Manufacturing is one among the 5 industries in the US that is expected to increase spending in cloud computing along with other technologies such as IoT, robotics and augmented reality.

Where cloud-computing market is registering double-digit growth, manufacturing industry in the US is increasing at a decreasing rate mostly due to decrease in demand of American products by consumers and rise in operating costs of manufacturing.

• Definition / Scope
• Market Overview
• Market Risks
• Top Market Opportunities
• Market Trends
• Technology Trends
• Regulatory Trends
• Other Key Market Trends
• Market Size and Forecast
• Market Outlook
• Technology Roadmap
• Distribution Chain Analysis
• Competitive Factors
• Key Market Players
• Strategic Conclusion
• References

Definition / Scope

Cloud computing is a next generation technology which is causing innovation across the computing architecture by virtualizing the computer resources and services. Some of the attributes of the technology include, on demand service, infinite scalability and elasticity among others.

The cloud computing is a technology that has become inevitable in the process of enabling next production revolution. Majority of manufacturing enterprises in the US utilize cloud computing in one of three major formats: software as a service (SaaS), platform as a service (PaaS), or infrastructure as a service (IaaS). 

Software as a service: It includes an online software such as Google drive, Salesforce’s CRM (Customer relationship management) software that allows users to access software applications over internet using personal computers, mobile devices instead of having store software locally on in-house devices. 

Infrastructure as a service: It gives companies access to secure, enterprise-class computing infrastructure that can be substantially managed and scaled to meet diverse requirements, whether for computer processing or data-storage capability. 

Platform as a service: It allows users to rent virtualized software expansion or production surroundings to competently develop and deploy new applications without having to invest in expensive hardware or software licenses of their own. 

Additionally, cloud computing can be deployed across four arrangements: a public cloud, a hybrid cloud, a community cloud or a private cloud. 

Around the globe, over 90% of the enterprises are believed to be using cloud computing in some part of their business.

Similarly, as per an IDC report comprised of nearly 600 US manufacturing enterprises found that 66% of those reported using a public-cloud for two or more applications whereas 68% were identified using a private cloud.

In addition, the study further found that manufacturers in the US were increasing their cloud-services share of annual IT budgets by 27% yearly. Also, cloud hosted services are forecasted to account 50% of all the organization level software usage among manufacturers by 2023. 

Further, the Gartner has forecasted that “cloud shift” is being undertaken in the manufacturing sector where the spending in cloud by manufacturers is expected to amount to $216 billion by 2020. Within manufacturing, 60% believe cloud computing is a priority technology for them to procure. 

Market Overview

The US manufacturing is the transformation of raw materials into new products. The businesses include plants, factories and mills mostly. The big manufacturers in the country manufacture products with powerful automated machines.

Manufacturing sector also includes companies that contract others to make goods whereas housing and commercial construction are excluded. 

US manufacturing industry is the largest in the world. As of 2018, it produced 18.2% of the world’s goods.

Lately, America’s competitive position has been greatly challenged because of the high operating costs in the industry which is giving competitive edge to countries such as China that have low cost factories. In 2018, China produced 17.6% of the world’s product which makes it second largest producer after US. 

The manufacturing industry of the US contributes substantial amount to the country’s GDP. For instance, in 2018, the sector’s contribution to country’s GDP totaled $2.33 trillion which is also responsible for driving 11.6% of the US economic output.

Manufactured goods also comprise of 50% of the total US exports. In addition, the manufacturing sector also adds much value to the US economy where every $1 spent in the sector adds $1.89 in the business growth in other supporting sectors (retailing, transportation & business services). 

As of 2018, US had 12.75 million manufacturing jobs which is also 8.75% of the total workforce in the country. The manufacturing jobs in the US also pay 12% more than that in other sectors. In 2018, the average amount earned per worker in the sector was $84,832 i.e. $40.7 per hour including benefits. 

From a geographic perspective, the United States market will make up close to 75% of the overall cloud computing market in 2018 followed by China and Japan growing at 54% and 47% y-o-y respectively.

According to IDC, five large industry groups in the US spent a total of $37.5 billion on the industry cloud solutions among which manufacturing industry is one. Similarly, the overall market is expected to reach $45.4 billion in 2019 with 3 of 5 groups growing above market average of 21.5%. 

In the US, the manufacturers mostly use hybrid cloud market which has grown three fold since 2014. As of 2014, the market was worth $25.28 billion and is worth $66.39 billion. In 2019, the market size is expected to reach $84.67 billion. 

