The Future of Manufacturing: Insights from Lin Xueping

The Future of Manufacturing: Insights from Lin Xueping

What will the future of manufacturing look like? Where does China's manufacturing industry stand today? The Shanghai International Industrial Fair, which returned after a three-year hiatus, provided some new perspectives.

Convergence of IT and OT

When it comes to understanding the trends in intelligent manufacturing, automation remains the key. It is through the integration of automation with digital technologies and process improvements that we can grasp the direction in which the future of the industry is heading.

Siemens, with its expansive exhibition spanning over 1000 square meters, showcased more than thirty different solutions. It was not only a window into the distant future but also a glimpse into the current scenarios of intelligent manufacturing. Siemens presented a new strategic vision called "Industrial Operations X," which indicates the emergence of a new industrial operating system.

While the exact picture of the future is yet to be accurately described, the pulse of the future of the industry is undeniably strong. Strategic-minded business leaders, perched on higher watchtowers, are mobilizing themselves to navigate the upcoming waves of change.

It is now a consensus that intelligent manufacturing involves the convergence of IT and OT. However, beneath this consensus, there still exists semantic ambiguity and continuous divergence. Previously, there was a debate about which group, IT or OT, would dominate. Now, we finally have a clear answer. OT has regained its confidence and taken the lead, while IT has returned to a supportive role.

However, OT is also evolving, and automation is not what it used to be. In the process of competing with IT over the past four to five years, OT has become more open, and many IT concepts have been introduced. Siemens introduced the concept of "enhanced automation," which is an upgrade to existing OT technologies. It reweaves the full-stack technology of automation using digital technologies. The current integration of IT and OT in intelligent manufacturing is not a true fusion but rather a forced connection. It is like a form of painting, using IT as a coating to cover the original walls of OT. However, the future of intelligent manufacturing will be a natural symbiosis of IT and OT, where the coating becomes an integral part of the wall. The integration of IT and OT in intelligent manufacturing is not a fusion but a native state, just like a double helix structure that becomes the genetic code of intelligent manufacturing.

To demonstrate this, Siemens showcased a new form of control system at the event. It uses an automation software platform, with the latest lightweight version of Visual Studio, called VS Code, as the underlying foundation, rewriting it from an IT perspective. This means that individuals with a background in computer science or information technology can now join the ranks of automation programming. The gateway to automation has never been more accessible, and IT professionals can easily step into this realm. In the past, programming of automation control systems mostly relied on ladder diagrams, to the extent that the discipline itself showed signs of stagnation. Many companies even equated it with electrical work. Such perceptions have significantly hindered the influx of talent. However, with the increasing injection of IT professionals, the future of automation will receive a fresh stream of ideas.

Siemens showcased the advantages of its comprehensive software suite, from product design to production line simulation to real-time machine analysis. It is now packaging all its software capabilities into an "Xcelerator" platform, aiming to attract various ecosystem partners and build a brand new empire. Innovators love the "X" strategy, whether it's Google, Tesla, or Siemens; it signifies exploring the possibilities of the future. Currently, Siemens' X platform strategy has a clear vision, but its tactical approach still requires iterative refinement. Many curtains remain partially drawn, awaiting further unveiling.

Software is becoming the new leader in the manufacturing industry. Machine manufacturers will no longer simply provide a piece of equipment; they will deliver two systems: a physical machine and a digital twin machine. Having a "virtual machine" alongside a physical machine will become the standard. In factory bidding processes, astute clients will no longer solely focus on machine parameters or listen to PowerPoint presentations about solutions. They will demand that the "virtual machine" simulate the parameters first before qualifying for the bidding process. This poses a significant challenge for OEM manufacturers. Manufacturers who only understand mechanics and electronics but fail to connect the entire process through software may find themselves trailing behind as the era progresses. This is a skill that cannot be automatically upgraded through the enlightenment of mechanical and electrical engineers alone; it requires external assistance. OEM manufacturers need to press the "Reset" button and make choices that refresh themselves.

Every automation manufacturer cannot afford to be indifferent to software. Mitsubishi Electric's "Future Manufacturing" showcased the combined use of SCADA software, 3D simulation software, and data analysis and diagnostic software called MELSOFT. This represents a strategic stance. Automation manufacturers need to assess their software assets. Schneider Electric also demonstrated its contemplation of the "Future Industry." The AVEVA software it acquired is spreading and growing like a vine along with its hardware components. More process knowledge is being infused into its underlying platform.

