Overview of AMT

Introduction

Advanced manufacturing technologies (AMTs) involve new manufacturing techniques and machines combined with the application of information technology, micro-electronics and new organizational practices within the manufacturing process. These hardware technologies have found wide acceptance in discrete manufacturing and in resource and processing sectors. Computer numeric controls have been applied to systems for machining, forming, cutting and moulding. The accuracy, speed and control of robots have improved significantly and, as a result, they are used extensively in welding, painting, material handling and an enormous number of unique assembly applications. Vision systems provide, in real time, monitoring for precision machining and high-speed printing and remote handling of mining equipment used thousands of metres underground. Computer-aided design (CAD) and rapid prototyping have substantially shortened the development time for new products. Computer-integrated manufacturing (CIM) is applied in machine shops for tool building, the production of engines and body assemblies for passenger cars, the manufacture of airplane landing gear and the production of hypodermic needles for the medical devices sector.

Complementary to the hardware technologies of AMTs is a wide range of "soft" manufacturing process technologies. Just-in-time (JIT) manufacturing, total quality management (TQM) and supply chain management are but a few of the many "soft" AMTs adopted by manufacturers and processors globally.

The nature of competition in manufacturing has changed. High-quality and highly customized goods are demanded. There is a premium for being the first to market with a product. This has created a demand for "hard" and "soft" technologies that help shorten design and production cycles. Freer trade has increased the breadth of geographical competition, making it easy for foreign manufacturers to enter the Canadian market and for Canadian firms to enter foreign markets. The source of this competition varies, some of it from low-wage areas and some of it from very technologically sophisticated countries.

Manufacturing practices and processes have come under increased pressure from global competition. Demands for improved customer service, breadth of product line, improved quality, quick response and a much shortened time-to-market for new product introduction cannot be ignored by firms. In the face of these intense pressures, Canadian and other manufacturers around the world are moving away from mass production manufacturing processes. They are turning to greater flexibility and speed in manufacturing practices. These practices have become the foundation for "Best in Class" manufacturers and processors.

Manufacturing has been influenced by trade liberalization, global competition, market fragmentation, technological innovation and the demands of more sophisticated consumers. In response to these pressures, manufacturers are incorporating more flexibility and technology in their production practices. These features have become a trade-mark of world-class corporations. AMTs are a key enabler for firms attempting to meet world-class performance targets. A report by the Canadian Manufacturers' Association (Manufacturing Our Future, Toronto, 1995) notes:

The twin forces of innovation and restructuring have propelled Canada's manufacturing recovery. The economic impact is evident not only in the strong production and export performance recently enjoyed by manufacturers, but also in the significant gains that have been made in manufacturing productivity (p.42).

AMT plays a large part in this manufacturing resurgence. As the report notes (p.52):

The development and application of advanced manufacturing and processing technologies will continue to revolutionize how goods are produced in Canada and elsewhere.

In 1995, the Canadian AMT industry comprised 560 establishments. AMT shipments were valued at $3.4 billion in 1995, more than doubling the $1.5 billion worth of ship- ments reported for 1990. Exports accounted for 70 percent of total shipments in 1995. Canadian AMT suppliers have been very successful in penetrating the U.S. market, which accounted for 73 percent of total 1995 exports. Shipments per establishment grew from $2.7 million in 1990 to $6.0 million in 1995.

The Canadian market for AMT was worth $4.1 billion in 1995, which included $3.1 billion worth of imports. The U.S. accounted for 58 percent of total 1995 imports, making it the most significant import source. The Canadian market has shown continuous growth since 1990. Many Canadian AMT suppliers are successful niche specialists in areas such as integrated manufacturing systems. Canada supplies almost 4 percent of the world market.

The Canadian AMT sector experienced substantial growth in both employment and labour productivity between 1990 and 1995. Employment rose from 12 048 people in 1990 to 17 654 people in 1995. Most employees in the AMT industry are from professionally and technically skilled groups. Labour productivity, as measured by value-added per employee, increased from $66 000 to $103 000 over the same period. Given these AMT productivity gains, the employment growth is even more striking.

