The start of the new year got me thinking about what the future has in store for supply chain and operations. Based on my conversations with senior executives over the past nine months, and after having had the privilege of attending the World Economic Forum, it seems clear to me that the next industrial revolution is upon us – and it involves robotics, artificial intelligence, 3D printing and the internet of things (IoT).

In this note, I will briefly discuss how robotics is playing a role in supply chain and operations, and how this may impact the people side of your business. The robots are coming for your factory jobs – and this may not be a laughing matter! Automation started more than two decades ago, and robots are just an extension of companies pushing automation to the next ‘smart’ level (think artificial intelligence). And it is happening NOW. Although this is often viewed with skepticism and trepidation, enterprises are moving down this path of robotics faster than you may think.

Why robotics and ‘smart’ automation?

Each country or region has its own reasons why robotics makes sense. In Southern China, for example, labor strikes and salary inflation forced many of these players to embrace robotics and full automation well over a decade ago. The Guangdong Government has acknowledged labor shortages, and has subsidized the purchase of robots for many companies. So although labor and quality are two important factors in China, the labor component will quickly diminish. As one senior consumer products supply chain officer in China told me, “If you are deploying robotics solely to save on labor, it will be a mistake – there have to be more compelling reasons.”

It is not just MNCs that are embracing the robotic revolution – many Chinese companies are starting to gain momentum in terms of deploying robotics in their manufacturing operations. Foxconn, for example, started on this initiative over five years ago, announcing plans to deploy 1 million robots across their assembly lines. They have used robotics to do monotonous tasks, allowing them to invest in more highly skilled human labor.  As one China-based senior supply chain executive told me, “Robotics drives more 

consistent adherence to quality.”

In North America and Europe, the push towards robotics is driven more by increased pressure on working capital, the desire to optimize productivity and the ability to quickly anticipate market opportunities. Robotics can influence customers by integrating data along the supply chain and employing strong data analytics. Companies can create a ‘digital thread’ extending from their suppliers to the end retail customers.

We are seeing the emergence of both “speed factories” (a term coined by Adidas referring to a factory which is run almost solely by robots), as well as “dark factories”. Adidas has already built its first “speed factory” in Germany, and plans to build another one in the US this year. Similarly, “dark factories” – those staffed by robots and which therefore do not require any lights – can operate 24/7.

The robot revolution has the ability to bring back some manufacturing-related jobs to countries that have lost them in the past. “Any manufacturing we take back to the US needs to leverage high-value engineering talent there in comparison to the low-cost labor of China,” stated one North American operations executive. Recently, a regional Asia Pacific Head of Supply Chain mentioned to me, “It is not all about robots and replacing the manual workers. It is about speed to market – and robotics gives you increased flexibility.”

Robotics is developing differently in the North American market, where machines are deployed to complement rather than totally replace workers. This concept is known as ‘cobotics’ where teams pair up with robots to take on complex ergonomic tasks, often in the auto or aerospace sectors. PwC has coined the term “data-driven factory” to describe this.

Will robotics shift the paradigm, and what are the human capital implications?

The push towards these data-driven operations will create a new type of supply chain and operations executive – one who has a new mindset focused on transformation, customers and data analytics.

A senior global executive at a fast-growing consumer products company based in Shanghai observed, “The days of looking at a factory as a stand-alone entity are moving behind us. The focus needs to shift to managing the value stream.” He continued, “This will impact how supply chain professionals enable value creation and make decisions in areas such as robotics. For example, if a company is entering a new market whose customer demand is volatile, we need to understand whether an automated factory will have the agility needed to deliver in this kind of environment. Looking at it in this way will impact other areas of the business such as the amount of inventory needed (channel, pipeline, etc.) and product lead times.”

The executive also mentioned that automation will no longer be a separate decision. A full understanding of all the various levers that affect value creation will need to be evaluated to decide what and when to automate. Equally, depending on the outcome of the analysis, it may be that more value is created by automating the warehouse or customer interface, or in data mining information, than in fully automating a factory.

A good example of this is the Amazon fulfillment centers in North America. The centers have deployed over 40,000 robots which can operate at speeds approaching 6km/h, and can lift almost 350kg. “Smart automation will continue to have a place in company value chains. The key is determining where it creates the most value,” he concluded. Amazon has invested heavily in distribution robotics – an area where it makes most sense for their business model in the total value stream.

Questions for you

How is your organization re-tooling to meet these new demands of automation? Does your current team have the right skills to address these emerging challenges? Do your supply chain and operations leaders have a ‘value streamï’ mindset? Now is the time to consider how your company – and the industry as a whole – will be affected by the new robotics era, and how you will need to adapt.  

To find out how HPES Global can assist your firm with these human capital challenges in 2019, please feel free to contact me directly jeff@hpseglobal.com

1. ‘Chinese factory replaces 90% of humans with robots, production soars’, Conner Forrest, TechRepublic, July 30, 2015, http://www.techrepublic.com/article/chinese-factory-replaces-90-of-humans-with-robots-production-soars/ 
2. ‘Phone manufacturer Foxconn plans to replace almost every human worker with robots’, Nick Statt, The Verge, December 30, 2016, http://www.theverge.com/2016/12/30/14128870/foxconn-robots-automation-apple-iphone-china-manufacturing
3. ‘Foxconn begins replacing workers with robots ahead of US expansion’, Amar Toor, The Verge, December 11, 2012, http://www.theverge.com/2012/12/11/3753856/foxconn-shenzhen-factory-automation-manufacturing-US-expansion
4. ‘2016 industrial manufacturing trends: Headwinds & Renaissance’, Robert Bono & Stephen Pillsbury, PWC, 30 September 2016, http://www.strategyand.pwc.com/trends/2016-manufacturing-trends