The German company Phoenix has introduced a prototype of "Virtual Control" (VC), which represents a significant disruption to future control systems. It means that hardware and software will be greatly decoupled in future control systems, leading to a substantial reduction in on-site engineering and debugging. Similar to virtual machines in servers, virtual control allows one industrial PC to control multiple programmable logic controllers (PLCs) with different tasks. The new control system is beckoning us to peek into the window of the future. After the acquisition of automation programming software KW, Phoenix introduced the next-generation control system PLCnext based on Linux, which has demonstrated the hybrid state of the new control system. It has both lightweight computing capabilities and the ability to perform high-level language programming, making it convenient for IT professionals to enter the field of automation. Furthermore, Phoenix's new initiative of GreenPro, focusing on low-carbon and green future, has begun tracking carbon footprints in organization and making breakthroughs in product carbon.

The scene of the gods on-site

Omron Automation, a Japanese company, emphasizes the concept of "human-machine collaboration" by softwareizing human skills and integrating them with machines. Omron remains one of the least pretentious companies in my impression. The concept of "artisanal automation" that I saw from Omron four years ago still holds true today. Omron's booth is often the most thought-provoking place, not because of its automation technology, but because of its pervasive lean philosophy. It tirelessly explains the principle of how humans can coexist with machines. How can the skills of skilled technicians be encoded? "Craftsmanship Preservation" is a term I like, which means the symbiosis of OT knowledge and IT technology requires a renewal of management philosophy rather than a simple technological upgrade. Japanese manufacturing adheres to rationality and does not chase conceptual trends. There may be no apparent changes from year to year, but significant differences emerge within four to five years.

Delta Electronics' actions are also worth pondering. It is difficult to define Delta's business lines. It is both a PLC system provider and the world's leading power supply manufacturer, with various other businesses such as fan manufacturing. Many people underestimate power supplies, but their zero tolerance for safety makes the barrier to entry in power supply production extremely high. The best domestic company in this field is probably Huntkey Group, which has achieved good development thanks to the strong support of its downstream user, Lenovo. Delta's smart manufacturing is perfectly combined with lean principles. Surprisingly, Delta is a manufacturing fanatic. Almost all equipment on its PLC and power supply production lines is self-manufactured. Especially after acquiring the American pick-and-place machine company Universal Instruments, its self-production rate of equipment on the entire production line can reach 90%. Soldering machines and optical inspection machines are all self-manufactured. Delta also sells such electronic manufacturing lines to customers. The greatest advantage of self-manufacturing equipment is making production like an everlasting towel. For smart manufacturing, Delta Electronics has set the target principle of "significantly increasing the per capita output value within a few years." It is truly astonishing. How can such a high level of automation be achieved? It cannot be accomplished by breaking through with individual machines; it requires the linkage of the entire production line—this is the logic of self-made equipment. It requires a large amount of software to connect the equipment. Currently, Delta Electronics has achieved a substantial reduction in its goal. To squeeze out more productivity, focusing solely on manufacturing is not enough; the company must also venture into the design stage. Improving design concepts and designing for automation are essential for integrated improvements in efficiency on the shop floor. Delta's experience proves that there is still much room for improvement in lean manufacturing.

Going Global Again

In the field of laser equipment, people can't help but feel small. The scene here is too grand. Everywhere there are hundreds of square meters of booths. Jinan Bond Laser, which is good at laser performances, remains as enchanting as ever. Departing from the rough and greasy appearance of machines, Bond Laser has transformed laser equipment into the look of Bond girls. This is the unique style in the industrial world.

Behind the exaggerated space, there is a highly homogeneous and competitive industry. The laser industry may be the "king of internal competition" in all industries. It sounds like laser technology is high-tech, but here it has become a low-priced commodity. The laser source is the most important power source for laser equipment. Since Wuhan Raycus Laser broke through the technical barriers of the American fiber laser giant IPG, the price of laser sources has started to decline rapidly, resulting in a significant decrease in the performance-to-price ratio of laser equipment. The unit price of power wattage for lasers has been continuously decreasing, like a sinking stone heading straight for the deep sea, dragging the sack above it to explore the bottom.

It's difficult to make money in this industry. But capital support is strong. Smart companies have discovered new opportunities, which is to go overseas. The number of new factories being built worldwide is increasing significantly, and far-sighted companies have begun selling their products overseas. Guangdong Hongshan, with a strong strategic focus, has become a flag bearer in the industry. With no debts and stable operations, this leading company has generated more than 30% of its revenue from overseas. However, India and Vietnam are raising the "anti-subsidy and anti-dumping" swords, targeting the booming Chinese laser export market. Currently, China has not found an effective way to deal with these conventional anti-dumping weapons.

