Leadership

Tech manufacturing: A disaster waiting to happen

The manufacture of technology, along with its essential raw materials, is now concentrated in a single region. This lack of resilience leaves the industry dangerously vulnerable to disruption.

Written in at Abu Dhabi airport and despatched to TechRepublic via a free 23Mbps free wi-fi service.

Historically, mature markets settle down with three big competing suppliers and a handful of niche players. This rule of three has tended to dominate regions such as North America, Europe and south-east Asia. But since globalisation took hold, geographic diversity has become distorted along with the resilience of supply.

Examples of a growing supply-chain brittleness include manufacturers temporarily denuded of LCD screens, memory chips and batteries by fires, a tsunami, and industrial problems. With only a few plants located in south-east Asia, we are running the gauntlet of man-made and natural disasters.

Underpinning this limited number of suppliers are the producers of vital rare earths and other basic components. So we now have a concatenation of limited sourcing and manufacture in the supply chain concentrated in just one region. These set of circumstances amount to a major disaster just waiting to happen.

The 10 dominant contract manufacturers

So what of our electronics and computing power? Is the situation any better for the PCs, laptops, tablets and smartphones? Today, all these devices are produced by just 10 dominant contract manufacturers. This small group is spearheaded by Foxconn of Taiwan, which manufactures for Apple, Dell, HP, Acer, Sony, Nokia, Intel, Cisco, Nintendo and Amazon among others.

This industrial nesting happened before with domestic goods, automobiles, aircraft and boats - from the production of individual components through to the complete product.

Domestic ovens are a prime example of a product differentiated at the last minute by the installation of a custom control panel, doors and decals. But the carcass and heating elements are the same for many of the big names in the market – only the external finish and prices vary.

One big difference with this sector is that production facilities remain reasonably distributed across continents with Europe, North America and south-east Asia all well supported.

However, they all share the same Achilles heel – their electronic components come from just one region – south-east Asia. And the really worrying bit? Many of the 10 big players in the IT field are not making good profits, and economic pressure could result in the 10 becoming seven.

Next phase of industry

Now for the good news. The next phase of industry, production and supply will be nano- and bio-based and looks as though it will be far more distributed and locally based. Provided we can make the transition from our existing circumstances to the new ones, then we should see a far more stable and resilient planet.

Before this change can happen we need to see the reform of one important discipline – and that is economics.

So far we don't have a single economic theory that has stood the test of time or resisted the changes in the market created by technological and societal change. In short, economic theory and practice isn't working.

Making judgement calls using simplistic models of supply, demand, price and profit is far too crude a starting point. We need to include resilience, survivability, sustainability, people and ecological impact in the equation.

About

Peter Cochrane is an engineer, scientist, entrepreneur, futurist and consultant. He is the former CTO and head of research at BT, with a career in telecoms and IT spanning more than 40 years.

20 comments
muniwizard
muniwizard

You've hit the nail on the head. I was a "bean counter" & learned that bean plants need to be nurtured and diversified to assure a continuing supply. We humans are too often concerned with our immediate self interests and are too willing to pass down or create problems for our successors. Just read "The Lights In The Tunnel" by Martin Ford which discusses impact of tech on our society & need for change in our economics. I am an old guy (70+) who read a lot of SF years ago. I've seen the amazing growth in tech and artificial intelligence and agree with Martin Ford's outlook on the coming change, not necessarily with his proposed solution as I have little faith in our governments. We need to be building sustainability into ALL of the key systems which support our society, especially re-educating ourselves and educating our children more effectively in broader terms so more will be engaged and paying attention, else we will be like the proverbial frog in the pot which eventually boils.

JonnyDee
JonnyDee

I couldn't agree more. The best brains of the political class in the developed world will not turn its collective attention to this and other related strategic problems. They remain so obsessed with obtaining votes at the next election that they have not implemented any policies or practices to direct the operation of multinationals according to long-term national strategic needs, which has led to the evolution of Foxconn and it's like. As this article states, manufacturing is an important part of the story, but also included are tax regimes that make it easy for multinationals to avoid paying corporation tax by off shoring (98 of the 100 top companies listed at the London Stock Exchange are off shored) as well as a ludicrous overdependence on taxation income derived from the financial services industry. In the UK, 38% of the UK???s personal taxation income of the Treasury comes from people working in the "Square Mile" in London. Another example of rundown in manufacturing capability: the UK government is now at last discussing seriously the construction of new nuclear power stations to provide a continued bedrock of electrical energy provision, and would you believe it, doubts are being raised as to whether the country nowadays contains the know-how to design and build them - though it demonstrably had it in the 50s and 60s when today's power stations were being designed and built. The West???s political classes of today, typified by a lack of numeracy and increasingly the absence of real world business experience, have a lot to answer for.

boxfiddler
boxfiddler

to near everything industrialized man sets his hand to these days. Our dependency on an inherently weak 'system' astonishes me. Frightens me when I think on it too long. :0

pete.soper
pete.soper

The article carries a very present warning, though I doubt if anyone is listening.. As regards the plea for a working theory of economics. alas this is never going to happen. Macro-economics is not a science and the law that applies most commonly is the Law of Unexpected Consequences. Despite the authoritative charts and the fancy mathematics, economics is a descriptive discipline based in the fears and desires of ordinary people, just like us.

