White Paper on Monodzukuri 2023

⚫ The White Paper on Monodzukuri (Manufacturing Industries) is a statutory report based on the Basic Act on the Promotion of
Core Manufacturing Technology. This is the 23rd annual report.
⚫ It consists of Part 1 covering basic data on manufacturing industries, challenges of the year, and government initiatives and Part 2
spelling out manufacturing industry promotion measures.

Contents
Part 1: Current Status of and Challenges in Core Manufacturing Technology
Chapter 1 Business conditions Chapter 3 Trends in investments by companies

Section 1: Trends in manufacturing business Chapter 4 Education and research and development

Section 2: Production, shipment, and inventory conditions Section 1: Promotion of human resources development in digital
transformation and other growth sectors
Section 3: Relocation of Japanese manufacturing
Section 2: Enhancement of core education/culture/art to foster
production bases and economic security
manufacturing human resources
Section 4: Financing Section 3: Promotion of research/development to realize Society
5.0
Section 5: Bankruptcies, suspending/discontinuing
businesses, opening businesses Chapter 5 Changes in the environments surrounding the manufacturing
industry
Chapter 2 Trends in employment and securing and developing
human resources Section 1: Changes in environment surrounding the
manufacturing industry and current status for Japan’s
Section 1: Hiring of manufacturing human resources and manufacturing industries
trends in employment thereof
Section 2: Trends in digital transformation in selected countries
Section 2: Capacity building of manufacturing human and challenges in Japan
resources
Section 3: International trends towards carbon neutrality and
Section 3: Securing and developing human resources Japan’s initiatives
responding to digitalization at manufacturing
companies

Part 2 Policy Measures Taken in FY2022 for Promoting Core Manufacturing Technology
１
 Messages from White Paper on Monodzukuri 2023
Changes in the environments
Changes regarding
surrounding the manufacturing industry Changes in business environment for manufacturing industries
Manufacturing

1. Growing supply chain disruption risks accompanying 1. Development of a service business model that standardizes and
Industries

destabilization of the international situation through Russia's digitizes all processes related to manufacturing and sells them to
invasion of Ukraine, etc. manufacturers
2. Growing global momentum toward achieving decarbonization
3. Labor shortage of about 110,000 workers, increased importance 2. Emergence of manufacturers who use the service business to improve
of reducing production costs and raising product prices productivity and energy efficiency
appropriately amid soaring raw material and energy prices

1. Enhance supply chain resilience and ensure production capacity 1. Improvement of services based on data to extend customer
Important initiatives

stably by changing production plans and reallocating resources relationships and diversify profit earning measures
quickly
2. Grasp carbon footprint across supply chains 2. Optimization of processes from market research and planning to
manufacturing, logistics, and sales to enhance competitiveness
3. Improve productivity and energy efficiency through labor-saving
and automation measures
Business operators involved in supply chains and
As measures at individual companies are difficult and
consumers can now share data with each other, thereby
inefficient, it is important to take advantage of digital
technology for visualizing and coordinating initiatives improving profits of service providers, manufacturers,
of all business operators involved in supply chains. and consumers.

Japan Overseas
overseas trends
Japanese and

• Japan has strengths in partial optimization and high productivity • Advanced overseas companies have strengths in data linking and
of workplaces due to the presence of advanced on-site the digitalization and standardization of production technologies and
operations and skilled technicians. have realized optimization beyond company boundaries.
• On the other hand, only about 20% of manufacturers have • In Europe, a data linking platform for manufacturers has been
successfully linked and visualized data among companies. launched to optimize supply chains.

⚫ It is necessary to optimize supply chains and enhance competitiveness while leveraging workplace strengths.
⚫ It is important to create a virtuous cycle where the expansion of digital transformation investment and the promotion
of innovation, which are indispensable for green transformation, will improve productivity and increase profits to
raise income.
2
 Changes in the environments surrounding the manufacturing industry
⚫ As events that were difficult to predict in advance, such as the spread of COVID-19 and Russia‘s invasion of Ukraine, have
occurred one after another, Japanese manufacturing industries face the challenge of strengthening supply chains through the
identification of suppliers and the relocation and expansion of production bases.
⚫ It is necessary to make efforts throughout the entire supply chains beyond company boundaries in order to realize
decarbonization and the protection of human rights, which are gaining momentum worldwide.
⚫ In order to realize these goals, all business operators should use digital technologies to visualize and link their initiatives.