Market Risks

Despite of Cloud computing technology’s multiple benefits offering to manufacturing organizations, the technology also raises security concerns which is not being managed by the manufacturing companies.

Thus, this can lead to fear and also lead the cloud to instead backfire and turn into information security disaster.

The cloud creates a digital visibility and not every manufacturing enterprise is comfortable moving their entire system/operation data from on-premises(physical) to the cloud.

Storing all data into cloud means the data will not be physically accessible without connection to internet and secondly, having data over cloud means risk of getting hacked by the cybercriminals crawling around internet network.

Another risk could come from the loss of visibility which is triggered by security issues from the cloud service provider (CSP) or even internet service provider.

The loss of visibility of cloud could also expose the companies to have less control over regulatory compliance, software and data assets as well as security integration of current infrastructures.

Thus, the manufacturers must not heavily depend upon the infrastructure and services provided by the CSP’s and focus on integrated risk management processes to manage cloud solutions.

Top Market Opportunities

Particularly among the automotive manufacturers, the creation of innovative designs requires teamwork of engineers, designers, and supply chain experts and also the production organizations and cloud-based platforms are suitable to allow cross-functional teams to operate on new design in real time, sharing information efficiently and speed up innovation.

In addition, the cloud also helps in removing information silos that keeps auto manufacturers to cope with interruptions and errors.

As cloud enables manufacturers to share more data more often, they are likely to end up with few errors in initial product design and have more efficient supply chain in place that could lead them to more profits once a product model launches and thus, giving them a competitive edge in the market.

With cloud, a US manufacturer, Austin Martin is utilizing cloud to approve design among team efficiently which has allowed the company to prevent costly changes in further down other manufacturing stages and also contracted the time it takes to design components of new automobiles, such as the wheels, from as much as six months to only one or two days. 

FDA or the US Food & Drug Administration Code of Federal regulations (CFR) requires that every manufacturer needs to maintain device history records in form of batch, lot and unit level.

In line with that, medical device manufacturers in the US need to comply with current good manufacturing practice policy (CGMP) and ISO 13485 and 9001 standards.

At present, the associates are manually cataloging and reporting records to prepare industry and government filings which can be eliminated if cloud-based compliance applications having capability of producing federal device history records are deployed across the organization.

Market Trends

Manufacturing skills training: One of the popular enterprise-wide use of cloud computing is across the human resource management and workforce training.

For instance a web-based portal that is cloud delivered and a massive open online course in the US is providing over 500 online classes related to manufacturing technology further providing training into 9 functional areas and 60 competency models to identify gaps, define requirements and provide specific guidance for development.

The portal’s one of the training area called, “Accelerate Methodology” provides an enterprise-specific approach that supports manufacturers and their workers acquire needed skills.

In addition, in Chicago, Illinois, the Digital Manufacturing and Design Innovation Institute (DMDII), one of the 14 Institutes of Manufacturing Innovation has also advanced a Coursera-hosted MOOC that’s providing training in digital manufacturing and design technologies. 

Integration of industrial supply chains: By moving digital contacts from enterprises’ own data centers into the cloud, the cloud computing technology is playing a major role in facilitating integration of broader industrial supply chains.

For manufacturers, the cloud based supply chain management software solutions are delivering number of benefits such as integration of multiple IT platforms, collaboration environment, supporting integrated data analytics, increasing scale and reducing costs.

Thus, supply chain management solutions are delivered via software as a service (SaaS) and will cover $4.4 billion market by 2018 and is expected to grow three fold into the future due to its increasing demand from the manufacturing industry. 

Government policies: Some of the federal policies related to manufacturing also decrease the competitiveness of the sector in the country. These policies make US manufacturing costs higher by up to 20% and even labor costs are not included in it.

First, complying with these regulations costs $180.5 billion which is 11% of the total sales of the sector. Secondly, the corporate tax rate in the country is 35% which is higher than that of France (34.1%) and much higher than that in China 16.6%. Finally, other countries are better at discussing bilateral trade arrangements than the US.

Due to the lack of skill of the government of the US, the tariffs and export fees are high which increases the cost of manufacturing as import prices of supplies are more expensive. 

There are several obstacles that continue to exist due to the lack of policies by the government to address the issues. At present, there is insufficiency in interoperability to pass data from design and product definition through to product equipment and processes.

