Strengthening the Innovation Ecosystem for Advanced Manufacturing:

Pathways and Opportunities for Massachusetts

Dr. Elisabeth Reynolds, Executive Director, MIT IPC Dr. Yilmaz Uygun, Research Fellow, MIT IPC

STEXautomation

June 17, 2015

Changing Landscape

•  “Holes” in our industrial commons

•  Large manufacturers (OEMs) reorganizing to increase efficiency and innovation

•  Increasingly competitive landscape nationally and internationally

•  New “game-changing” manufacturing technologies

2 •  The MIT team is comprised of

Overall Findings

•  Advanced Manufacturing Capabilities Support a Diverse Set of Regionally Important Industry Clusters

•  Manufacturing in the Commonwealth Competes on Talent, Quality, and Innovation

•  Manufacturing Intermediaries in the Commonwealth are Primarily Focused on “Point Solutions” and on the Supply Side

3 •  The MIT team is comprised of

Intermediaries

MA Manufacturing Innovation Ecosystem

SMEs

OEMs Universities

Startups

Associations

Glo

bal n

etw

orks

R&D networks

Innovation sources

Strong knowledge flow Weak knowledge flow

R&

D n

etw

orks

4

Recommendations 1.  Develop an Advanced Manufacturing Strategy for the State

•  Introduce Consortium-based Applied Research Projects

2.  Increase Collaboration with and among OEMs to Drive Innovation Within the State and Upgrade SME Capabilities

•  Lead the Formation of a Commonwealth Manufacturing Innovation Advisory Group

•  Initiate an OEM Joint Supplier Upgrade Program

•  Introduce an Advanced Manufacturing SME Innovation Award

3.  Increase Technological and Managerial Support for Innovation for SMEs

•  Provide Technological and Engineering Support

•  Better Promote and Increase Awareness of Support Services for SMEs

•  Support Education Programs for SME Executives

4.  Improve Connections between Startups and the Innovation Ecosystem

•  Better Promote and Connect SME Capabilities in Early-Stage Scale-Up to the Startup Community

•  Connect Startups with OEMs for Beta Testing and Piloting

5 •  The MIT team is comprised of

Appendix

6

Overall Findings •  The Massachusetts Manufacturing Innovation Ecosystem is Rich in

Terms of Assets, but Relatively Poor in Terms of Interconnectedness

•  OEMs are key nodes in the innovation ecosystem

•  SMEs are weakly connected to the innovation ecosystem

•  Universities have relatively strong links with large OEMs and with the startup community, but limited engagement with SMEs

•  Startups are an important source of innovation in advanced manufacturing, particularly for OEMs, but could be better linked to OEMs and SMEs

7 •  The MIT team is comprised of

The Team 8

Dr. Elisabeth Reynolds Executive Director of Industrial Performance Center (IPC)

Dr. Yilmaz Uygun Research Fellow at IPC

Nicholas Martin Graduate Student

Professor Richard Lester Founder and Faculty Co-Chair of the IPC and Head of the Nuclear Science and Engineering Department

Professor Michael Piore, Emeritus, David W. Skinner Professor of Political Economy, Departments of Economics and Political Science

Arnaud Pincet Graduate Student

Eric Hagopian President of MCADM

Jim Newman VP of Operations, Nucleus Scientific

Professor Willy Shih Robert and Jane Cizik Professor of Management Practice in Business Administration, Harvard Business School

Mitch Tyson Former CEO, PRI Automation and Advanced Electron Beams, Co-Chair, MA Advanced Manufacturing Collaborative

Karen Mills Senior Fellow at Harvard Business School and Kennedy School of Government, previously Administrator of the U.S. Small Business Administration

MIT

Tea

m

Advisory B

oard

9

Findings Regarding Manufacturing Intermediaries Manufacturing support in the state largely focuses on “point solutions” •  For workforce training, lean practices, and certification •  Targeted at supplier companies, but those efforts rarely directly involve the

recipient firms’ OEM customers •  Limited awareness by many SMEs of services and providers available in MA

