Tuesday, March 12, 2013

Next Industrial Revolution

-Innovations, Tools, and Organizations, to Change the Landscape of Manufacturing Industry
Keywords: crowdsourcing, low-cost tools, partnership

Several things is changing the landscape of manufacturing industry: the brilliant idea of crowdsourcing, the availability of low-cost production tools and the gigantic online platforms  hosting millions of potential business partners.

From the view of supply chain management, these major changes ower the cost of bringing a new product to the market, and letting the inventers focusing on R&D and how to satisfy individuals’ peculiar needs. They change drastically the traditional process of designing, researching on and bringing to production, a new product.

First of all, the idea of outsourcing makes possible that customers and potential designers can easily participate in the designing a product. Online platforms like DesignCrowd.com form communities for customers and potential designers. This significantly lowers the costs of surveying customers’ needs, hiring the right designers and interacting with customers. Now, the line between designers and customers are blurred. They are all in the online community, interacting with each other, generating million dollar business ideas together. As a result, the product design fits the customers’ needs much better and the most able designer for this particular product can participate in the process. A subfield in economics, Industrial Organization, gives an excellent explanation for the advantages of this kind of organization. Due to Ronald Coase’s theory, organizations are formulated because they can lower “transaction cost”. Thus, in the old age, firms emerge because people can work closely, hence lowering the cost of communication and cooperation. However, the online communities eliminate the geographic difficulties completely. Cooperating with someone thousands of miles away is just as easy as cooperating with the guy sitting next to you. Plus, the flexible organization of online communities dramatically lowers the costs of constructing big buildings as workplaces, hiring thousands of contract employees. Thus, these online design communities become the new efficient way of organization, making large-scale companies disadvantageous. Hence, the economic drive for efficiency will make this kind of organization increasingly popular over time.

The Wikipedia definition of crowdsourcing is the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employee or suppliers. The word is coined by Jeff Howe in 2006. And Daren Braham defined it as “an online, distributed problem-solving and production model”. This innovative way of organization fits the new ideas of academic trends as well. The new field of online learning, bandit problem adopts the similar ideas of how to optimize the procedures to get an optimal strategy. This kind of organization is flexible, efficient and fast-moving, opening a new era of industrial age.

Second of all, the lower costs of tools make this kind of organization possible. Without a prototype, no design can be implemented into production, no matter how brilliant it is. Following the design part, the next chain of the production line is bringing out a prototype. Before, the machine which can generate prototypes usually cost millions of dollars. Thus, large-scale firms need to be formed so that large amount of capital can be accumulated for its manufacturing machines. But nowadays, new technologies have made it possible to purchase the prototype generating machines at a much lower price. For example, now you can get a 3-D printer from Bre Prettis and his team for no more than 1000 dollars. However, in the past, you cannot get anything like that for less than 12500 dollars. The reasonable costs of these prototype-making machines make possible the small-scale manufacturing style. The availability of these cheap machines affordable and sizeable in anyone’s garage makes everybody inventers if they want to be. The  rule of scale of economy loses power in face of the new technologies. When you are done with your designing and make your ideas into your prototypes, you can also easily find a business partner to bring your products into reality. You can find your own production factory online! The new practices in China reveal to the world how small shops can handle small orders in a very flexible and cost-effective way. These are brought to reality by the third component in the new industrial revolution.

Portable 3-D printer is very powerful

It is the online platform of business partners. The innovative Chinese internet company, Alibaba, has become the largest aggregator of the country’s manufacturers, products and capabilities. You search online among the millions producers to find your potential business partner. The instant message service of Alibaba makes the business opportunities just a few clicks away. As said by Ma, more than 1.1 million jobs have been created in China. And the rooted culture of “shanzhai”, a Chinese word meaning bandit, is the driving reason that the trend is going wildly in China. Not only can you find manufacturers to produce your product based on your prototype, you can find business partners to sell your products as well! There are websites like SparkFun where you can market your product to the market. And you can also set up your own e-commerce outfit through a company like Yahoo or Web Studio.

The new organization from the design, making prototype, to the production, and then marketing to the market is so cost-efficient and flexible, that a couple of innovative entrepreneurs can compete with multinational companies now. To me, the driving force behind all these is the new information and manufacturing technology as well as the innovative ideas of industrial organizations. The technologies have eliminated the information barriers caused by geographic distances, brought down the costs of designing and prototypes and making easy the process of finding business partners. The costs along the whole chain of the production are drastically lowered so that more tailored products can be invented and produced by unincorporated entrepreneurs in a much more flexible way. And since the products are much more tailored to customers’ needs, they will generate a higher margin. That’s why I figure the trend will go on and become more and more popular around the world which is really flat.

1.       Can we perfect the way of matching designers to customers, inventers to producers, manufacturers to retailers? I think we may adopt some new techniques invented in the field of machine learning to make to new form of industrial organization more efficient.
2.       Since the products are more tailored and in small amounts in the new industry form, can we build a efficient market mechanism for pricing products? How to adopt the price discovery mechanism that is developed in the traditional large-scale industry is a question worth looking into.
3.       How to build a healthy trading environment with reliable credit rating for products’ qualities and producers’ credit is another important question.

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