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What Is Manufacturing?

Manufacturing is the process of transforming raw materials or components into finished products. It’s a crucial sector of the world’s economy, contributing trillions of dollars to world trade annually and employing millions. From its humble origins in the Stone Age, manufacturing has transformed into an innovation- and technology-driven sector, advancing from the basic Neolithic tools of its past to the complex smart factories of today, with their automated processes, always-connected equipment, and data-rich manufacturing.

Driven by changing customer and profit expectations, different types of manufacturing and processes have evolved over time. In recent years, higher customer expectations have led to more dynamic demand shifts and order customization. As a result, manufacturers now rely on advances in computing power and software to automate the traditional factory and make the right decisions to meet customer demand, improve resource productivity, and increase equipment efficiency.

The importance of manufacturing

Manufacturing is essential for trade, economic growth and prosperity, and the health of service industries, such as retail sales and telecommunications, that rely on manufactured goods. World trade in manufactured goods has more than doubled since 2000, from US$4.8 trillion to US$12.2 trillion (Source: World Trade Organization). In the United States alone, manufacturing accounts for 11.1% of the Gross Domestic Product (GDP) (Source: National Association of Manufacturers (NAM)), making it equivalent to the eighth-largest economy in the world.

Manufacturing is also important because it creates jobs. In the US, manufacturing employs around 12.4 million workers (Source: NAM), and still a large number of manufacturing jobs remain available as manufacturers struggle to attract and retain skilled workers—a situation that is likely to persist for the foreseeable future. In a 2021 study, Deloitte and The Manufacturing Institute estimated that by 2030, US manufacturers will need to fill 4 million jobs—2.1 million of which could go unfulfilled without career training programs in modern manufacturing.

A brief history of manufacturing

Manufacturing may date as far back as the New Stone Age, when basic tools for grinding food, dyeing and weaving textiles, and fermenting and distilling liquor were first created. The next phase of development was ushered in by the ancient Greeks and Romans, who are credited with the invention of screws, pulleys, and levers—the building blocks of the first machines. During this time, work was done by skilled artisans who eventually formed guilds to protect their craft and privileges.

In late 18th-century Britain, the introduction of the factory system created the first industrial revolution, with the textile industry moving from hand production methods to machines powered by steam engines. The next industrial revolution would arrive about a century later, marked by the availability of railroad transportation, telegraph communications, and electricity. Notable inventions during this period include the incandescent light bulb and the automobile. In the early 20th century, the Ford Motor Company popularized mass production with the application of specialized machinery and fixtures in assembly lines.

The invention of the transistor in 1947 paved the way for digital computers, which in turn led to advancements in transportation and communication technologies, such as wireless communications, that would shape the third industrial revolution. Lean manufacturing (also known as just-in-time manufacturing) was developed by Toyota in the 1930s, but only became popular in the 1970s as Japanese cars captured significant market share. This production method aimed to reduce both processing times and inventory levels within the factory as well as supplier response times.

Today we are in the fourth industrial revolution—or Industry 4.0—which is characterized by the automation of traditional manufacturing using smart technology. These technologies include the Internet of Things (IoT), cloud computing, robotics, artificial intelligence, machine learning, and natural language processing. Real-time data and analysis tools are put in the hands of individual workers to enable decentralized decision-making—an important principle of Industry 4.0.

Types of manufacturing techniques

One way to classify manufacturing is to look at the techniques used to meet customer demand.

Make to Stock (MTS)

MTS is a traditional production technique wherein products are made according to forecasted demand and then held as inventory in showrooms or warehouses. Demand forecasts are based on past sales data, current economic conditions, and macroeconomic trends.

Advantages include the efficient use of resources due to predictable production schedules and the reduced cost of production due to economies of scale. Customers may also receive the finished products much faster as they are usually in stock. The main drawback is the higher chance of surplus inventory and, conversely, inventory stockouts. These can result from inaccurate demand forecasts due to external factors, such as the weather and economic and geopolitical events.

Make to Order (MTO)

Video: Alcar Ruote SA smart manufacturing with Oracle SCM and ERP (2:04)

MTO is a production technique wherein products are customized according to customer specifications, and production only starts after an order is received. It is common in specialized industries, such as aerospace, construction, and high technology. A subset of this manufacturing type, called engineer to order, applies to products that require a significant amount of engineering design work up front.