Lean by itself does not foster sustained product and process innovation •  Technological and engineering support may be necessary •  Some structures exist in MA to provide these services, but tend to be

fragmented and hard to access for SMEs

Existing efforts mainly focus on supply side •  Few structures exist to connect to demand and systematically deepen OEM–

SME collaboration

Lack of strategic vision for advanced mfg. in MA 5-10 years out •  Supply Chain •  Technology Roadmapping •  Talent & Training

10

Four Areas for Improving the Manufacturing Innovation Ecosystem

1. Develop a Statewide Advanced Manufacturing Strategy and Agenda •  Rather than other state cluster-focused strategies (e.g. biotech), advanced

manufacturing requires the development of cross-cutting capabilities that work across clusters (e.g. robotics, advanced materials)

•  The state needs a deep understanding of these capabilities as well as the state’s key clusters

Recommendations: 1. Develop robust analysis of the state’s advanced manufacturing clusters and capabilities to create an advanced mfg. strategy and agenda

2. Use grant funds to encourage regional consortium-based applied research projects (University, OEM, SME) focused on pre-competitive product and process innovations

•  Build upon NMII model and experience •  Look to German model

11

2. Incentivize OEM Collaboration in driving innovation and SME Upgrading •  OEMs have window into global trends, R&D, and training needs 5-10 years out •  OEMs are a driving force for innovation for SMEs with own individual supplier

development programs •  Little collaboration across OEMs particularly in areas of collective strategic

interest such as in upgrading of the supplier base in the state

Recommendations: 3. Support formation of a Manufacturing Innovation Advisory Group to promote strategic and long-term thinking & action and to highlight best practices 4. Explore collaborative OEM Supplier Upgrading Initiatives to jointly support supplier development program 5. Create an Innovation Award for high-performing SMEs in MA evaluated by a jury comprising representatives of OEMs, Universities, and Intermediaries

Four Areas for Improving the Manufacturing Innovation Ecosystem

12

Four Areas for Improving the Manufacturing Innovation Ecosystem

3. Technological and Managerial Support for Innovation in SMEs •  Advanced manufacturing SMEs are under constant pressure to improve

efficiency and innovate. Being “world class” today requires not only a culture and practice of lean, but sound managerial infrastructure and leadership, as well as product and process innovation

•  Support for SMEs has largely revolved around workforce training and lean, but needs to go further

Recommendations 6. Better promote existing services available in MA to manufacturing SMEs by existing intermediaries 7. Continue funding for lean training but expand support to include more technological and engineering advice to support product and process innovation 8. Create Executive Education program for SME CEOs and managers, building on operations management expertise in MA business schools

•  Competitive program providing matching funds

13

Four Areas for Improving the Manufacturing Innovation Ecosystem

4. Enhance Connection Btw. Startups and the Mfg. Innovation Ecosystem •  Startups are a vibrant and critical part of the Commonwealth’s innovation and

capabilities in manufacturing •  Current manufacturing needs are found through an ad-hoc and word-of-mouth

process; unclear how well startup community knows about state-wide capabilities •  Connections between startup community and OEMs are relatively robust, but

more opportunity for facilitating connections to support scale up process Recommendations 9. Create more systematic connections between startups and regional SMEs, esp. machine shops (“manufacturing backbone”) for prototyping and early-stage production

10. Work with SME industry associations and regional intermediaries to highlight and market capabilities and facilitate introductions

11. Explore ways to encourage OEM-startup partnerships to create early adoption to support the scale up process

14

The Team

Dr. Elisabeth Reynolds Executive Director of Industrial Performance Center (IPC)

Dr. Yilmaz Uygun Research Fellow at IPC

Nicholas Martin Graduate Student

Professor Richard Lester Founder and Faculty Co-Chair of IPC and Head of Nuclear Science and Engineering Department

