By: Daniel McFetrich, Head of Global and International Equity, Schroders
Automation has long been a feature of the manufacturing sector, as companies seek to improve productivity, but we think the level of automation is set for a sharp increase as innovation sparks a new smart manufacturing revolution.
In the short term, the Covid-19 pandemic has brought the need for automation into the spotlight, but we also see several structural reasons why automation is due to pick up.
1. Covid-19 pandemic and social distancing/worker availability
If companies needed persuading of the benefits of automation, the Covid-19 crisis has cemented the argument. Activity across multiple industries ground to a halt as the pandemic unfolded due to lockdown orders.
Even as activity re-starts, social distancing measures may limit the capacity of many factories. Higher levels of automation would therefore offer an obvious benefit in terms of productivity and reduced chance of future business interruption.
2. Growth of e-commerce
The seemingly unstoppable rise of e-commerce is another trend that has been given a boost by the pandemic, with more consumers switching to online shopping as physical shops closed. But this is a trend that had been on the rise anyway.
Even before Covid-19, it was the warehouse automation sector that had been seeing the fastest rise in automation adoption in recent years. As e-commerce penetration rises due to the pandemic, we believe this trend will accelerate.
3. Increased robotics innovation
Advances in robotics and artificial intelligence (AI) have created robots that can perform many more tasks than was previously the case. With a wider range of capabilities comes a wider set of applications. Automation has previously been strongly associated with the car manufacturing sector, but increasingly robots are being used in tech and other industries like food & beverage production.
Innovations in communications also play a key role in automation adoption. Latency is a huge problem for robot installers; if it takes too long for an input to be received and processed, then robot use is necessarily that much more limited. 5G and new wireless communications networks mean latency issues can theoretically be solved and could also enable the introduction of cloud powered AI to the equation, to further drive new markets for robotics.
4. Renewed focus on supply chain resilience
Again, the importance of robust and flexible supply chains is something that Covid-19 has brought into clearer focus, and this came after a turbulent 2019 when US/China geo-political tensions drove companies to rethink their supply chains.
Bringing supply chains back onshore, further regionalising supply chains, and dual sourcing (using two suppliers) are all now being considered by companies. The disruption caused by lockdowns happening in different geographies at different times led to realisations that supply chains may not be resilient enough.
A fifth structural consideration is demographics. The working age population in the top five manufacturing countries globally has started to shrink. This includes China. In the US, the median age of manufacturing workers is now more than two years older than the national average, and 25% of manufacturing workers are over 55 years old. How do we solve this issue? Robotics and automation could provide a solution.
6. Rising focus on energy efficiency and sustainability
Recently, fiscal stimulus packages have been unveiled in developed markets to help turn around economies struggling with the pandemic. The overwhelming focus has been on sustainability and solutions to solve the climate change crisis as demand is re-stimulated.
We believe automation plays an important role in improving manufacturing productivity and therefore energy efficiency. For example, new innovations are helping reduce the need for human oversight on production lines, thus raising throughput, and lowering the amount of waste in production.
The views and opinions contained herein are those of the author. Issued in by Schroders Investment Management Ltd registration number: 01893220 (Incorporated in England and Wales) is authorised and regulated in the UK by the Financial Conduct Authority and an authorised financial services provider in South Africa FSP No: 48998.