The main benefit of MTO is that there is no excess inventory that needs to be sold at a discount or scrapped. Each accepted order is fulfilled, and customers receive their orders per their specifications. Disadvantages include longer timelines for customers to receive finished products and, for the manufacturer, exposure to raw material supply fluctuations, which may require a higher level of safety stock inventory. Uneven demand can also cause shutdowns, which can be costly as factories need high production line usage to be profitable.

Make to Assemble (MTA) or Assemble to Order

Make to assemble is a hybrid of the MTS and MTO techniques in which component parts or subassemblies are produced based on demand forecasts. The final assembly only starts when a customer places an order. The manufacturer can accept customized orders because the final configuration of the product only takes place during final assembly. The finished product can also be delivered to the customer much faster compared to the MTO technique. But if customers do not place orders, the manufacturer may be left holding a sizable amount of component inventory.

Types of manufacturing processes

Another way to classify manufacturing is to look at the production method and the type of finished goods produced.

Discrete manufacturing

Discrete manufacturing entails the production of items that are easily identifiable and itemized—for example, personal computers and home appliances. A bill of materials is used to define the component parts and raw materials that make up the distinct finished product. Production usually takes place on an assembly line where the distinct item is duplicated to meet the quantity required by the production schedule. Changeovers and setups due to the production of different products using the same assembly line can make this a complex process.

Process manufacturing

Process manufacturing differs from discrete manufacturing in how the product is created. Using recipes and formulas, raw materials and ingredients are converted into a finished product via chemical and physical changes. While the finished product is usually produced in bulk, it can be divided into smaller distinct units that are consumable by the customer.

There are two methods of process manufacturing: batch process manufacturing and continuous process manufacturing. Batch process manufacturing involves producing a product in a standard run or lot size that is determined by vessel size, line rates, or standard run length. It is commonly used by the food and beverage industry, among others. In contrast, continuous process manufacturing operates 24/7/365 with very long periods between shutdowns. It is used by industries such as oil and gas.

Mixed mode manufacturing

To meet changes in customer expectations, some industries use both discrete and process manufacturing. An example is the consumer packaged goods industry, which produces some products using a batch mixing process before packaging them into discrete units. This method can be challenging for manufacturers who need to run this process on one production line using a manufacturing execution system (MES) application.

Read the solution brief: Oracle Mixed-Mode Manufacturing Cloud for the CPG Industry (PDF)

Job shop manufacturing

Job shop manufacturing is for smaller batches of customized products, which can be MTO or MTS. Because it requires a unique setup and sequencing of process steps, specific production areas are used instead of assembly lines—for example, a machine shop that makes custom parts for other manufacturers of industrial machinery, aircraft, or high-tech equipment.

Read the solution brief: Oracle Project-Driven Supply Chain in the Cloud (PDF)

Repetitive manufacturing

Some industries require a constant flow of product with minimal setup or changeover times—for example, the automotive and durable consumer goods industries. In repetitive manufacturing, dedicated assembly lines or manufacturing cells are set up for the same product or family of products, production is run 24/7/365, and work-in-process material is not moved to a temporary storage area.

Smart manufacturing and smart factories

Video: Oracle Smart Manufacturing (2:37)

Smart manufacturing is the umbrella term for efforts to modernize industrial practices through a combination of smarter equipment, facilities, products, data, and processes. This term includes the parallel concepts of Industry 4.0 and the smart factory.

In smart factories, the production environment is run with minimal human intervention using new industrial manufacturing technologies. Sensors detect equipment issues before failure to avoid costly downtime. Additive manufacturing, commonly known as 3D printing, allows for customization, rapid prototyping, and high-volume production of intricately shaped parts. A digital twin, the digital representation of a physical object that is always updated with data from its physical counterpart, enables faster design prototyping and continuous monitoring of equipment performance.

Discover the value of predictive maintenance (PDF)

These technologies all require application software, from the local programs used to run sensors to manufacturing execution systems that monitor and coordinate resources across multiple production lines. Integration with enterprise resource planning and other supply chain management software ensures product designs are manufactured methodically, using the right materials and resources across multiple factories, resulting in high-quality products and improved profit margins.

Read how continuous innovation helps manufacturers make great products

What’s next for manufacturing?

Manufacturing will continue to be the primary means by which we transform raw materials into finished products. Countries that currently rely on agriculture and other industries for the bulk of their GDP will evolve and use manufacturing to advance their industrial agenda and increase employment. Technology companies and manufacturers will continue to drive advances in computing and software to deliver on the promise of smart manufacturing and shape the future of Industry 4.0—and beyond.