The New Manufacturing Tech Stack – The Path to Reshoring and Circularity

When a set of extremely potent disruptive innovations join forces and multiply each others’ abilities and strengths – it usually leads to a novel platform for how economic activity is conducted. A new platform for market actors to migrate over to. To build new products on top of.

Historically, we’ve had three distinct such platforms: the first, second, and third industrial revolutions. These revolutions did not come about in a vacuum or from a single type of innovation. They are the results of several decades long iterations of multiple disruptive innovations, both improving on their own but also strengthening each other.

In the first industrial revolution, we saw the steam engine, power loom, the electromagnet, railways and locomotives, the telegraph, and limited liability companies – all forming on their own but also reinforcing each other. Then we had steel, the internal combustion engine, oil and gas, electricity, planes, the telephone, radio, and the gold standard – forming the second industrial revolution.

And then the third industrial revolution, since the mid-mark of the 20th century, we’ve had plastics, robotics, advanced alloys, large shipping boats, computers, the internet, cell phones, and fiat currencies – among many hundreds of other disruptive innovations and ways to harness the value of natural resources.

In 20 years from now, the likelihood of the global economy reshuffling itself with an entirely new equilibrium of how, what, why, and where, we make physical goods and products – should be close to a 100%.

The fourth industrial revolution, that we’ve entered over the past few years (arguably), is largely about how the physical fabric of society will become fully digital (Internet of Things) and embedded with AI, that makes most physical products into some degree of a problem-solving robot. Not all products obviously, but probably a majority – will undoubtedly convert.

This and a massive proliferation of renewable energy and storage of energy, will change the economic rationale of how to structure and conduct manufacturing.

A NEW MANUFACTURING EQUILIBIRUM IS FORMING

First off, when robots become equally as good as humans to conduct a specific utility, and can do this to a lower cost, higher speed, and almost constant uptime (no sleeping or breaks, etc.) – it increases the likelihood of manufacturing companies partly switching to a business model where access is the main economic lever, not units. Usership, instead of ownership. We’ll pay for utility a lot more, compared to predominantly owning the product that produces the utility today. Think robots that vacuum floors, cleans buildings, welds metal, serves food, lifts stuff, sort packages, etc.

Secondly, these robots need to be moved much more seamlessly than is the case today. So, when vehicles become autonomous, robots will be supported by a significantly less costly mobility infrastructure, and consequently one that can support a profitable sharing economy.

The sharing economy has long been a promising key to lower carbon emissions but has not yet delivered. Most likely, the sharing economy needs a “next-mile” mobility infrastructure to really proliferate and change our collective view on consumption in general. The current “last-mile” infrastructure does not favor a peer-to-peer system.

Thirdly, if we have hundreds of millions of robots that can solve problems better than traditional products can, and when they are able to swiftly move from place to place to conduct this problem-solving – the economic rationale to have a factory close to the point of consumption could explode.

But this might not be enough, as the labor cost arbitrage that low-wage countries have on high-wage countries could still be too large. However, when companies like Figure, Tesla, Xpeng, Agility Robotics, and 1X Technologies, excel (potentially) in their missions to make general-purpose robots more capable and less costly than their human counterpart in factories – this cost-arbitrage will most likely be broken.

And then fourthly and lastly. The theses above paint a picture where the manufacturing complex is a lot more distributed around the world. From centralized to distributed. In such model, and tied to the prospective new incentive of making products more durable and renewable in a usership business model, it makes so much more sense to source physical materials through a distributed model as well.

Instead of using newly mined materials, it could make economic sense to source materials from depleted products instead. Such economic incentive could lead manufacturing companies to invest into higher-quality materials that can be renewed and that can be produced locally. Or in other words; renewable materials and additive manufacturing, could have substantial relevance in the future.

NEW INFRASTRUCTURE NEEDED

TO RESTRUCTURE OUR GLOBAL LINEAR ECONOMY

Let’s say we have all of these incredible innovations in place some 20 years from now, and that they’ve actually caused substantial ripple effects for how and where we make physical goods and products.