For instance, it is problematic to pass on the data on product concept from controller on the machine tool to the coordinate measuring machine that is going to inspect it, a challenge only aggravated when machines are made by different manufacturers (which includes different manufacturers from a variety of different countries). 

The cloud computing will play a major role in coordinating and connecting enterprises and in integrating manufacturers’ global supply and distribution chains.

However, for the vision to become reality, data must be permitted to move seamlessly over the internet. In addition, proliferation of data localization policies throughout the world also threatens to fragment and constrain manufacturers integrated global production chains, all connected through cloud.

The countries’ data-localization policies are predicted on evidently enhancing data privacy or countries that fail to put the right cloud computing policies in place are likely to fall behind in new industrial revolution.

In addition, data localization policies only harm countries own economies and policymakers are imposing measures that bans the transfer of data, requires local storage and processing of data and also use of local facilities which are some factors limiting the usage of cloud computing. 

Technology Trends

At past, product design in manufacturing was about creating physical prototypes, testing or experimenting with them and going through an iterative process until reaching a final product, at present, the cloud-hosted computer aided design tools are being used.

These new technologies have enabled in development of more streamlined processes, speeding innovation cycles and accelerated time to market. The cloud computing is supporting these technologies namely, computer-aided design, engineering, and manufacturing (CAD/CAE/CAM) to be executed on high-powered supercomputers.

Thus, designers no longer have to rely on powerful machines at their office or gain software licenses to conduct ground-breaking simulations as cloud computing allows immense data capacity and virtualized computing power to enable digitally based design.

In addition, the cloud computing is also allowing the use of another technology called “generative design”, which is a technique that could lead to an evolution in designing process.

In this technology, an engineer enters design goals with all the factors such as materials, methods, cost and software uses algorithms to cycle through millions of design choices, testing configurations, learning from each iteration and identifying what works and what doesn’t.

The software has huge scope of implementation in manufacturing and it can operate efficiently only if it runs on cloud. For instance, with generative design techniques hosted on cloud, Airbus designed a new aircraft almost 50% lighter than its current aircraft partition designs and yet sturdy.

Cloud computing has also become the key enabler of technologies in new manufacturing production systems such as 3D printing, the industrial IoT and industrial automation.

For instance, Divergent 3D, the manufacturer of Blade world’s first 3D printed supercar has come up with innovative approach in manufacturing the integrated 3D-printed joints also called Node.

These nodes connect carbon-fiber materials resulting in a framework of the car that can be assembled in minutes. Cloud has aided the development of designs for Divergent by connecting them to 3D printer. 

Besides, 3D printing, the cloud computing platforms are also functioning as a base to enable IIoT (Industrial Internet of Things). For instance General Electric’s manufacturing plant in Schenectady, New York is valued at $170 million and manufactures massive batteries for cellphone towers and power plants.

Around, 10,000 IIoT-enabled sensors spread across the manufacturing space collect data on temperature, humidity, air pressure, and machine operating data in real time.

And only by utilizing the cloud technology, GE is able to process massive volume of data being generated by the machines and communicate the data to devices spread worldwide. 

Regulatory Trends

The Manufacturing USA program consists of 14 institutes of manufacturing innovation that is formed through a public-private partnership to ensure continued leadership of the US in advanced manufacturing and technologies enhancing process.

The members of institute have made collaborative approaches to R&D and commercialization of cutting-edge manufacturing technologies. The institute is assisting in developing cloud enabled tools for HPC aided design, parts machining and validation, enterprise decision-making for manufacturing companies.

In addition, America makes is other programs such as America Makes that specializes in additive manufacturing, the Clean Energy Smart Manufacturing Innovation Institute (CESMII), the Institute for Advanced Composites Manufacturing Innovation (IACMI), and the Advanced Robotics Manufacturing Institute among others are also helping to generate cloud-enabled manufacturing to some extent.

As of 2018, The Trump’s administration budget has allocated $115 million for the funding of these DoE-led institutes. 

Another program called, the Manufacturing Extension partnership program known as MEP is one of the most important programs in the entire federal government. The centers are established under the program in all 50 states which is dedicated to increasing innovation capabilities of USA’s SME manufacturers’.

MEP also provides substantial ROI to US taxpayers. For instance, for every dollar of federal investment, MEP generated $19 in new sales growth and $21 in new client investment. Overall, this translates into $2.2 billion sales annually.

