12 September, 2005Integrative Project in Modern Production Methods, IE285e 1 Integrative Project in Modern Production Methods (IE285e) Lecture #3 12 September,

12 September, 2005 Integrative Project in Modern Production Methods, IE285e

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Integrative Project in Modern Production Methods (IE285e)

Lecture #3

12 September, 2005


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Topic:

• World Industrial development trends, how Armenia could benefit from them: the rapid development of high tech in the world; need for outsourcing of mature technologies from the developed countries; etc.


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World Industrial development trends

• Increased competitiveness

• Narrow specialization of specialists and companies, both in technology and business, e.g. emerging of high tech insurance companies, etc.

• Separation and outsourcing of the production and businesses


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• While in developing countries: businesses are taking advantage of inexpensive workforce;

• In developed countries:businesses are taking advantage of established infrastructure and business environment, – advanced technologies


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• The Technologies develop very fast in the world.

• Moore's law: In computer business the performance (number of transistors on a processor chip) is doubled each 18 months!


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World Technological Hierarchy

• “High End” technologies are the most advanced and scientifically intensive technologies.

• “Low End” technologies or “Mature” technologies are still needed.


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Hierarchy in Chip Manufacturing• In semiconductor industry technologies are

described by the width of the narrowest element, e.g. of a transistor, that is possible to achive on a semiconductor substrate.

• In parallel to the decrease in the smallest element size, the size of a semiconductor substrate, e.g. a silicon wafer is increasing.


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Hierarchy in Chip Manufacturing• 5 micron technology, up to 2 inch – until 1980• 1 micron technology , up to 3 inch – 1990• 0.65 micron technology, up to 5 inch – 1994• 0.35 micron technology, up to 6 inch – 1996• 0.27 micron technology, up to 8 inch – 1998• 0.17 micron technology, start design of 12 inch – 2000• 0.1 micron technology, working on 12 inch – 2002• Sub 0.1 micron technology is on its way now.


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Hierarchy in Chip Manufacturing


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• However, Moore predicts that transistor miniaturization will reach physical limits around the year 2017.


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Hierarchy in Chip ManufacturingYear of introduction # of transistors in the processor

4004 1971 2,250

8008 1972 2,500

8080 1974 5,000

8086 1978 29,000

286 1982 120,000

386™ processor 1985 275,000

486™ DX processor 1989 1,180,000

Pentium® processor 1993 3,100,000

Pentium II processor 1997 7,500,000

Pentium III processor 1999 24,000,000

Pentium 4 processor 2000 42,000,000


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World Technological Hierarchy, an example

• E.g. Toyota Camry Solara contains:E.g. Toyota Camry Solara contains:

• 2 Pentium processors2 Pentium processors

• 3 processors 486 series level3 processors 486 series level

• 12 processors 386 series level12 processors 386 series level

• More than 40 lower end processorsMore than 40 lower end processors


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Volumes of Hi-Tech production

Hi End

Low End


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Outsourcing!• The same hierarchy applies in all

technology related markets.

• However different areas have different rates of increase.

• The market for mature manufacturing is huge!

• In many cases this market is still increasing! Example of Digital vs. Film cameras.


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Product Life Cycle

• Two aspect of “product life cycle” notion:

• 1. Birth and Death

• 2. Life Cycle that starts from the raw material acquisition and ends with the disposal - from energy and materials consumption to the long-run effect on health, environment and society.


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Product Life Cycle 1.


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Product Life Cycle

• After a period of development product is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilizes and the product becomes mature; then after a period of time the product is overtaken by development and the introduction of superior competitors, it goes into decline and is eventually withdrawn.


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PLC stages

• Introduction:- The need for immediate profit is not a pressure. The product is promoted to create awareness. - If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.


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PLC stages

• Growth:Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilize.


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PLC stages• Maturity:

Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilize. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media.


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PLC stages• Decline:- At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.- In some cases here there might be a considerable value adding capability in niche markets. Example - high end audio.


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PLC stages

• Withdrawal:

• Only rare exotic users could be clients here.


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Problems with Product Life Cycle • In reality very few products follow such a

prescriptive cycle.

• The length of each stage varies enormously The decisions of marketers can change the stage, for example from maturity to decline by price-cutting.

• Not all products go through each stage. Some go from introduction to decline.

• It is not easy to tell which stage the product is in. Why?


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Outsourcing!• All advanced brand name companies try to

concentrate on introduction and growth - high end manufacturing.

• They want to delegate the lower end mature manufacturing to other companies.

• The best countries for outsourcing are the developing countries, such as: Malaysia, Taiwan, Singapore, Indonesia, Hong Kong, Korea. Recently also: China, Puerto Rico, Mexico.


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Important Industry Areas

• Which industries are attractive to get in, I.e. to start a manufacturing operation?

• ANY, however the following two are special:

• Introduction (Nokia example)

• Maturity


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Renewables: SOLAR• Solar Energy deliveres around 1700 kWh

annually to any square meter of Armenia’s surface.

• A square with a base equal to 6 km will provide all needed power for the country.

• Is ecologically clean, but needs technological advances for decreasing the costs.

• Currently around $6000/kW installed for photovoltaics (PV).


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Renewables: SOLAR

• Solar hot water costs are around $600/kW!

• Solar hot water may give a solution to more than 50% of the energy needs.

• In summer it will give up to 80% of consumed energy, in winter …

• All solar options have strong seasonal pattern


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Renewables: SOLAR• Monthly Solar Energy Flow


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Yearly dynamics of solar energy flow


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Growth in World PV Capacities


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Growth in Companies in Different Countries


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Growth rate in Japan


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PV Industry Growth ratesWorld:

• 43% in 2003• 57% in 2005

Japan:• 45% in 2003• 66% in 2005

World: • 736 MW

• 1195 MW

Japan:• 363 MW• 602 MW


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Business Outsourcing DiagramBrand Name Company, e.g. Philips

(Advanced Technologies)

Company in Developing country

(mature technologies)

Outsourced businessCreation of a subsidiary

Technology Transfer (mature technologies)

InsuranceInsurance Company, e.g. Comdisco

USED EQUIPMENT MARKET

Materials supplier, e.g. Applied Materials


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Fast Growing Areas• Nokia Example.

• Internet

• Renewable Energy Sources

• Fuel Cells

• Nanotechnologies

• Biotechnologies …

Find from the web 3 fast growing industries. Explain. Show volumes if possible. Write a one page essay about one of them.

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12 September, 2005Integrative Project in Modern Production Methods, IE285e 1 Integrative Project in Modern Production Methods (IE285e) Lecture #3 12 September,