Another industry worth considering is the robotics industry. Chinese robots have shown the same characteristics as lasers: grand and empty. Chinese robots have developed rapidly, reaching a production volume of nearly 300,000 units in 2022. However, with so many robot manufacturers entering the market, it can be seen that the barriers to entry for this market have become extremely low. They are competing with each other, making the market cruel and tasteless. This market is waiting for an opportunity for reshuffling. On-site, I saw the UNO high-end robot launched by Easton Robotics, which can adapt to various harsh environments with high speed and precision. It is still a bright spot. The explosive growth of China's lithium batteries and photovoltaics has created a lot of imagination for robots. For example, a 50kg SCARA robot used in a lithium battery scenario is basically monopolized by Chinese manufacturers. This is a new phenomenon. However, robots need more breakthroughs in this area, and only by challenging high-end robots will there be opportunities. But how to survive better and expand overseas is undoubtedly the key. The acquisitions made by Easton Robotics a few years ago, such as Cloos from Germany and TRIO Controls from the UK, are becoming effective international channels for Easton.

In my upcoming book "Supply Chain Warfare," I mentioned two things. First is "China's Manufacturing Going Global." As the great redistribution of the supply chain is taking place, the movement of the supply chain is inevitable. Chinese manufacturing needs to take proactive measures and actively deploy in order to regain growth power during this supply chain reshaping. The second is "Synthetic Camp Going Global." Chinese manufacturing going global now faces severe ecological challenges and the integrated layout of mature multinational companies. Enterprises can no longer fight alone. Platforms such as finance, credit, intelligence, think tanks, and consulting services should all participate in order to provide support and escort.

The production capacity of intelligent manufacturing needs to be exported, and lasers serve as a good sample to observe. The laser industry is the most competitive industry, making it difficult to make money domestically but offering plenty of opportunities abroad. However, laser companies are often small in scale. Even the leader, Han's Laser, only has a revenue of 15 billion yuan, far ahead of its closest competitor. However, lasers are also an advantageous industry in China. It is worth pondering how to ensure the healthy growth of such an industry. Reintroducing globalization and finding new ways to obtain global wealth are new challenges for Chinese manufacturing. The laser industry is accepting this challenge.

Two Disappointments

There are two major disappointments that are different from what we imagined.

First: The intention of automation companies to "de-industrialize" the industrial Internet is evident. The multinational giants in automation seem to no longer emphasize industrial Internet platforms. The flag that once led the development of industrial Internet platforms, Predix, has long since disappeared and become a sealed legend in the industry. Siemens also launched Mindsphere during that time, and other automation giants such as Honeywell and Rockwell also launched their own platforms. However, they quickly shifted from offense to defense and turned their industrial Internet platform into a shield instead of a spear. Mindsphere has quietly transformed and has become the supporting part of Siemens' low-code platform Mendix, which was acquired by Siemens. Now, even the name "Mindsphere" is no longer necessary. It has been renamed "Insights Hub." This name is meaningful. It is great that every company strengthens its bones with software and connects its nerves with the industrial Internet for its own use. However, it is very difficult to rely solely on the industrial Internet to conquer the world. People may need to rethink the strategic direction of this path.

Among all automation companies abroad, only Hitachi Lumada is still strengthening its industrial Internet platform strategy. The person who proposed the Lumada project was an engineer and is now the president. It is difficult to change the strategy. However, its business components are much more complex, with a large number of existing data centers and business intelligence product solutions. Therefore, this is not just the framework of a new business. People may no longer care about what it is called, but the company's strategy needs to clearly define its essence and boundaries.

The second disappointment is that artificial intelligence (AI) is difficult to become the main force of intelligent manufacturing. It can only play a small supporting role, despite wearing the most shining hat. ChatGPT has won widespread acclaim for AI and has become a value multiplier for existing software such as Microsoft and Salesforce. However, in the industrial field, AI still needs to work hard to find its own position. AI has made great breakthroughs in areas such as visual inspection. But such a small stage is not enough to accommodate the versatile performance of AI. This is not because AI is incapable, but because the industrial sector is not ready. Factories do not have the ability to digitize scattered tacit knowledge or the willingness to spend money to purchase ready-made knowledge packages. The old phenomenon of factories being hardware-oriented and software-light reappears in the face of new AI capabilities. AI in the industrial field is trapped in a paradox where people expect it to produce more but are unwilling to pay for it. AI companies that focus solely on algorithms have to attach themselves to hardware to seek difficult value breakthroughs.

Closing Remarks

Spending a day and a half, I had a fleeting glimpse of the exhibiting companies. There was both joy and heaviness. Chinese companies have demonstrated strong vitality and progress. Foreign companies have showcased their profound technical expertise, whether it is process improvement or digital technology, which presents visible new moats. It seems that they are not afraid of competition and have their own active markets. However, the major changes in the supply chain are also dispersing people's strategic attention. Tianjin Laser Equipment began to shrink in China last year, and its Shanghai factory was also transferred. However, its global market grew by 30%. Japan's SMC, the world's largest automation pneumatic actuator manufacturer, achieved a growth rate of 22% in its domestic market, surpassing the growth rate in China. This is something that has never happened before. These slightly unusual signs indicate that, beyond the allure of the Chinese market, new variables are forming. China's manufacturing industry needs to establish a new pattern to meet different challenges.