The industry is concentrated in Ontario and has developed in close association with the automotive, electronic and plastics industries. There are significant companies in all regions of the country. The range of technologies supplied is broad, with some sold to continuous process industries such as paper mills and petrochemicals. However, most of the shipments are delivered to discrete product industries, such as automobiles, electronics and plastics.

Canadian AMT supply capability is modest relative to international competition. However, the strong sales growth is viewed positively for future prospects. Given the increase in employment and the above-average wage levels, AMT supplier companies demand strong technical skill sets in their employees. The success enjoyed by some firms in the Canadian AMT supplier community has allowed them to attract the best graduates from Canadian universities and community colleges.

Canadian AMT supplier growth and productive capability is closely linked to the demands of aggressive AMT users. The leading users of AMT develop technologies for internal use and spur development within AMT suppliers. Globally, automotive assemblers and automotive parts producers have played this role in advancing the use of AMT in manufacturing. Automotive industry requirements for engineered solutions, applied to achieve world-class manufacturing levels, have challenged Canadian AMT businesses. Having successfully met these challenges, Canadian AMT companies now are able to compete effectively in the North American market. A strong Canadian AMT supply base must be viewed as an infrastructural strength to support other Canadian manufacturing sectors that lag the automotive sector in the use of AMT.

The competitive pressures to institute greater flexibility in both the manufacturing and resource and processing operations are expected to result in a growth market for AMT suppliers. The estimated world market for AMT products should grow from US$60 billion in 1994 to US$130 billion by the year 2000. While other international markets like Southeast Asia are viewed as best prospects for future growth, the U.S. market is likely to remain the key focus for Canadian AMT exporters.

To increase their share of these expanding markets, Canadian AMT suppliers must continue to supply products and services that are innovative and price-competitive. Improved features and cost considerations are key drivers for competitive Canadian AMT suppliers. Technological innovation and the ability to provide integrated systems will continue to be key to marketing Canadian AMT supply capability.

Key Issues

AMT firms of all sizes continue to be challenged in their efforts to obtain capital for long-term investments in technology and manufacturing. The problem is especially acute for cash-poor start-ups and small firms, many of which possess valuable technologies. Canadian capital markets are cautious about investments in technology-based companies. Improved availability of suitable financing for both the AMT supplier and aggressive AMT user firms (firms that both use and develop AMT) could serve to accelerate AMT adoption rates by Canadian manufacturers and processors. Both equity investors and conventional lenders need to look beyond the short-term investment and return measures for financial justifications.

Adopting AMTs has changed the skill requirements of the manufacturing work force with greater demands for improved skills in both the professional and white-collar categories, as well as with the shop floor workers. AMT users and suppliers are finding it increasingly difficult to attract skilled managers and workers. Firms are concerned that the present educational system is not producing either the quantity or quality of the workers required. But it is not clear that there is an understanding within the manufacturing sector of how to deal with these deficiencies.

Linkages between AMT suppliers and aggressive users have played a key role in the sector's growth and in the competitiveness of the users. Enhancing and expanding the linkages between the research and development (R&D) infrastructure, AMT suppliers and AMT users could yield substantial economic benefits. As well, many manufacturers lag in their adoption of AMT and could exploit its benefits more. Many of these manufacturers have a low awareness of the Canadian AMT supply base. There is a need to promote the Canadian supply base more vigorously.

The Bottom Line

Canadian AMT suppliers are highly integrated into the North American market and concentrate on exporting to the U.S. They have developed niche strengths to serve large multinationals in the automotive, aerospace, electrical and resource sectors. The AMT industry is growing rapidly and is profitable. The future of Canadian AMT suppliers depends on their ability to harness technology to supply unique solutions in global AMT markets.

The Canadian manufacturing sector is a major contributor to the country's wealth. AMT is important to the sector's competitiveness, yet many firms are slow to adopt new technologies or innovate manufacturing processes. Improved linkages within the AMT innovation system will strengthen the manufacturing sector and provide the foundation for sustained growth in global markets.

These challenges will be addressed in a forthcoming Framework for Action to be developed after extensive discussion with industry stakeholders. We hope that this document will provide a solid basis for jointly discussing and planning resolutions.