Get Ready for Vertical Disintegration
When Ford's Rouge automotive plant opened its doors in 1921, producing about 1 million Model Ts that year, it was the paragon of vertical integration. "It took iron ore and cotton in one side and sent cars out the other," said Timothy Sturgeon, Executive Director of the Globalization Project at the Massachusetts Institute of Technology's Industrial Performance Center. Since then, the vertically integrated plant has disintegrated into a network of suppliers. Now, driven by new information networks and flexible manufacturing technologies, those relationships are becoming even more diffused. "That there are specialized sectors of the economy is nothing new," said Sturgeon. "The thing that's new is that what is being outsourced are not only standardized things like steel and pencils, but the manufacturing of specialized items and even entire products that are the competitive lifeblood of the firms that are sending them out. The amount of information that needs to be shared is huge."
These shifting networks could lead to a variety of changes in manufacturing:
- Reshaping Supply Chains: Manufacturers and suppliers have oscillated
between arms-length "exit" relationships and collaborative "voice" relationships
based on long-term partnerships with suppliers. In theory, a "voice"
relationship might allow for closer collaboration between manufacturers
and suppliers on many issues, including addressing environmental issues.
How are these relationships changing and what impact might these changes
- Bringing Manufacturing Home: Manufacturing has traditionally been
concentrated in well-known urban centers and corporations. Automotive
manufacturing has already started to sprawl out of these centers, but
other industries are undergoing more rapid and dramatic diffusion. In
electronics, with more standardized products, contract manufacturing
is increasing at a rate of more than 25 percent per year. But the advent
of smaller scale factories and smaller, more efficient equipment could
lead to an even greater dispersion of manufacturing. This new geography
of manufacturing reshapes how pollution is created, where it occurs
and who is responsible for environmental compliance.
- Customer Design: Customers might someday be able to go to a web site,
put together their own car from a single manufacturer or even mix and
match components from different manufacturers. Given the challenges
of fit and feel in complex products such as autos, is this scenario
likely to happen at all? How quickly might this happen? What factors
will influence how it evolves? And what impact will it have on the design
and production of commodities with environmental attributes?
The following sections explore these trends in more detail. It should
be stressed that the manufacturing industry is in flux, and the way the
trends described here play out--and which new ones emerge--is still uncertain.
But all of these trends are already beginning to reshape manufacturing,
and all have implications that the environmental community needs to pay
Next section: Reshaping the Supply Chains