Figure 1: Risk factors affecting manufacturing industries Figure 2: Impacts of geopolitical risks on supply chains
■Affected ■Neutral ■Not affected (n=3,727)
■: Natural risk ■: Geopolitical risk ■: Economic risk
■: Social risk ■: Criminal risk 67.0% 20.9% 12.1%

0％ 20％ 40％ 60％ 80％ 100％

Source: Created by the Ministry of Economy, Trade and Industry from a press release of
CADDi Inc. (September 2022)
Global
Scope of impact of risk factors

Figure 3: Activities affected in supply chains

(Multiple choices are allowed) （n=1,687）
0% 20% 40% 60% 80%

Overseas procurement 65.5%

Country/ Domestic procurement 58.9%
Region
Domestic production 46.9%

Overseas production 34.7%

International transportation 31.2%

Indiv.
Company
Sales/order-taking 22.2%

Development, design, product planning 20.6%

Short-term risk Medium-term risk Long-term risk Domestic transportation 12.3%

(current) (within 5~10 (within 30 years)
Don't know/can't answer 6.7%
years)
★Factors affecting supply chains in the last 3 years Others than the above 0.1%

Source: Ministry of Economy, Trade and Industry "First Session of the Study Group on Advancing Global Supply Source: Created by the Ministry of Economy, Trade and Industry from a press release
Chains in the Digital Age" (June 2022) of CADDi Inc. (September 2022) 3
 Growing importance of green transformation for manufacturers
⚫ Including draft European battery regulations, market rules regarding decarbonization are being developed around the world.
As Japanese companies are required to respond to these rules, the importance of decarbonization initiatives is growing.
⚫ As manufacturers are increasingly being urged to promote decarbonization, they are advancing initiatives to enhance and
strengthen supply chains.

Figure 1: Outline of draft European battery regulations Figure 3: Companies’ initiatives to stabilize and enhance
supply chains (Large companies)
Scheduled Past Initiatives
enforcement date
In or after 2024 Future Initiatives
(n=152) (n=125)
Regulate the entire lifecycle of batteries traded on the European 80% 60% 40% 20% 0% 0% 20% 40% 60% 80%
Objectives Union market, from manufacturing to reuse and recycling, and
ensure their safety, sustainability, and competitiveness. 34.9% Decarbonization responses 53.6%

• Declaring carbon footprint, including manufacturer and

manufacturing plant information, total CO2 emissions from 40.8% Promoting digitalization 44.8%
batteries and each stage of their lifecycle, and certificates from
independent third-party verification organizations (July 1, 2024~) Identifying secondary and 37.6%
Main regulations 30.9%
• Labelling performance classes to facilitate the identification of subsequent suppliers
(partial)
CO2 emission intensity throughout the lifecycle (from January 1,
2026) 40.1% Diversifying supplier locations 33.6%
• Introducing an upper limit on carbon footprint throughout the
lifecycle (from July 1, 2027)
Promoting standardization, 32.0%
52.6% sharing, and commonization

Figure 2: Changes in importance of decarbonization Switching parts and materials

for which it is difficult to procure 31.2%
39.5%
(year-on-year) alternatives to general-purpose
products
0% 20% 40% 60% 80% 100% Diversifying suppliers (multiple 26.4%
75.0% purchases, etc.)
(n=3354) (n=3529)

All companies 6.6% 29.3% 63.4% Enhancing domestic production 25.6%

55.9% arrangements

Updating and maintaining 24.0%

50.7% information on suppliers
regularly
Small and medium-sized companies 5.5% 28.6% 65.3%
Diversifying transportation 19.2%
31.6% methods (land, sea and air
transportation)
(n=152)

Large companies 31.6% 47.4% 20.4% Production for local 14.4%

40.1% consumption

13.6%
Increased greatly Increased Unchanged Decreased 38.2% Building up inventories

Source: Mitsubishi UFJ Research & Consulting Co., "Survey on Issues and Directions of Responses for Source: Mitsubishi UFJ Research & Consulting Co., "Survey on Issues and Directions of
Japanese Manufacturing Industries" (March 2023) Responses for Japanese Manufacturing Industries" (March 2023) 4
Changes in business environment for manufacturing industries
Progress in horizontal division of labor through Specific example: VinFast (automotive industry)
digitalization and standardization
⚫ Vin, Vietnam's largest corporate group, launched VinFast as
Manufacturers have traditionally secured design, development, the country’s first automobile manufacturer in 2017.
manufacturing, sales, and other functions in a vertically ⚫ Although the company had had no core technology related to
integrated manner on their own. Japanese manufacturers automobile manufacturing, it managed to actually produce
have been good at aligning such functions. automobiles in about half the time required earlier, and entered
→ The promotion of standardization and digitalization has the U.S. electric vehicle market in late 2022.
allowed not only product design but also production line ⚫ The factors behind the rapid development include the
design and on-site operations into explicit knowledge, introduction of factory lines and production technologies
leading to progress in the horizontal division of labor, for major automobile manufacturers that have been
including the emergence of businesses that provide these standardized and digitized by a service provider (Siemens),
production functions to others. Barriers to entry into and the thorough implementation of quality control through
manufacturing have been lowered, accelerating such entry. invited top engineers.

