A Policymaker’s Guide to Smart Manufacturing

Just as they have done in the media, publishing, transportation, hospitality, financial, and transportation industries, today information and communications technologies are transforming virtually every facet of the manufacturing economy, from the way products are designed, made, and used to how the factories making those products connect, operate, and fabricate. The advent of smart manufacturing heralds a future where products are designed and produced more quickly, safely, efficiently, and inexpensively; more energy efficiently; and more customized to an individual customer’s needs and demands. Moreover, as manufacturing digitalization enables increasing automation and mass customization (as opposed to mass production of largely indistinct units)—a phenomenon described as “a lot size of one”—it promises to change the economics of modern manufacturing, reducing the relative competitive advantage of low-wage nations that traditionally competed primarily via low labor costs, thus increasing the ability of higher-wage nations to gain global manufacturing market share.

This report starts by explaining the evolution of smart manufacturing, placing smart manufacturing in the context of advanced manufacturing, and describing how smart manufacturing touches every step of modern manufacturing value chains and production processes. It demonstrates how “smart” attains at each step of the modern manufacturing process, including digitally enabled product design, 3D printing (i.e., additive manufacturing), digitally empowered factory operations, digitally linked supply chains, and by making the products themselves smart. It then documents the myriad benefits smart manufacturing produces before reviewing the policies that leading nations and regions such as China, Germany, the European Union, Sweden, and the United Kingdom are implementing to achieve smart manufacturing leadership. Finally, the report reviews the policies the United States should consider implementing to support its manufacturing sector in general, and its smart manufacturing capabilities in particular. Specifically, the report makes the following policy recommendations:

Congress should:

• Enact legislation to expand federal resources for training and adoption of smart manufacturing technologies by U.S. small- to medium-sized manufacturers, similar to the smart manufacturing provisions of the Senate-passed version of the Energy Policy Modernization Act of 2016 (S. 2012), which would articulate a formal definition of smart manufacturing and direct the Department of Energy’s Industrial Assessment Centers program to work more closely with small- and medium-sized manufacturers to help them learn about and adopt smart manufacturing technologies.
• Allocate funding to build out Manufacturing USA (formerly known as the National Network for Manufacturing Innovation) from the current 9 to the envisioned 45 institutes.
• Provide a stronger tax incentive for investment in machinery and equipment, such as by enacting an investment tax credit of 35 percent on all capital expenditures made above 75 percent of a base amount.
• As an alternative option to the above, allow firms to expense, for tax purposes, the entire cost of equipment and software in the first year, instead of having to depreciate the cost over a number of years.
• Support the Small Business R&D Act, which would require the Small Business Administration and the Internal Revenue Service to expand knowledge sharing and training on R&D tax-credit instruments and provide a report to Congress on their progress.
• Adjust the required Manufacturing Extension Partnership (MEP) cost-share ratio from 2:1 (nonfederal to federal) to 1:1.
• Increase credentialing for the manufacturing workforce by providing funding to expand the development and use of standards-based, nationally portable, industry-recognized certifications designed for specific manufacturing sectors.
• Boost support for vocational-education programs at community colleges, in part by increasing funding for Perkins vocational education and training programs.
• Reform the Workforce Investment Act system to allow more funds now going to Workforce Investment Boards to instead go to industry-led regional skills alliances.
• Pass the Manufacturing Universities Act,which would authorize and appropriate funds to create a core of at least 20 universities that brand themselves as leading manufacturing universities.
• Pass the National Fab Lab Network Act of 2015, which would create a federal charter for a nonprofit organization called “The National Fab Lab Network.”
• Fund a pilot program that would integrate the maker movement and makerspaces into high schools.
• Provide sufficient funding for R&D into key underlying technological challenges relevant to the Internet of Things, such as developing standards, improving cybersecurity, and reducing power consumption.
• Fund the National Strategic Computing Initiative and related federal high-performance computing initiatives at a level of at least $325 million per year over the next five years.
• Recognize that trade agreements such as the Trans-Pacific Partnership and Trade in Services Agreement contain vital provisions that preclude partner nations from introducing barriers to cross-border data flows that could significantly impede the potential of smart manufacturing.

The next administration, or its agencies and departments therein, should:

• Continue the practice of articulating a national manufacturing strategy.
• Ensure that MEP centers are collaborating with and embedded within all Institutes of Manufacturing Innovation to identify emerging manufacturing process technologies and help rapidly diffuse them to small- and medium-sized manufacturers.
• Direct the National Institute of Standards and Technology to continue mapping the landscape of smart manufacturing standards and leverage its convening power to facilitate industry’s voluntary development and adoption of interoperable data-communication standards, as well as standards and best practices addressing cybersecurity and privacy issues.
• Negotiate (and enforce) trade agreements that preclude partner nations from imposing barriers to cross-border data flows.