By John Slater, Partner and Team Leader, Advanced Manufacturing and Automation; and Jorge Maceyras, Principal, FOCUS Investment Banking LLC
Fear stalks the land. The robot apocalypse is nigh, destined to steal our jobs and our future. Worse yet, the machines are made elsewhere and the Western economies are being left behind in the race for manufacturing prowess.
We have heard this story before. In the late 1980s, the U.S. computer memory industry had been decimated by Japanese and Korean competition. To the ‘Cassandras,’ this meant that the U.S. had forever lost the global economic race and was destined to become a second-rate power.
Nothing could have been further from the truth. The prerequisites for U.S. global dominance of the digital world were already in place. Within a few years, U.S. prowess in personal computers, microprocessors and digital networking would lead to a capital investment boom and a stock market bubble not experienced since the 1920s. Stock market fluctuations notwithstanding, the global growth of the internet has not abated since.
For all its impact, the internet has touched only a relatively small portion of human existence, focused primarily on media, entertainment, telecom and more recently, retail and finance. The larger world in which we live, the world of things and physical interactions has, until now, been only lightly touched. But that is going to change, and change in a considerable way. And this time the opportunity is truly global.
No one country or region dominates all aspects of this coming digital transformation to the extent Silicon Valley has dominated the internet. Germany has long held the title of world leader in manufacturing automation, Japan has innovated in robotics and U.S. prowess in digital intelligence promises that it will continue to lead in fields like artificial intelligence (AI) and autonomous vehicles.
But China is spending billions developing and acquiring the most advanced technologies and is committed to catching up quickly. This promises to be the first simultaneous global technology revolution. Notwithstanding the recent political vogue for nationalism, collaboration will rule the roost in this new digital age and without doubt cross-border deals and financings will soon follow.
Imagine Amazon on Steroids
The world of digital automation is at the same stage as the internet in 1993, when the Mosaic browser was introduced and we first discovered the wonders of the ‘world wide web.’ The technologies are in place for a boom that will transform the global economy and, in the process, create new opportunities for better jobs and better lives.
Today Amazon utilizes highly advanced predictive analytics and automation tools that plan and track the flow of merchandise from product sourcing, to the logistics of fulfillment and shipment, to the reorder and stocking of replacement items.
In Amazon’s warehouses, robots stock the shelves, pick the orders and load the trucks. Even the human workers are guided by systems that plan their routes, tell them where to go, and dictate what products to pick and the order in which to pick them.
Increasingly these advances have very real consequences for the financial markets. Brick and mortar retailing is under siege in the U.S., with thousands of stores and scores, if not hundreds, of retail malls destined to shut their doors.
For retailers, it is do or die, even for industry leaders like Macy’s and Sears. They will either learn to adapt to the new digital reality or they will follow others that failed to do so – think Kodak and Blockbuster.
Now look ahead to a time when every step in the global production and distribution cycle is similarly digitized. Software systems will monitor retail demand through information networks directly linking retailers to their sources of supply on a real-time basis.
Digital purchasing agents will assure that the supply chain responds to changing demand, arranging just in time delivery of components and raw materials, often without the intervention of human actors.
Production scheduling will be done by robotic agents utilizing sophisticated AI systems that assure the most efficient use of available resources, including increasingly automated production lines operated by robots and other digitally controlled systems instead of human workers. Companies that fail to keep up will not survive.
The technologies that will make this possible already exist. While industrial robots currently get a great deal of press attention because of the fear they engender, robots are old tech. The first industrial robot was deployed in 1961 and robots have been common in the auto industry for decades. Like the internet before it, the automation boom is gaining steam as costs come down and the technologies become more approachable for the average business.
*Part II of “Is Industry 4.0 the New Dotcom Boom?” will appear in the August 2017 issue of the FOCUS newsletter.