Visualization and dynamicization of supply chains Potential future supply chains for manufacturers

Business relationships are fixed between existing

Sharing Finished product Finished product Sharing
companies, demonstrating high productivity in normal times. data and manufacturer manufacturer data and
→ In order to respond quickly to customer needs or to know-how
No
know-how

dynamically change suppliers in the event of an emergency procurement

relationship
such as a disaster, however, manufacturers are required to
optimize business operations through data sharing Tier-1 parts Tier-1 parts Tier-1 parts Companies in
manufacturer manufacturer manufacturer other industries
across individual companies and groups.
→ From the perspective of sustainable development goals
(SDGs), manufacturers are required to become aware of
information on CO2 emissions and human rights
protection throughout supply chains. Tier-2 parts Tier-2 parts Tier-2 parts Tier-2 parts
manufacturer manufacturer manufacturer manufacturer

5
 Status and challenges of digital transformation in Japan
⚫ In the World Digital Competitiveness Ranking 2022* covering 63 economies, Japan ranked 29th, the lowest ever. It ranked lowest
in “use of big data and analytics” and “agility of companies.”**
⚫ While Japanese manufacturers recognize the necessity of data linking between companies regarding the visualization of
production processes, distribution status, and CO2 emissions, the percentage share for those that have implemented the
visualization is small.

Figure 1: Visualization of manufacturing processes and Figure 2: Visualization of CO2 emissions between
distribution status between companies regarding supply chains companies supply chains

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

(n=3,245) (n=3,419)
(n=152) (n=3,243) (n=3,417)

All companies 17.1%

4.8% 37.8% 12.1% 28.2% 3.8% 40.0% 5.6%
All companies 4.4% 46.2%

Small and medium-sized companies 16.4% 3.2% 39.5% 5.8%

Small and medium-sized companies 3.7% 47.8%
4.4% 37.5% 12.4% 29.2%

(n=152)
3.3%
4.6%
Large companies 33.6% 12.5% 44.7% 4.6% Large companies 17.1%16.4% 52.0% 11.2%

Has implemented the visualization

Planning to implement the visualization
Willing to implement the visualization if possible
Satsified with other means (manual means such as paper management)
Has no plan or need for the implementation
Source: Mitsubishi UFJ Research & Consulting Co., "Survey on Issues and Directions of Responses for Japanese Manufacturing Industries" (March 2023)

*Compiled by the International Institute for Management Development

**Japan ranked lowest in “international experience” and “response to opportunities and threats” as well.
6
Progress in horizontal division of labor through digitalization
and standardization in Japan
Development of an online parts procurement service Global expansion through commercialization and
Case “meviy” Case formalization of expert knowledge
[MISUMI Group Inc.]
[Arent Inc.]
⚫ The Company had yet to be able to move away from analog
methods, such as creating paper drawings, sending, and receiving ⚫ In plant design in the construction industry, CAD design work largely
them by fax to procure, and sourcing parts for production equipment. relied on manual labor by skilled personnel.
⚫ MISUMI, a machine parts manufacturing and trading company, has ⚫ In collaboration with a major construction company, Arent has
developed the procurement service platform “meviy” that combines successfully turned skilled plant design know-how into an algorithm. In
AI-based instant 3D drawing reading, quotation, and delivery calculation the past, it took four hours to design a single pipe, but now it is
functions, and the ability to automatically generate cutting programs possible to design 1,000 pipes in one minute.
from drawings for transfer to machine tools. ⚫ In April 2021, the company started to externally market the application
⚫ The platform has reduced the delivery time from approximately one that transformed the know-how of skilled engineers into explicit
month to a day at the fastest. knowledge. The application is used in the engineering industry in Japan
and is rapidly expanding globally as well. Within the next five years, the
⚫ As of February 2023, 100,000 registered users exchanged 11 million company aims to increase its overseas customers’ share to 70%.
drawings, contributing to the digital transformation of the entire
manufacturing industry accumulated data; the company expects to Project engineering operations
accelerate global expansion.
Man-hour 20％ 10％ 10％ 7.5％ 10％ 5％ 5％ 7.5％ 10％
share

Civil engineering
and construction
Management

Instrumentation
engineering

Equipment
Processing

Equipment
installation
and piping

3D modeling
pipe routing
Project

Electricity
(1) Uploading
3D drawings Man-hour
Reducing waste from
５％ ５％ 10％
cut
10％ 80％
Users (100,000)

analog data management

Automatic generation of 10% overall man-hour reduction

(2) Instant Drawing analysis manufacturing programs for + reduction of analog work waste and rework
quote response and quotation transfer to factories
with AI
⇒Start production immediately
Automatic piping can be
(3) Achieving the delivery time of one day at the fastest performed in virtual space
The delivery time has been reduced from about
a month to as little as a day at the most.
Source: MISUMI Group Inc. Source: Arent Inc. 7