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Creating a Successful Smart Manufacturing Environment for Small and Medium-sized Manufacturers

Submitted by: John Lanza, Partner, Foley & Lardner LLP

Digital transformation of manufacturing processes and procedures is a daunting project for even the largest and most sophisticated of manufacturing organizations.  It is not surprising, therefore, that the challenges inherent in a digital transformation process may seem insurmountable to small and medium-sized manufacturers (SMMs), who typically lack the financial and human resources of larger organizations. 

Indeed, as has been noted in an earlier SME blog post, it is easy to believe “that if you do not already have a digital transformation plan, then it is already too late.”  However, SMMs are typically more nimble than their larger counterparts; they can turn a lack of existing processes into an advantage, since processes can be put into place without the need to accommodate or replace existing processes.  In order to gain the full benefit of this advantage, it is important to work with partners knowledgeable about the challenges presented when transforming a manufacturing environment.  Some of these challenges include training and retaining skilled workers, protecting connected infrastructure from malicious attack, and securing proprietary information.

Smart manufacturing requires skilled workers to fill critical positions.  As the current manufacturing workforce ages, and retires, employers must recruit new, often younger, employees to fill those positions.  However, generational shifts in attitude have resulted in a mismatch between what many younger workers want from employment and what they perceive manufacturers offer.  Often, recruiting younger workers is an exercise in convincing those workers that manufacturing is “cool” and meaningful.   Additionally, manufacturing employers must often overcome the concern, held by many younger workers after witnessing nearly two decades of offshoring, that no long-term career path exists in the manufacturing sector despite the significant increase in manufacturing employment seen during the last decade.  Moreover, smart manufacturing processes, by their very nature, change quickly, requiring employers to be dedicated to continued learning for the workforce.  All of these factors have led to a skills gap in the manufacturing industry.

In order to attract and retain the talent necessary to succeed in a smart manufacturing environment, all employers will need to provide a work environment that encourages employee innovation, offers a long-term career path, recognizes intangible contributions and provides opportunities for continued training and education.  We have worked with numerous organizations on these issues and have collected some of our thinking in this article.   SMMs have the advantage that their culture is less hard to change than larger organizations and can more quickly adopt personnel policies enabling the recruitment and retention of the future workforce.

A digital manufacturing effort will often require communication with systems and entities in the “outside world.”  Each of these communication channels provides an entry point for a malicious party.  Further, Internet-of-Things-enabled equipment provides an additional entry point that must be secured from malicious attack.  This is not just an issue of securing against intellectual property theft.  Increasingly, physical infrastructure and its operation is the target of malicious actors, whether through ransomware attacks or other means.  The importance of this consideration cannot be underestimated.  As of November 30, 2020, certain U.S. Department of Defense (“DoD”) prime contractors and subcontractors will need to complete a cybersecurity self-assessment prior to receiving new DoD contracts and prior to the exercise of new options under existing DoD contracts. Additionally, DoD contractors will need to ensure that any subcontractors that receive Controlled Unclassified Information (“CUI”) have also completed the cybersecurity self-assessment.

For small or medium-sized manufacturers who are DoD prime contractors and subcontractors, the requirements incumbent on them may be clear and unambiguous.  For those manufacturers who are not, the question of how much security is enough security can be difficult since there is no “one size fits all” answer.  Nor is it possible to achieve 100% security.  Small and medium-sized manufacturers can benefit from working with a trusted advisor who has helped implement security protocols at companies spanning the gamut of sizes and sophistication levels.  Such an advisor can help a small or medium-sized manufacturer make smart choices to balance security and cost to achieve an optimal outcome.  An example of some of those considerations can be found here. 

A third consideration is securing proprietary information through the filing of patent applications and trade secret protection.  Many of the considerations just discussed with respect to securing the physical plant of a manufacturing site will apply to trade secret protection.  However, capturing innovation in a smart manufacturing environment, which nearly always includes software and increasingly includes machine learning and artificial intelligence techniques, requires a skill set that existing patent counsel may not possess.   Smart manufacturing patent applications, if not properly drafted, may be considered by the United States Patent and Trademark Office (USPTO) to be ineligible for patent protection – a consideration that most manufacturing patents never have to face. 

For evidence of the complexity of this issue, one need look no further than the fact that the USPTO has been issuing guidance as to the subject matter eligibility of these kinds of patent applications for nearly seven years.  The most recent guidance from the USPTO was issued August 2020. As with the issues discussed above, while larger manufacturers may have resources to “throw at the problem,” SMMs will benefit from counsel that is already fluent in navigating these issues.  Foley has followed this issue closely from inception and has several practitioners who deal with these issues on a daily basis, providing strategic advice regarding the patent eligibility of a wide range of technologies.

Creating a successful smart manufacturing environment may seem like insurmountable obstacle to small and medium-sized manufacturers.  However, with experienced guidance, small and medium-sized manufacturers can use their organizational agility to leapfrog other, slower organizations in creating the manufacturing firm of the future. 

Submitted by: John Lanza, Partner, Foley & Lardner LLP

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