Industrial Manufacturing: Background

Industry Composition:

The industrial manufacturing industry is responsible for the fabrication of products intended for industrial use from raw materials; it is the output of this industry which has made further mass manufacturing possible in most other industries. It is responsible for producing a variety of different machinery, from huge industrial to simple household machines, as well as other industrial-use products such as hardware, paper and packaging materials, glass, and other fixtures. However, in spite of the huge range of products, they all have a common function: to eliminate or reduce the amount of human energy expenditure, or manpower, needed to complete the job. No matter what type of machinery is employed, it is crucial in producing many of the goods and services vital to any economy in a timely and cost-efficient manner.

Industrial equipment can be grouped into two broad classes, standard and custom built. Standard equipment is cheaper to build and can be used by many different industries. However, it often cannot fulfill the specific needs of new factories. Custom built equipment is more expensive than standard equipment but tends to be more profitable. It takes longer to build but it can be made to incorporate specific attributes desired by the buyer. Industrial equipment can also be grouped into seven different segments. Agricultural, construction, and mining machinery; industrial machinery; and commercial and service machinery are all special-purpose machinery designed for a specific industry. The four other segments include machinery that is used by all industries: ventilation, heating, and cooling equipment, metalworking equipment, engine and engine related equipment, and other general purpose machinery. Many companies in this industry are conglomerates that produce products found in multiple segments. These conglomerates usually are the result of acquisitions and mergers of previous companies

History:

Industrial manufacturing started out with individual laborers creating products from natural resources that would benefit others. Early examples of industrial manufacturing include weaponry and basic farming equipment. Manufacturing was carried out by a guild of similar laborers who had been trained with an apprenticeship.

The Industrial Revolution in the 18th century was a huge catalyst for the industrial manufacturing industry, bringing with it many innovations to the industry. Among these innovations was the use of machinery, primarily steam-powered, for the production of other machines. This further reduced the human labor needed to produce product and increased the efficiency of factories dramatically. Another innovation was the introduction of interchangeable parts. With interchangeable parts, factories could specialize in what they produced and only produce part of a machine, instead of the whole, and machines could be repaired by ordering and creating new parts, instead of whole machines. Henry Ford further advanced the industrial manufacturing industry with his creation of the assembly line in the early 1900s. Despite improvements to the efficiency of the manufacturing process from technological advances, there have not been many major changes to the production process in the industry

Leaders:

Due to the wide variety of products produced in the industrial manufacturing industrial, there is also a wide variety of companies. Caterpillar, John Deere, and Mitsubishi Heavy Industries are large companies in the heavy/farm machinery segment. In industrial electronics, the large companies are IBM, Sony, and Eaton Corp. Industrial plastics are usually produced by DuPont and Illinois Tool Works provides many objects necessary for the manufacturing. Leaders in the conglomerate segment include Stanley Black & Decker, General Electric, and Emerson.

Trends:

Efficiency is how manufacturing companies are able to separate themselves from others. The more efficiently a company can produce a product, the more products it can produce at a lower cost which results in higher profit margins. One major trend in the industry is using increasingly high-tech production techniques. Firms are introducing more technology in response to pressure from domestic and foreign competitors. Robotics, computers and programmable equipment are common, resulting in increased productivity due to increased efficiency and a decreased need for unskilled labor. Outsourcing is another change often made by companies. They contract labor for jobs that are not part of the primary function of the factory, such as janitorial or security services; this way the company can concentrate more on its core business and reduce operation costs. However, traditional markets for outsourcing (i.e. China and India) are changing. Due to rising wages in emerging markets, some labor intensive manufacturing is being outsourced from these countries. Lastly, there is an increasing emphasis on Six Sigma quality, which greatly improves the quality of the manufacturing process, and lean manufacturing, which emphasizes looking at the system compared to the product to figure out the best production methods. As an example, at Ford a plan is in affect that will cut the number of suppliers from 2,500 to 1000 for an estimated $7 billion in savings.

Future Outlook:

The outlook of this industry depends on the segment and location. Older, more established segments in the industry also appear to have reached their maximum potential; while newer, advancing segments seem to have much growth ahead of them in future years. Also, despite recent changes made by companies that have allowed them to become more efficient and competitive, it seems that in developed countries where the industry is more mature, there remains little room for growth. Increased costs of inputs and a decrease in capital spending are also squeezing margins and creating excess production, so some countries may even see a decline in the industry. Manufacturing operations are moving to developing countries, where operating costs are lower and the industry is seeing growth. There is also hope that with the growth of developing economies, more companies in other industries are able to expand or upgrade their facilities and other capital investments, or even construct more facilities. This is good news for the industry that supplies them with the necessary industrial products and machinery.

Sources:

Deloitte Industry Outlooks

KPMG Industries

PwC Industry Sectors

EY Industries

Glossary