Thus, for every $1978 spent by the federal government in the program, the program retains one manufacturing job. Similarly, MEP intends to create big impact for 250,000 SME manufacturers by funding them to adopt IT enabled manufacturing technologies such as cloud and also providing skills to implement it successfully.

Thus, the government of US is expected to inject $130 million into National Institute of Standards and Technology at the Department of Commerce to continue to drive MEP’s support. 

Other Key Market Trends

As cloud computing technology becomes more proliferated in the industry, the business models such as XaaS or Anything as service are also rising.

The norm behind XaaS is that businesses can provide better, more cost-effective solutions to customers via subscriptions or pay-as-you-go models. The rise of XaaS in the manufacturing sector is also known as manufacturing as a Service.

Under it, broad range of services for manufacturers to explore are being introduced in the market such as Design as a Service (DaaS), Experimentation as a Service (EaaS), Equipment as a Service (EaaS), Simulation as a Service (SIMaaS), Management as a Service (MaaS), Maintenance as a Service (MAaaS), and Integration as a Service (INTaaS).

A number of manufacturers are diversifying the offerings and moving towards service-oriented models. Thus, the future of manufacturing in US and around that around the world lies in customer-centric manufacturing services. Thus, diversifying offerings in this way is a key benefit for manufacturers that embrace service-oriented models. 

Market Size and Forecast

The total market size of cloud computing market in the world, in 2018 was recorded at $175.8 billion of which US accounted 50% of the market share i.e. $87.9 billion respectively. 

The US cloud computing market is further projected to reach over 102.3 billion in 2024, registering a CAGR of 16.4% during the forecast period of (2018-2024). 

As of 2018, the manufacturing industry market size was recoded at $2.33 trillion. Further, the market size of the industry is expected to grow at a CAGR of 1.5% in (2018-2023) period. 

Market Outlook

The manufacturing sector in the US is expected to grow 3.9% in 2019, 2.4% in 2020 and 1.9% in 2021 which denotes the growth in decreasing rate. However, the manufacturing sector is expected to increase faster than general economy and increased capital as well as exports are likely to boost the sector in the near future. 

America’s competitive edge in the manufacturing sector has slithered as forecasts show that China will be the leader of manufacturing by 2019 end accounting 20% of the global market followed by US in 18% and Japan in 10% respectively. 

Further, manufacturing sector is also likely to get bolstered by tax cuts and could be restricted by the Trump’s trade war. The growth also depends upon the strength of US dollar and if dollar declines, it is a good sign for the exporters. 

Other factors include, productivity where partly because of the increasing use of technologies such as 3-D printing, the costs of manufacturers are declining mostly across product development area.

In addition, the rise of natural gas and shale oil production has also attracted manufacturing industry to use it for manufacturing production. Thus, low gas prices and productivity gains are both likely to reduce production cost of US manufacturers. 

Finally, the companies in the US are realizing the need to protect homemade intellectual property as some countries such as Chine are allowing their factories to copy US designs and manufacturing processes.

Thus, China can produce equally good products and sell at a lower price which is one of the major reason for some manufacturers to remain and carry the operations within US territory. 

Regarding cloud in manufacturing, the sector is facing immense pressure from stakeholders as well as management to become 100% cloud-based. For the same, big enterprises across the industry are expected to invest an average of 3.5 million on cloud in 2019. 

Technology Roadmap

Cloud computing is revolutionizing the manufacturers to manage their operations efficiently but in some place where the cloud computing has limitations such as latency, bandwidth and lack of offline access. To solve the problems, the manufacturers are turning towards edge computing.

This technology enables manufacturers to run applications and store data with on-premise infrastructure connected to the cloud. The two major reasons why manufacturers are turning towards edge computing is that it reduces the size of data to be sent over the network and speeds up decisions by bringing response times to milliseconds and this in turn reduces cloud computing costs.

And second, by retaining data and analytics on premise, edge computing minimizes the risk of interruptions to production due to network outages.

Thus, going forward, a number of manufacturer are likely to embrace hybrid cloud solutions that make use of edge computing where speed, privacy is concerned and cloud in situations where it is necessary to analyze large volumes of data pulled from different sources across supply chain.

Distribution Chain Analysis

In 2018, 30% of the IT spending was allocated to cloud. In addition, average investment of companies was $2.2 million. Cloud as SaaS was mostly commercialized accounting 48% of all the cloud sales followed by IaaS (Infrastructure-as-a-service) at 30%, PaaS (Platform-as-a-service) as 19% and others (6%) respectively. 