This would no doubt mean that the current structure for our global manufacturing complex would partly transform to something new. To something where we have factories that are a lot closer to the point of consumption, where sharing holds a meaningful share commerce, where durability, refurbishing, and renewability is prioritized, and where vertical integration has replaced at least some of the assembly-light factories out there.

This would mean that we would have a very different technology stack for manufacturing compared to today – with hundreds of specific novel niches emerging and becoming meaningful TAMs (Total Addressable Markets) for both companies and investors. Everything from purpose-built actuators, AI chips, and light-weight components, to 3D vision, metal powder for additive manufacturing, autonomous mobility and bionic hands – will together form a new tech stack.

Having a new tech stack, which in manufacturing terms means a new supply chain network, and having factories closer to the point of consumption – are two massive challenges that won’t be built in a few years (decades more likely), but together they could form the groundworks for a new manufacturing infrastructure that supports circular applications (physical products). Currently, our linear infrastructure does not support the systemic scaling of circular applications.

Historically, an infrastructure usually needs to be in place before applications can scale and proliferate. Think roads before cars, electric grid before appliances, computers before internet and websites, and charging stations before electric vehicles. This is not rocket science, as history cannot be any clearer on this, but it seems as if society at large conducts a strategy where economic activity should convert from linearity to circularity – without building a new infrastructure for it to succeed.

In my personal view (I might be dead wrong...let’s see in 20 years...) we need to “build new” instead of “convert the old”. Past market disruptions are usually initiated through something new coming into a marketplace, rather than a conversion of the old. The new technology stack discussed in this research piece is not the norm when discussing solutions to the systemic pollution that’s still increasing – but it should be.

Autonomous mobility, general-purpose robots, renewable materials, AI chips, additive manufacturing, and other disruptive innovations – should all be considered interlinked and part of a cohesive unit that becomes the next big manufacturing tech stack.

RESHORING – THE NEXT SPACE RACE

Over the past half-century, high-wage countries have continually offshored manufacturing of goods and products. This has been exacerbated over the past 20 years as e-commerce has raised efficiency and cut middlemen out of the value chain. We have fast-consumption ruling the game of manufacturing. Most manufacturing sectors are about just-in-time and deliver as quickly as possible to the lowest cost. This has been, and still is, the manufacturing playbook to beat one’s competitors.

And furthermore, in the political arena, the term ‘protectionism’ has been somewhat of a negative term while ‘globalization’ has been the positive counterpart. And rightfully so when it comes to uplifting billions out of poverty around the globe over the past century. Finding the lowest labor-cost on the planet, just-in-time assembly, and then shipping swiftly to customer – is what globalization means. But the repercussion of this has been fortified linear economic model that has been difficult to break.

Going forward we could however soon see a substantial reversal of physical globalization (not cultural) and that a novel technology stack will enable protectionism to take charge, which will enable a circular economic model.

We already substantial signals for this, predominantly in the US where current US Secretary of Commerce, Gina Raimondo, have likened the prospect of reshoring to that of the space race between the US and Soviet more than a few decades ago. When AI embeds itself into the physical fabric of society, meaning that most physical products have AI installed within – the data that flows through these products will be paramount to own. The US does not want anyone else to have data on their citizens, and they do not want to be too reliant on anyone else. And they want to thrive economically, of course.

We also have Y Combinator, an American investment and accelerator firm, being crystal clear that they are increasing their focus on manufacturing startups. Jared Friedman, Partner at Y Combinator, recently said the following:

“We want to fund more startups that are bringing manufacturing back to America. The next decade is going to see a resurgence in Silicon Valley startups making physical things. We have strong government support behind us, and we have robotics which is going to enable us to automate our factories"

And then we have Reshoring Initiative, which is an American non-profit focused on helping companies to understand the upside of having manufacturing close to the point of consumption. The founder of the Reshoring Initiative, Harry Moser, brilliantly discusses the upsides (and status) of reshoring manufacturing in a conversation for the TechEd Podcast (link).

In short, he explains that the US faces a 45% manufacturing cost gap with China, but that in a Total Cost of Ownership (TCO) analysis – half of the cases in this study actually favors reshoring, when accounting for hidden costs like tariffs, geopolitical risks, and supply chain disruptions.

Until next time,

Christopher Lyrhem

Chief Future Officer

Sircular