher wages than the United States. While German taxes are slightly lower than U.S. taxes, its energy and other infrastructure costs are about the same or higher. While the United States spends six times as much as Germany does in R&D investment, a significant distinction is that Germany spends six times as much as the United States on what is called “industrial production and technology.” A result was that in 2008, the United States recorded an $800 billion deficit in manufacturing, while Germany had a $200 billion surplus.14 “I think if Germany can do that, we should be able to do that, too.”
CLOSING THE GAP THROUGH A CLUSTER APPROACH
Dr. Kota showed some global models for technology development, pointing out again the stage of basic discovery, “which is essential for the pipeline” and comes from the universities and federal laboratories. An important model for activities that occur in the “missing middle,” he said, is the German Fraunhofer Institutes, which begin with research ideas and develop them through scale-up and prototyping to technological maturity. It uses a cluster approach with pilot production centers to close the gap between research and products. A variation of that model is seen in Taiwan, which does a “fabulous job of taking the best ideas from around the world and maturing them into commercially mature innovations ready for bio-sector investment.”
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14Sources: (1) Bureau of Economic Analysis; (2) Daniel S. Hamilton and Joseph. P. Quinlan, Germany and Globalization, 2008; (3) NSF Science and Engineering Indicators 2010; (4) World Development Indicators database, World Bank, 2005; (5) Organization for Economic Cooperation and Development, Main Science and Technology Indicators, 2008; (6) Bureau of Labor Statistics, 2010; (7) Jeremy A. Leonard, “The Tide Is Turning—An Update on Structural Cost Pressures Facing U.S. Manufacturers”; (8) Manufacturers Alliance/MAPI and the Manufacturing Institute, November 2008.
He returned to the PCAST report on advanced manufacturing, and one of its basic tenets: The maturing of an idea into a commercial product requires the participation of private industry; therefore, said Dr. Kota, the transition from ideas to products is expedited by public/private partnerships. This tenet, he said, lies behind some of the key PCAST recommendations, which grew out of more than a year of consultation with experts from the public and private sectors.
LAUNCHING AN ADVANCED MANUFACTURING INITIATIVE
Of the three recommendations, he said, one was to recommend that the S&T investment tax credit become permanent—a suggestion that has been made but not implemented for decades—and the other concerned the need to train more people for jobs in an advanced manufacturing workforce. The third recommendation was to launch an Advanced Manufacturing Initiative to support innovation through applied research—the “missing middle.” In particular the Advanced Manufacturing Initiative would support:
• Innovation in advanced manufacturing through applied research programs for promising new technologies;
• Public-private partnerships around broadly-applicable and pre-competitive technologies;
• The creation and dissemination of design methodologies for manufacturing;
• Shared technology infrastructure to support advances in existing manufacturing industries.
In response to the report, the president announced an Advanced Manufacturing Initiative in June 2011. It contained a series of “commitments” representing a combination of ongoing and new initiatives to speed technology adoption and commercialization. These commitments, known collectively as the Advanced Manufacturing Partnership, include the following:
• Critical national security industries, including technologies “that will jumpstart domestic manufacturing capability essential to our national security”;
• Materials Genome Initiative, which would invest more than $100 million in research, manufacture, and deployment of advanced materials;
• National Robotics Initiative, a multi-agency effort to support research in next-generation robots that will “work closely with human operators—allowing new ability for factory workers, healthcare providers, soldiers, surgeons, and astronauts to carry out key hard-to-do tasks”;
• Innovative Manufacturing Initiative of DoE, to enable companies to cut costs of manufacturing while using less energy;
• DARPA’s Open Manufacturing Initiative to reduce a factor of up to five the time required to design, build, and test manufactured goods;
• NIST’s Advanced Manufacturing Technology Consortium (AMTECH) to identify public-private partnership to tackle common technological barriers to the development of new products;
• DoD-Online Marketplace, to increase domestic manufacturing capacity in industries critical to national security;
• National Science Foundation’s Accelerating Innovation Research program to support the transition of promising ideas into commercial reality, and the Innovation Corps (I-Corps), a public-private partnership to link NSF-funded researchers with technological, entrepreneurial, and business communities.
“Our good news,” he said, “is that we have all this together. This is a good start.”
Most important is to bring all the other universities and companies under the tent, he said, which was being stimulated by a series of four Advanced Manufacturing Partnership (AMP) workshops at Georgia Tech, MIT, University of California at Berkeley, and the University of Michigan. “This is a call to action to come together and look at the structural challenges,” he said, “to see how we can collaborate on technology development and what the skills and educational opportunities we need to tackle.”
Dr. Kota reviewed manufacturing competitiveness in terms of the tools and resources needed. In 2009 the government launched an interagency report on modeling and simulation tools to determine what was available, what was being used, and what the barriers to their use by companies were. The study found that modeling and simulation (M&S) tools had the potential to improve all three key manufacturing metrics: cost, quality, and time to market. However, it was found that the majority of SMEs do not use M&S tools because of two key barriers: they are expensive, with an M&S software program alone costing about $40,000, and they require staffing by a masters-level technician. It was difficult for SMEs to see this as a value proposition.
