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Be Suppliers, Not Miners In The Age Of Robotics

How manufacturers can increase jobs and profits by reimaging how they do business.

The state of manufacturing is always a key topic for politicians, and the 2016 presidential campaign was no exception. Depending on who you listen to, the American manufacturing industry is either doomed or thriving, with robots looming on the horizon to replace workers. Yet, everyone can agree that a healthy manufacturing industry is central to a thriving economy. In a report by Deloitte, investment in manufacturing has a ripple effect on the overall economy: “every dollar spent in manufacturing adds $1.37 to the U.S. economy and every 100 jobs in a manufacturing facility creates an additional 250 jobs in other sectors.”

This is good news for the U.S. considering the country’s manufacturing industry currently is producing more goods than ever before. In fact, between 2003 – 2016 U.S. manufacturing output increased by almost 40 percent, with U.S. factories now adding annual value of a record $2.4 trillion (Jewish World Review, 8/17/16). These same companies also are responsible for the vast majority of spending on research and development each year, resulting in much of the country’s innovation.

Manufacturing Job Loss

Unfortunately, despite the industry’s growth, manufacturing has experienced significant job loss. Over the past ten years, North American manufacturers have eliminated an estimated 5 million factory jobs. While some people blame this job loss on international trade inequities, in reality, machines also are a major contributor. In fact, according to the New York Times, the U.S. currently makes 85 percent more goods than it did in 1987, but with only two-thirds the number of workers.

Using automation to gain a competition advantage seems to be on the minds of most manufacturers these days. Last December, Foxconn, an iPhone manufacturer in China, announced plans to replace almost every worker in its manufacturing plants with a robot. How quickly automation will be deployed is unclear. On one extreme, professors at the University of Oxford estimate that 47 percent of total U.S. employment is at risk from machine learning and robotics in the next 10 years. On the other side, McKinsey & Company believe automation will fully replace only about 5 percent of jobs by 2055.

Record Activity in Robots Market

Robot orders and shipments in North America provide insight into how swiftly robotics are replacing human workers. Consider these statistics from the Robotic Industries Association:

  • $1.8 billion worth of robots were shipped from North America in 2015, an increase of 14 percent over the previous year.
  • $1.6 billion worth of robots were shipped to North America 2015, an increase of 10 percent.
  • 260,000 robots are now used in North America factories, which is third to Japan and China.

Robots can be very cost effective, providing a return on investment in less than a year. Robots also can operate without much of the overhead expenses associated with a human workforce. It is therefore not surprising that robots are being used for varied activities such as picking crops on farms, connecting pipes across oceans and automating fast food restaurants.

What Can Be Done? Reimagine the Industry!

History is full of examples of technology transforming industries for the better. Consider the agriculture industry. In the 1900s, 41 percent of the U.S. labor force were farmers. Today, less than 3 percent of workers are in agriculture and yet U.S. farmers are some of the most productive in the world. At the same time, as technology displaced farm workers, they eventually moved to cities and found higher-paying industrial jobs.

In much the same way, robots are not stealing jobs, they are changing them. Growth in robotics is creating new jobs that require a better educated, highly skilled workforce. Not only do manufacturers now need people who can program, install, run and maintain robots or other types of smart machines; they also need data scientists, engineers, artificial intelligence specialist and highly skilled factory staff. Even better, 80 percent of manufacturing executives reported they are willing to pay more than the market rates to fill open positions (Deloitte, 2015).

Another strategy to succeed in the age of robotics is to look for new ways to capitalize on the industry’s growth. For example, during the California Gold Rush in the mid-1800s, thousands of prospectors flocked to the area in the hopes of discovering gold. Although some gold-seekers did make significant fortunes, the merchants and suppliers made far more money than the miners.

IDC forecasts spending on robotics will reach $135 billion in the next two years. If the U.S. embraces production of next-generation robotics and automation, it could become the global center of robotics innovation. Of course other countries are aggressively pursuing robotic manufacturing as well, but Western manufacturers have a number of key advantages including a wealth of engineering talent, a strong venture capital system, a history of innovative thinking, and a strong start-up culture.

What Needs to Happen Next?

In this race to dominate the market, companies need to leverage technology to streamlines processes and get to market faster. Manufacturers need integrated solutions that merge data with operational technologies to improve operations. Below are a few technology innovations that can help manufacturers embrace opportunities in the robotics market:

  • Connected and adaptive manufacturing – Seamlessly connecting the manufacturing process from the shop-floor to the top-floor helps to more closely align operations with orders. When supply chains are connected in real-time, it is possible to instantly making changes based on demand or events.
  • Predictive analytics – Digital data is being used to constantly monitor the health of assets and predict future failures, allowing manufacturers to move away from reactive or scheduled-based service models.
  • Asset intelligent network – Intelligent asset networks facilitate communication between companies and their different partners to provide all parties with a better understanding of how products are used and maintained.
  • Data-based decisions – When real-time data is captured and shared across an organization’s network, it is possible to strategically determine and implement best practices. Trends and issues on a daily basis can be analyzed in real-time in order to make immediate changes and improve profitability.
  • Collaborative R&D – Manufacturing complex products, like robots, requires bringing together mechanics, electronics and software across the extended business network. New collaboration tools enable inter-department teamwork and communication between business networks, giving companies greater agility to respond quickly to changing market trends or demand.

In conclusion, the growth and adoption of robotics is creating incredible opportunities for manufacturers up and down the value chain.  The industry should work with governments to help workers acquire the skills necessary to fill current, and future, open manufacturing positions. Additionally, by embracing robotics, automation and other new technologies, manufacturers can future-proof their companies and usher in the next economic revolution.

Pradeep Amladi is Vice President of Marketing, Manufacturing, Energy and Natural Resources Industries at SAP.