Kieron Seymour-Howell
Kieron Seymour-Howell

We experienced problems with shortages of RAM, then of hard drives, because of this clustered manufacturing. Lack of viable competitors for certain products and highly localized production leads to massive weakness against natural, and man-made disasters, wars and terrorism. It seems people do not learn from their mistakes, nor from their accomplishments. Massive unemployment and disruption of societies have occurred because of mega manufacturing without diversification of locale. In the old days, when there were many smaller businesses and greatly diversified production, the overall availability was solid and reliable. Also in the old days, manufacturers learned to build many locations and keep them small to avoid attacks and setbacks in the case of natural disasters and especially wars. Where has the knowledge of practical common sense gone too? Even in IT we are told never to store all your backups on one location. Basic preparedness states not to store all of anything in a single location also. I would like to hear the logic behind this deliberate lack of judgment.

peter
peter

It is hard/impossible to find a western nation with a vision, a mission, and a plan. Moreover, short termism rules at every level....and no one is doing any business modelling...or figuring out the result of decisions in advance....it is all so very amateurish...you wouldn't run a business like this

peter
peter

Unfortunately the people inside the system just cannot see it - all very Lilliputian

peter
peter

The weakest link in the chain always defines the outcome!

peter
peter

I can't find a single economic precept that stands close inspection. Economics is lauded as a science, but it certainly is not!!

peter
peter

Hopefully we will see a return to distributed manufacture and supply as the new nano and bio-tech revolution starts to take hold....but it could take 20 years!

Deadly Ernest
Deadly Ernest

look at the bottom line profits ever had an common sense. I suspect common sense and thinking about things would be a severe handicap in that environment.

HAL 9000
HAL 9000

But that can not happen now as we have Bean Counters running the show. They see the bigger the plant and the closer it is to cheap Labor and the Raw Materials the better it is. It lowers the costs involved in manufacturing and makes things cheaper. Also with the current supply line system the [b]Ideal[/b] is that the goods are dispatched the moment that they arrive so you do not have any stocks of whatever sitting on the floor costing money. Obviously this can never work as the Bean Counters Intend as there will always be issues that need dealing with anything from a storm that slows down a truck delivering your goods to something much worse occurring will break the sold as it arrives model and the bigger the delay the larger the disruption. Placing all of the Manufacturing Plants in the one place is just the natural continuation of the silly Supply Line System that has been forced onto the majority of people and companies by the Bean Counters. They know that having staff standing around doing nothing is expensive so they have placed a lot of their staff on a Casual Basis expecting them to be there when they are needed and not for a full time job, and the parts that they do whatever with are in even shorter supply all the way up the supply chain to the manufactures. It's a recipe for disaster which anyone with a shred of Common Sense already knows but as Bean Counters have no Common Sense and are actively encouraged to worship the Bottom Line to the exception of all else it's what we are currently stuck with and what will continue to happen. It's just another example of where the problems with Free Enterprise will kill it eventually and adversely affect everyone else at the same time. ;) Col

NickNielsen
NickNielsen

is the bottom line. The moolah. The cash. The bean-counters want to squeeze every penny possible out of costs so as to maximize profit. In short, it's cheaper this way...until the hard drive plants get flooded out. Or a chip plant has a fire. Or...

peter
peter

We are really talking ignorance and a gross lack of understanding here...

peter
peter

Spot on...continual optimisation leads to unparalleled brittleness!

Deadly Ernest
Deadly Ernest

when it reached the end of the supply chain that nail lost them the war and the kingdom.

peter
peter

...plus of course a gross lack of understanding...financial and political minds seek simple solutions to increasingly complex problems, but there are none! Real business understanding and modelling is now a necessity.

Deadly Ernest
Deadly Ernest

accounting end results and not real world business management

peter
peter

For want of a nail the shoe was lost. For want of a shoe the horse was lost. For want of a horse the rider was lost. For want of a rider the message was lost. For want of a message the battle was lost. For want of a battle the kingdom was lost. And all for the want of a horseshoe nail.

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