An interview with PTC’s John McEleney.
Over the years, PTC’s chief strategy officer John McEleney has had many roles. Most know him from his days at SolidWorks, where he rose from the leader of its marketing operation to the company’s CEO. He joined the board of Stratasys, the 3D printing company. He left SolidWorks to lead a cloud technology firm but returned to the design software industry as a cofounder of Onshape, taking on his current role following PTC’s acquisition of Onshape. From all these vantage points, McEleney has acquired a unique and broad worldview.
John McEleney, Cofounder Onshape
We caught up with McEleney as he was, like most of us, operating from home. We discussed the cloud landscape, remote collaboration and other emerging technologies. Of course, the supply chain issues that have hounded manufacturers since the start of the pandemic were also a topic of conversation.
As we climb out of the ravages of the COVID-19 pandemic, we are beginning to see the other side of the mountain. On the one hand, according to medical experts, Omicron disproportionately affects the unvaccinated population. On the other hand, Omicron is so prevalent that it quickly runs out of hosts. As a result, it may even accelerate the recovery during the second half of the pandemic.
As businesses are ramping up, likely opening up their offices in April and during the Q2 to Q3 time frame, COVID will help things in a paradoxical way, said McEleney.
COVID’s Supply Chain Paradox
McEleney explained that first, COVID would change how people source materials or products. For the longest time, people have focused on optimizing the supply chain to drive down the cost of materials or parts. As a result, they outsourced to China to lower costs and shifted from a just-in-case to a just-in-time approach. Just-in-time cost optimization avoids tying up cash in finished goods and materials. Instead, the money can help expand go-to-market initiatives or other improvements. Then, outsourcing and just-in-time became a serious problem when the COVID-19 pandemic hit. “The situation is like that famous I Love Lucy episode with the chocolates. Lucy was sitting there packing chocolates. She ended up stuffing the chocolates down her shirt and in her mouth. The manager saw her, said, ‘Oh my gosh, you’re doing such a great job!’ and sped up the machine. This is what happens when we over-pivot to the just-in-time model.”
Therefore, said McEleney, we will see a slight pivot back to a just-in-case model. The current conditions are favorable for us to shift back to the just-in-case model. Interest rates are still relatively low. Even when interest rates rise a bit, companies will still do financing to build up an inventory and lower the shock of the additional expenditure.
Paradoxically, the shift to the just-in-case supply chain will create a bit of a problem in the short term, McEleney noted. For example, there was a run on toilet paper, paper towels and Clorox wipes at stores when COVID first started, creating artificial demand and exacerbating supply chain problems. As we come out of the pandemic, capacity will increase, while demand will wane a little, freeing up the supply chain a bit, as evidenced by stores having plenty of cleaning wipes now.
Omicron’s Effect on Product Design and Work
McEleney sees the COVID crisis as causing people to look at the supply chain from a product design perspective. If a business does not have one or more of the materials specified in its current product design, it needs to switch to different core components. So, from a design standpoint, designers need to be more flexible and iterate on their designs in a tactical and strategic approach, altering the design to reflect the availability of materials.
In addition, the post-COVID world will have a different work environment, one that McEleney believes will be a hybrid work model of in-office and remote work. According to McEleney, people want to be back in the office and have social interactions. In-person brainstorming using a conference room whiteboard is unique and indispensable. Transactional components of a business can stay remote, but innovation will continue to spring from in-person interactions and the ideas they generate.
The Cloud and the New Role of IT
Before COVID, enterprises were already pushing for a greater role for the cloud. As businesses look to find the most efficient ways to run their organizations and fulfill orders, McEleney believes they will favor a cloud-first strategy even more.
Three key drivers are putting cloud-based initiatives front and center. The first is demographics. Thirty- to thirty-five-year-olds are starting to move up in management. The individuals in this age bracket are digital natives who do not think twice about cloud-first. Instead, their attitude can be summed up as, “Why would you ever install anything?” The second is that the increasing prevalence of remote working has driven the need for more and better collaboration tools. With these tools in place, the cloud can enable people to work remotely from a common core and a common dataset.
The third driver involves a change in strategy. Previously, engineers created the designs and drafters did the drawings and filled out the details. Then gradually, as more CAD, CAM and CAE tools became available, engineers started doing their own design and drafting in one integrated process. A similar evolution is beginning on the IT side, fueled by the increase in cloud-based solutions.
