How Cloud Computing Enables Modern Manufacturing

Cloud computing—the provision of infinitely scalable computing resources as a service over the Internet—is in the process of transforming virtually every facet of modern manufacturing. Whether it’s how manufacturing enterprises operate, how they integrate into supply chains, or how products are designed, fabricated, and used by customers, cloud computing is helping manufacturers innovate, reduce costs, and increase their competitiveness. Critically, cloud computing allows manufacturers to use many forms of new production systems, from 3D printing and high-performance computing (HPC) to the Internet of Things (IoT) and industrial robots. Moreover, cloud computing democratizes access to and use of these technologies by small manufacturers. This report describes how cloud computing enables modern manufacturing, provides real-word case studies of this process in action, and recommends actions policymakers can take to ensure cloud computing continues to transform manufacturing and bolster America’s manufacturing competitiveness.

Introduction to Cloud Computing

Cloud computing has been described as an innovation in computing architecture whose central characteristic is the virtualization of computing resources and services. Cloud computing allows computing resources to be delivered with five central attributes: as an on-demand service; with infinite and rapid elasticity and scalability; on a measured basis (meaning the service can be billed); through pooled (i.e., shared) resources; and with broad network access.

Enterprises tend to implement cloud computing in one of three major formats: software as a service (SAAS), platform as a service (PAAS), or infrastructure as a service (IAAS). Software as a service—think online productivity software such as Google Docs or Salesforce’s online customer relationship management (CRM) software—allows users to access software applications over the Internet using personal computers, mobile devices, or instrumented machines, instead of having to store software locally on in-house devices. Infrastructure as a service gives organizations access to secure, enterprise-class computing infrastructure that can be infinitely managed and scaled to meet different needs, whether for computer processing or data-storage capacity. Finally, platform as a service allows users to rent virtualized software development or production environments to efficiently develop and deploy new applications without having to invest in expensive hardware or software licenses of their own.

Cloud computing is usually deployed in one of three different configurations: a private cloud, a public cloud, or a hybrid cloud. A private cloud is used exclusively by one organization, usually with multiple business units, and may be deployed either on-site or off-site. In contrast to a private cloud, a public cloud environment is available for use by the general public; public clouds are commonly implemented through data centers operated by third-party providers such as Amazon, Google, HP Enterprise, IBM, Microsoft, VMWare, and many others. Lastly, a hybrid cloud refers to deploying an application or service across cloud-computing infrastructure that spans multiple configurations.

How Cloud Computing Enables Modern Manufacturing

Information technology is transforming the global manufacturing economy by digitizing virtually every facet of modern manufacturing processes—a phenomenon called “smart manufacturing” in the United States and “Industry 4.0” in Europe. Cloud-based computing, alongside other foundational technologies such as next-generation wireless, advanced sensors, high-performance computing, and computer-aided design, engineering, and manufacturing (CAD/CAE/CAM) software, represents an essential component of the smart manufacturing revolution.

Cloud-computing applications will impact virtually every aspect of modern manufacturing companies. At the enterprise level, cloud computing will impact how companies manage their operations, from enterprise resource planning (ERP) and financial management to data analytics and workforce training. The cloud will also prove integral to how manufacturers integrate themselves into industrial supply chains. At the manufactured-product level, cloud computing will transform everything from how products themselves are researched, designed, and developed, to how they are fabricated and manufactured, to how they are used by customers in the field. Moreover, cloud computing will play a key role toward enabling and democratizing new manufacturing production systems such as 3D printing (i.e., additive manufacturing), generative design, and the Industrial Internet of Things. In fact, digital services such as cloud computing now provide at least 25 percent of the total inputs that go into finished manufactured products.

As this report will show, cloud-based solutions offer manufacturers a wide range of benefits, among the most significant of which are: scalability; operational efficiency; application and partner integration; data storage, management, and analytics; and enhanced security. In particular, cloud computing facilitates research, design, and development of new products, which powers innovation, reduces product development costs, and speeds time to market. Cloud computing helps manufacturers manage their businesses with better intelligence, which is made possible through expanded use of data analytics. In fact, the cloud is fast becoming the central venue for data storage, analytics, and intelligence for most manufacturers. Cloud computing also empowers manufacturing operations, making them more productive, cost- and energy-efficient, safe, and streamlined.

Digital services such as cloud computing now account for at least 25 percent of the total inputs that go into finished manufactured products.

Cloud-based systems can be scaled up or down to manage shifting project workloads, an especially important requirement for manufacturing firms. Moreover, cloud computing gives manufacturers the ability to leverage infinitely scalable computational resources on an on-demand, pay-as-you-go basis, so that manufacturers can readily access the computational resources they require without having to purchase expensive IT equipment up-front when they may only need it intermittently. This dynamic levels the playing field especially for small to medium-sized manufacturing enterprises (SMEs) that lack the financial wherewithal to purchase expensive IT equipment. This dynamic applies not only to hardware, but also to software. In the past, manufacturers of all sizes have had to purchase expensive enterprise-wide licenses for enterprise resource planning software, CRM software, product-design software, etc. But now that same CRM, ERP, or design software can be flexibly consumed as an on-demand, as-needed service, greatly improving enterprise agility while giving SMEs affordable access to global best-of-breed software.

Another key way cloud computing will impact modern manufacturing is by facilitating integration—whether of widespread supply chains or of the data streaming from IoT-enabled production equipment on the factory floor. Intelligently integrating data streams from myriad partners, platforms, and devices is challenging enough, but is much more difficult to do inside companies’ own data centers as opposed to in well-networked data centers operating in the cloud. Finally, cloud computing can actually make manufacturing IT systems more secure. This is because cloud-computing providers employ best-of-breed cybersecurity practices that are often far more sophisticated than what individual companies can achieve by themselves on a one-off basis.

Noting that “evidence on the productivity effects of adopting cloud applications is scarce,” the economists Haug, Kretschmer, and Strobel have developed a “cloud adaptiveness measure” that captures a firm’s technological and organizational readiness to adapt to cloud computing. The authors find that “cloud-adaptive manufacturing firms generally exhibit higher average labor productivity compared to manufacturing firms that are not cloud adaptive.” Their analysis further finds that the manufacturing sector has thus far lagged the services sector in cloud adoption, but they note that this means cloud’s potential in the manufacturing sector may therefore be even greater going forward.

With that introduction, this report proceeds by considering how increased investment in IT innovations such as cloud computing can bolster the competitiveness of American manufacturing and by assessing the adoption of cloud computing by manufacturers. It then explains specifically how cloud computing is being implemented at the manufacturing-enterprise and manufactured-product levels and presents several in-depth case studies of large and small manufacturers’ implementations of cloud computing. It concludes by offering policy recommendations to expand use of cloud computing in the modern manufacturing economy.