Professor Michael Piore, Emeritus, David W. Skinner Professor of Political Economy, Departments of Economics and Political Science

Arnaud Pincet Graduate Student

Eric Hagopian

President of MCADM

Jim Newman VP of

Operations, Nucleus

Scientific

Professor Willy Shih

Robert and Jane Cizik Professor of

Management Practice in Business

Administration, Harvard Business

School (HBS)

Mitch Tyson Former CEO,

PRI Automation and Advanced

Electron Beams, Co-Chair, MA

Advanced Manufacturing Collaborative

Karen Mills Senior Fellow at

HBS and Kennedy School of

Government, prev. Administrator of

U.S. Small Business

Administration

MIT

Tea

m

Advisory B

oard

Key Questions Driving This Research 15

What are the qualities of an innovative advanced manufacturing SME? 1

What are the pathways to innovation and upgrading for SMEs? 2

Where should Massachusetts focus its efforts to ensure it is renowned as a globally competitive region for manufacturing? 4

What are the critical factors that support an innovative industrial ecosystem? 3

Defining Innovation in Advanced Manufacturing 16

!  Product/service innovation is the first-

time commercial utilization of a new product/service idea that is absolutely new in the market (market perspective)

!  Process innovation is the implementation of methods that are new to the company - not necessarily absolutely new in the market- and that change the way of manufacturing in the company (company perspective)*

!  Organizational Innovation is the implementation of organizational methods that are new to the company and that change the company’s business practices, communication, and workplace organization (company perspective)

Service Innovation

Process Innovation

Organizational Innovation

physical intangible pr

oduc

t pr

oces

s Inno

vatio

n O

bjec

t

Tangibility

Product Innovation

Innovation Fields

base

d on

[Kirn

er e

t al.

2009

]

* includes process improvement measures, like lean manufacturing, Six Sigma, etc.

Process Innovation

Organizational Innovation

Product Innovation

Overall Trends in Manufacturing Employment and Establishments in MA since 2001

17

0 50,000

100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

# of

em

ploy

ees

Total # of Employment in Mfg. (NAICS 31-33) in MA 2001-2013

[BLS Data]

250,923

0

2,000

4,000

6,000

8,000

10,000

12,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

# of

est

ablis

hmen

ts

Total # of Establishments in Mfg. in MA 2001-2013

[BLS Data]

6,993

!  97% of all mfg. establishments are SMEs (≤500 employees), but employ only 30% of all mfg. employees1

!  92% of all mfg. establishments are small establishments (≤100 employees)2

1 OneSource Database 2 US Census 2012 Data [Census 2012]

How Does Massachusetts Compete in Manufacturing? 18

Early-stage and prototyping products with high proprietary content (esp. for New Product Introductions)

Products where proximity-to-market is desirable

Products where regulatory factors encourage siting in the US

Highly customized products

High performance requirements (esp. quality, turnaround time)

High knowledge/innovation content (patents; SBIR/STTR)

Prod

uct

Proc

ess

Mar

ket &

R

egul

atio

n

Small-batch (rather than large-volume) high-quality niche production

Focus on Eight Key Manufacturing Subsectors that Make Up Core Capabilities in the State Supporting Key Clusters

0

100

200

300

400

500

600

700

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

10,000

Semiconductors and related device mfg.

Machine shops Surgical and medical

instrument manufacturing

Pharmaceutical preparation

manufacturing

Analytical laboratory

instrument mfg.

Search, detection, and

navigation instruments

Industrial process variable

instruments

Aircraft engine and engine parts

mfg.

# of

est

ablis

hmen

ts

# of

em

ploy

ees

Top 8 Subsectors based on employment (6 digit NAICS)

Pharmac. Manuf.

