Ash has spent close to 20 years in technology research on several sectors, including industrial automation and smart manufacturing, smart home, solar power and energy storage, drones and robotics, medical technology and building automation. Ash is Senior Research Director for our robotics & warehouse automation research, amongst other topics.
Manufacturing and Globalisation. Are we standing at a crossroads?
In 2020, the world changed. The Coronavirus pandemic has had such an impact on societies and economies right across the globe, that the general consensus seems to be that things will never be the same again. In the manufacturing sector, long-discussed globalisation-related issues have been brought to the fore, particularly the dependence of western manufacturers on Chinese supply chains.
To some extent, the response of the global manufacturing sector to the Coronavirus outbreak may provide an answer to some of these concerns. This article will examine the likely impact of the pandemic on global industrial strategy, focussing on the following questions:
- Are the efficiency gains offered by globalisation of manufacturing (eg cheap labour and cheap shipping) always worth it if global shocks such as Coronavirus can have such a catastrophic impact on the sector? Will we see a lot more re-shoring of manufacturing?
- Are robotics and automation of manufacturing a way of future-proofing the sector against further shocks?
Is re-shoring of manufacturing a viable solution?
Before the Coronavirus outbreak, there was already a keen debate about the vulnerability of global manufacturing supply chains, where high levels of dispersion (components being manufactured in different countries and continents) coupled with just-in-time practices left these supply chains open to disruption at a both local and global levels.
Re-shoring of certain elements of a manufacturing process could remove a lot of that uncertainty, reducing the likelihood of delays, making ‘just in time’ practices more feasible if the components come from nearby, and insuring companies against global shocks such as the coronavirus epidemic. Also, from a national perspective, re-shoring would bring back some jobs, and environmentally there would be reduced pollution as the volume of components shipped across the world diminished.
From a coronavirus perspective, if, for example, European car companies had sourced all or most of their components from Europe, they would not have had such extended supply problems in getting parts during this crisis. Supply problems would only have been coming when the virus hit Europe in March. As it is, global manufacturers have been exposed to some degree since January, and will be exposed until the virus leaves all areas where they source components.
The economic case for re-shoring is potentially compelling – for certain types of companies. In November 2019, The Manufacturer reported on the re-shoring activity of Albert Jagger Engineering Ltd of Walsall, UK, manufacturers of components for various engineering sectors such as automotive. Operations director Mark Hilton told The Manufacturer that up to the year 2000, much of the company’s inventory was sent over to China, where costs, including labour costs were cheaper. Problems started in 2008, when many of their customers engaged in considerable de-stocking, with the result that Albert Jagger had the financial burden of holding inventory for them. Also, they realised that off-shoring meant very long lead times, with product spending a long time on the water. It made sense for the company to invest in its own manufacturing capabilities in the UK, to shorten the supply chain, to reduce costs, and to protect their customers from any potential price increases. Their current project is to re-shore the production of their Antiluce fasteners, used on the tailboards of pick-up trucks, and the sides of panel vans. Small beginnings, but they expect to re-shore other components in the coming years.
Re-shoring looks like a viable solution for individual companies like Albert Jagger, a small, short-batch manufacturer, but there are questions over its suitability for big global companies. China, for example, is a major component supplier to the world’s automobile and electronics industries. The completeness, efficiency and flexibility of China’s supply chain to these big companies makes it an attractive proposition. This, coupled with stable government policies, strong infrastructure, good labour skills and engineering resources, means that many global companies will surely want to maintain key production centres there.
While it isn’t feasible to completely cut any one area of the world entirely out of global supply chains, the problem is not just about component supply. It’s also about markets. While car companies, for example, source many parts from Asia, the EU and the US they also sell large amounts of product in these three regions. To completely insulate itself against global shocks would require a company not just to re-shore most of its component manufacturing, but to reconfigure its market, selling most product domestically. This would be an impossible challenge because it would require each company to radically reduce its own sales in many markets.
Automation and Robotics: a likely solution.
According to our latest report, China accounted for more than 40% of all industrial robots sold last year, making it the largest single industrial robots market. We also forecast it is the market that will grow fastest by far over the next few years. Recently, as China moved up the value chain, the labour force became less and less cheap compared to labour in the West. During the Coronavirus outbreak, manpower on the shop-floor in many Chinese factories was so severely depleted that production halted, seriously disrupting component manufacture, and having a global impact. Highly automated manufacturing came into its own during the early stages of the outbreak in China, where some semiconductor and flat panel factories in Wuhan were able to maintain relatively normal production thanks to high levels of automation; while labour-intensive industries such as 3C manufacturing almost completely shut down. Furthermore, the restriction of personnel mobility made resumption of normal operations difficult for these companies.
The Coronavirus pandemic is a battle which humanity will win but, as with the two world wars, the aftermath may be societal change and technological advancement on an unprecedented scale. What we have seen on the industrial front in China, the epicentre of the outbreak, gives us clear evidence that automation can offer an enhanced degree of manufacturing security in the most challenging of circumstances.
Additionally, in recent years, various national leaders such as Trump in the US and Modi in India, have put significant tariffs in place specifically to encourage global corporations to manufacture locally. For this reason, re-shoring has been an issue for some time and the fallout from the coronavirus pandemic is likely to accelerate the trend. For companies looking to re-shore but concerned either about local availability of labour or relatively high labour costs, robotics and automation are a potential solution.
The way forward
Global companies appear to have 3 choices as they stand at the Coronavirus crossroads. They can either continue straight on and follow the cheap labour in places such as Vietnam, Indonesia and, eventually, Africa. This would imply that little has changed as a result of this terrible outbreak. Furthermore, cross-border re-location of production capacity is not an easy decision to make, with many factors having to be taken into account, such as local government policies, infrastructure, logistics and labour costs. Alternatively, they can make a choice between longer term investment in existing off-shore plants in highly automated production facilities, or they can invest in re-shoring. A combination of these last two alternatives is the most likely outcome, with big companies perhaps re-shoring the production of their most sensitive components to the regions they are sold in.
Potentially, we’ll see a situation where some big global manufacturing companies have a totally regionalised strategy, with manufacturing hubs in Europe, the Americas and Asia all manufacturing the full product range for their local areas, and sourcing components as locally as possible.
One thing is clear: industrial manufacturers are going to have adapt in order to survive in an ever more unpredictable world.