‘DEMOCRATIZING’ THE USE OF ADVANCED MANUFACTURING TOOLS
In response, OSTP launched a pilot program, working with the Economic Development Administration (EDA) in the Midwest. Known as the National Digital Engineering and Manufacturing Consortium, this public-private partnership was begun with a modest investment of $2 million by the EDA, matched by $2.5 million from P&G, Lockheed, Boeing, GE, and John Deere. The goal was to set up a program to “democratize” the use of M&S tools by SMEs. It began by using a simulation program based on software originally developed by Los Alamos National Labs that had allowed P&G to save over
$500 million in the last decade in its diaper manufacturing process. The program created a web-based tool using cloud computing and making open-source codes for the SMEs that are easy to use, along with interactive applications and templates developed by a manufacturing company that was launched recently. This new “software-as-service” business model is expected to make it a lot easier for small firms to run model simulations, use the tools, and see the value of M&S. The model uses a standard graphical user interface across applications, requires no software to download or install, allow sharing of live work sessions, and offers easy access to supporting content. “That’s just the tip of the iceberg,” he said. “Democratizing digital manufacturing is what this initiative is about, and in Ohio and Indiana there are some really great companies that are poised to take advantage of it.”
Reviewing the MEP centers, Dr. Kota said that their role was more critical than ever in providing the “glue” between the SMEs and the resources that are being developed by the new manufacturing initiative. MEP centers can be the first to identify challenges and then find the resources to address these challenges, he suggested. He added, in closing, that MEPs can play an expanded role as well, in two ways. First, to advance manufacturing competitiveness, the MEP can help democratize and accelerate the use of modeling and simulation tools by SMEs. Second, to advance manufacturing skills, the MEP can help bridge the skills gap by engaging with community colleges, the Manufacturing Institute, Original Equipment Manufacturers (OEM), and SMEs. In other words, the MEP can have an even more important role in strengthening the innovation clusters that are seen by many as central to the revitalization of U.S. technological leadership.
DISCUSSION
Dennis Chamot, of the National Research Council, said that in the past, the major suppliers of skilled workers were the trade unions. He asked whether they would be able to do so again, despite their diminished role in manufacturing. Dr. Kota said that he was not a labor expert, but acknowledged that “labor surprises” of various kinds were likely. When the National Robotics Initiative was launched, for example, many people thought that the robots would displace workers. That was not the case, he said; the robots turned out to be “coworkers,” supplementing the abilities of the human workers. The labor unions recognized this and in fact had written letters of support for the National Robotics Initiative. “Without these robots,” he said, “you wouldn’t have any of those jobs.” The unions came forward to help train workers and help to advance the development of robotics technologies.
Dr. Shapira said he was impressed by the Advanced Manufacturing Partnership, but that with so many federal agencies involved, it was not clear where the SMEs fit into the picture. The MEP, for example, already has an infrastructure that is national in scale, and offers direct assistance to SMEs. He wondered how this ongoing program was related to the DoE’s new $120 million
initiative to expand energy partnerships with companies—an initiative that would be required set up its own new infrastructure. What consideration, he asked, was given to scaling up a selective number of SME resources instead of distributing resources across a variety of federal agencies?
Investments Aimed at the Innovation Gap
Dr. Kota agreed that there was not enough money to spread it widely, and he added that the importance of a program lies not in how much it spends, but in how strategically it allocates its resources. The investments he had mentioned, which were recommended by the PCAST report, were aimed at the “missing middle,” the innovation gap. The DoE’s objective would be to develop strategies for moving ideas into commercialization. “One of the things DoE will do is set up public/private partnerships to develop the manufacturing technologies and shared infrastructure for nanotechnology and other advanced manufacturing. That’s a different focus than the MEP, which enhances the competitiveness of existing companies.”
Dr. Wessner said that a perceived advantage of MEP is its distributed nature and engagement with local and regional firms. He asked whether there would also be advantages if MEP were adapted to help manufacturing with “heavy, direct investment” or with incentives to strengthen manufacturing clusters. He noted that one barrier to collaboration among separate agencies is that “everyone wants to act separately so they can control how their funds are spent.”
The MEP’s Unique Role in Adding Value
Dr. Kota suggested that the MEPs play a unique role, “and they’re the only ones that can play that role, and they do it very well.” Other agencies have other roles in helping the translation of technology, he said, and were focusing on the clusters and the public- private partnerships that develop the technologies. “Once you have a technology, the MEPs play an important role in terms of business and technical assistance. The MEPS do even more in adding to the value chain, simulation, prototyping, and thinking about scaling. We already have MEPs, and they can help us.”
Dr. Wessner asked what level of funding would be needed to fully fund a robust advanced manufacturing sector, and whether the United States should build some version of the Fraunhofer Institutes. Dr. Kota said that PCAST had suggested investing $400 million per year in advanced manufacturing. He also said that the United States could build its own public-private partnerships, deciding which if any elements of the Fraunhofer model might be helpful here.