Machinery Manufacturing

Corresponding Sector

EMC Corporation Analog Devices EMD Millipore MKS Instruments

Altra Industrial Motion Excelitas Brooks Automation Machine Shops ~100% SMEs

Medtronic Haemonetics Invensys Accellent

Genzyme Sunovion Vertex AstraZeneca

GE Aviation Raytheon

Largest Companies

Computer & Electronics

Aerospace & Defense

Medical Device

19

Semiconductor Surgical and Medical Instruments

Pharmaceutical Preparation

Analytical Laboratory Instruments

Search, aeronautical, and nautical systems Instrument for Measuring Industrial Process Variables

Aircraft Engine

Machine Shops

Source: http://www.census.gov/econ/cbp/ [2012 data]

WORCESTER

BOSTON

LOWELL

TAUNTON

SPRINGFIELD

HOLYOKE

Geographical Distribution of the Most Important Advanced Manufacturing Industries in MA

20

21

OEMs and Changes in Supply Chains: Consolidation and Collaboration

Stra- tegic

Suppliers

Bottle-neck

Suppliers

Commodity Suppliers

•  A stratification and consolidation of the supply chain to reduce the overall number of suppliers (esp. of commodity suppliers)

•  Greater emphasis on collaborative partnerships with a select number of strategic suppliers, and a more solutions-oriented approach with suppliers in general

•  High pressure on commodity suppliers to be high performing at competitive price and at the same time more investment/support to top commodity suppliers

•  An integration of supply chain management with engineering to bring design and technological innovation into the supply chain procurement process earlier

•  Centralizing supply chain operations across business units or particular products rather than within each business unit

•  Shortening lead times overall and highly responsive supply chains to respond to customer demands that can’t be known ahead of time

•  There are examples of firms moving production back to the US, where it is becoming more competitive to manufacture, particularly given the emphasis on shorter lead times

Incr

easi

ng in

tens

ity o

f col

labo

ratio

n

Incr

easi

ng c

ritic

ality

& u

niqu

enes

s of

com

pone

nts

Supplier Pyramid showing stratification of supplier base

22

SMEs and Characteristics for High Performance

•  Price: yearly price reductions •  Quality Control: zero defects •  Rapid Response: 100% on-time

delivery •  High Flexibility •  Accountability •  Concurrent Engineering due to

product complexity

•  Innovative components that •  add value to OEMs’ products •  support OEMs’ product innovation

process

Current Small Suppliers (esp. commodity & bottleneck suppliers)

New Suppliers (Startup / Spin-off Suppliers)

Minimal Requirements •  Standard Certifications (e.g., ISO, AS) •  Lean (esp. cross-trained operators, Just-in-time, Kanban) •  Technical skills (IT, CAD/CAM) •  Culture of “Curiosity” and Continuous Improvement

23

What Can We Learn from the German Applied Research Model Based on Consortia?

Characteristics •  Applied research funding as a

driver of innovation •  Funding enables:

•  bringing together partners who otherwise would not meet (esp. SMEs and universities)

•  Extremely intensive inter-firm communication leading to knowledge exchange and mutual understandings (e.g. about technology roadmaps, expectations) that would not occur otherwise

•  Faster development and wider diffusion of innovations which would otherwise have occurred much more slowly and on the basis of bilateral cooperation, reducing diffusion into wider firm ecosystem

Success Factors •  Ideal size

•  3-5 partners: SMEs, university or research institute, one or two large OEMs

•  Close alignment btw. consortium R&D objectives and participants’ existing strategies

•  Different kinds of consortial relationships fostering different types of innovation

•  value chain based approach: rather incremental innovations

•  complementary competency based approach: rather radical innovations

•  Flexible approach to question of pre-competitiveness to speed up time to market and incentivize commitment

•  Consortium-based joint development of pre-competitive product and process innovations comprising SMEs (pre-requisite), universities, research institutes, large companies, consultancies, and intermediaries

Recent Innovation Initiative in CT