Competitive Factors

Mystrey Ranch, a MSME manufacturer based in Montana specializes in high-end backpacks and other related accessories. The company leverages cloud-software to manage cloud-software to manage virtually every operations across five manufacturing locations in US, Vietnam, and the Philippines.

Using cloud technology, the company is able to manage all the aspects of its organization including, designing, engineering, production, quality control, research, manufacturing, inventory management, financials, vendor relations, e-commerce and sales & marketing. Thus, the technology helps the manufacturer to manage entire view of its operations. 

Another large multinational manufacturer in the healthcare industry, J&J are leveraging data analytics in cloud to proficiently drive insights across the enterprise to enable decision-making in business & across operations. Having around 260 operating units across 65 countries, J&J has access to huge stores of data.

The company has developed hybrid-cloud solution housing over 120 applications to explore data on real-time, at scale and thus, enabling everything from, maintaining inventories to forecasting new revenue opportunities.

The cloud allowed the company to gain insights out of mere data. The cloud in combination with other technologies such as machine learning has also allowed the company to gain insights quickly and actually decreased the provisioning time from three months to under an hour. 

US based multinational drug-manufacturer Pfizer leveraged cloud computing to reengineer its complex supply chain moving its entire supply chain into cloud and its new virtual interface has several layers that delivers related information to concerned individuals across its supply chain.

The company invited more than 500 suppliers to implement a cloud-based the new common-information exchange framework through its cloud. The supply chain virtualization enabled Pfizer to respond faster to unexpected events which would have disrupted its complex supply chain.

In addition, with the cloud-based supply chain management solution, now Pfizer is able to move from a zero shipment traceability environment to device-independent platform within 18 months and with ability to handle 40,000 global shipments. 

The US automotive manufacturer, General Motors (GM) are using their $130 million enterprise data which was introduced in 2013 to transform its IT structure globally. The data center runs on a cloud-architecture that supports the organization’s global operations, ranging from design studio to factory showroom.

With the help of cloud, GM can conduct a supercomputer powered simulations which can save the company up to $350,000 each time it conducts a test. 

Other auto manufactures in the US such as Ford, Tesla and Hyundai are using cloud to enable updates to vehicles powertrain, infotainment, and navigation and safety systems.

For instance, Tesla has also installed autopilot in its models to upgrade the functionality remotely. Similarly, introduced by Ford in 2015, Ford Service delivery network is a cloud-based system that can remotely update vehicles navigation and infotainment systems. With cloud, the need of dealer and to make physical connection is eliminated. 

Key Market Players

Top 5 cloud computing service providers in the world are based in the US. According in 2018 commercial cloud revenues, top players in the industry are follows: 

• Microsoft commercial cloud: The major services available in the commercial cloud are: Azure, Office 365 business services (exchange online, SharePoint online, Skype), Dynamics 365 and its enterprise mobility plus security suite (EMS)
• Amazon web services (AWS): With AWS, clients are mostly looking for hybrid approach where VMware running on AWS is gaining most traction. In 2018, 12% of companies across industries in the US were using this cloud approach.
• IBM: Its Watson platform is more focused on becoming cloud based data operating system. IBM also acquired a company called Red Hat for $34 billion recently as part of its multi-cloud strategy.
• Oracle: It is using machine learning to make its cloud services more automated and self-healing. In addition, it is also moving onto data-as-a-service (DaaS) model to differentiate its cloud platform from others.
• Google cloud platform/G suite: Lately Google’s cloud platform strategy revolves around artificial intelligence and machine learning and get good foothold in enterprise. In 2018, 19% companies across industries in the US were using google’s enterprise cloud and 40% are planning to use in future.

Strategic Conclusion

Manufacturing is one among the 5 industries in the US that is expected to increase spending in cloud computing along with other technologies such as IoT, robotics and augmented reality.

Despite of the surge in cloud computing inside the US, with 5 major cloud-providers in the world located within the country, US manufacturing is amidst the skills crisis where new jobs created in the industry require sophisticated computer related skills to cope up with the upcoming technologies.

Where cloud-computing market is registering double-digit growth, manufacturing industry in the US is increasing at a decreasing rate mostly due to decrease in demand of American products by consumers and rise in operating costs of manufacturing.

However, cloud-computing is likely to ease the operating costs mostly in product development stage which is why the industry is in verge to adopt the technology aggressively in near future.

References

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