When planning their IT budgets, business managers can choose to hire data scientists to analyze customer trends and feedback or hire system administrators to install and maintain servers. However, if instead the managers apply cloud solutions, they can more easily move up the value stack and reduce the cost of maintaining a network infrastructure. Cloud-based data analytics can help organizations use intelligence about their customers to their advantage. With the arrival of the Industrial Internet of Things (IoT), it’s become possible to do everything from monitor the machines on the shop floor and avoid downtime with predictive maintenance to gaining broadview visibility into the supply chain. Therefore, a cloud-first approach will be a short-term as well as long-term play here.
McEleney also noted that enterprise resource planning (ERP) and product lifecycle management (PLM) systems, which already have a large place in the supply chain, will become even more important due to the big push to understand real consumer demand and product use at the customer level. Companies are using these systems to shorten the loop in which customer feedback reaches the central organization and the company then responds to those demands, which in turn generates customer response and so on. Tightening the loop avoids the problem of excess inventory so that, for example, perishable goods don’t sit in a warehouse past their due date. PLM systems will help facilitate rapid business response and product iteration.
The Return of Mom-and-Pop Shops
During the pandemic, outsourcing and offshoring caused many mom-and-pop machine shops to close down. Now, nearshoring may help bring back much of the metalworking prowess and electronic skillsets that have been lost, said McEleney.
McEleney thought that the death knell for most of the mom-and-pop machine shops was the pop—the person who usually started the machine shop. He held most of the institutional knowledge. Unfortunately, he also became the rate-determining step of the business process because he had to look at every job. This model was not competitive against offshore machine shops.
The pops in these machine shops are epitomized by Eddy Calo, an old, grizzled machinist at Raytheon who acted as a draftsman for college-graduate engineers, said McEleney. Calo could intuitively tell the feeds and speeds of machines by just looking at the color of what was happening in the metal and if a machine was going too fast or too slow. “He had forgotten more knowledge than I will ever acquire in terms of understanding metalworking machining,” said McEleney. “After my first design (with him), I realized I was better suited for management,” he deadpanned.
“Eddie was a wonderful machinist. I remember all these engineers out of college and Eddy was brutal to them. A nice guy—but tough. When my first design was sent up to him, I got this call, ‘John McEleney? This is Eddie Calo. I’ve got this cartoon (my engineering drawing) in front of me.’ He said, ‘I have a question for you. Do you want me to make this like the cartoon or do you want [me] to make it right?’ I said, ‘Eddie, how about you make it right? But before you do that, can I come over there so you can show me what I did wrong?’
“I got (an earful), like, ‘You’re way over tolerance on this thing’ and so on. Then, he told me his rule of thumb: for every zero you add after a decimal place to the tolerance, you can add a zero in front of the decimal place for the cost. That felt like a slap in the face at the time, but from that point on, I understood what tolerance meant. We went on to have a wonderful relationship. I learned a ton from Eddie.
Eddie Calo is the reason that McEleney is optimistic about nearshoring. Most little mom-and-pop machine shops started because pop was a machinist with many local customers. Later, the daughter or son came in to help run the business, but the pop—because, like Eddie Calo, he had so much knowledge—was the person checking a job before it went out. All it took was one job and tight tolerance for costs to exceed the job quote and ruin that week’s profit margin.
Gone are the days of mom-and-pop machine shops staying competitive by working harder. People can work smarter using technology. There are many new products for direct digital manufacturing and marketplaces. For example, Stratasys has a direct manufacturing platform. In addition, Xometry and Protolabs are doing some interesting work. McEleney finds what Protolabs has done to be fascinating. The company has optimized everything in the back end, so when they take a job, they can be efficient from the start of a job until when it is delivered. This way, they can take on lots of parts and give a quick turnaround. Moreover, Paperless Parts has very interesting pricing algorithms to allow machine shops to quote jobs more accurately. All these technologies will help small suppliers and manufacturers become more efficient. McEleney explained, “If we try to do nearshoring the same way as before, we’ll be at risk. But the fact that we can use technology to gain leverage makes me optimistic that some of the nearshoring will be profitable.”
Conclusion
In the end, COVID may even help local manufacturing in a paradoxical way. In addition, there will be big changes. The cloud-first world is really happening. We will be shifting back to a just-in-case approach. The hybrid workforce will continue and people will come back to collaborate in person. Lastly, software tools, such as those from Jira, will play an even bigger role in helping manufacturers understand issues and costs, while solutions like Slack will facilitate internal communication, and Onshape, which has collaboration built in, will help engineers and suppliers collaborate on product design.
