The manufacturing and robotics sectors have become tightly intertwined in recent years, thanks to the rapidly growing importance of factory automation. On factory floors ranging from relatively small machine shops to giant automobile plants and electronics factories, computer-driven equipment plays a vital role in manufacturing worldwide. The sophistication of the equipment ranges from simple computer-aided machinery that cuts fabric prior to it being sewn into final garments, to robots that make highly accurate and sophisticated welds in car factories, to robots that can rapidly assemble tiny electronics components and solder them in place with blazing speed and great accuracy.
The ever growing drive for efficiency and quality, both at the factory and in the supply chain, will make automation technologies more and more vital. Robotics and automation assist manufacturing in a wide variety of ways, far beyond final assembly. Robots can control the warehouse, delivering parts to the factory floor on an as-needed basis. Computers and sophisticated software help to design, model and test products prior to their actual manufacture, and then upload final instructions to computer-driven factory equipment. The design of components and sub-assemblies are, to a dominant degree, conducted through computer-aided design tools (often called CAD-CAM) that can be tightly coordinated with the factory floor.
Global Manufacturing: The worldwide manufacturing sector is estimated by Plunkett Research at $12.5 trillion (in terms of value added) for 2015. In 2012, analysts at McKinsey & Co. estimated that manufacturing accounted for 16% of global GDP and 14% of global employment. The firm further estimated that manufactured goods currently make up 70% of all global trade, and that manufacturing’s impact on service industries is so great that manufacturers purchase 19 cents of services for every $1 of manufacturing output. Those numbers should remain reasonably accurate for 2015.
Manufacturing Revenues and Employment in the United States: In the U.S., analysts, executives and government can clearly see that manufacturing is on the upswing. A bigger question, however, is whether or not American manufacturing is perhaps entering a period of renaissance. The answer is both yes and no. Manufacturing employment has increased modestly in recent years, including growth of about 141,000 during the 12 months ending in July, 2015. There were approximately 12.3 million people employed in manufacturing in the U.S. as of mid-2015, down from 19 million in 1980. Much of manufacturing’s recent rebound has been driven by large improvements in the automobile sector, along with relatively strong demand for building materials and medical equipment/supplies.
The American manufacturing sector will benefit over the long term by a broad range of trends, including increasing global trade, very low natural gas prices, a growing domestic population, and strength in certain key industries, including machinery, pharmaceuticals, health technology, chemicals, petroleum products, aerospace and equipment for transportation and construction. However, advances in factory productivity, including growing investment in robotics, will dampen job creation. In other words, factory output can increase faster than factory employment due to growing investment in robotics.
The American manufacturing sector will generate about $2.09 trillion in value added during 2015, equaling about 12% of GDP. This is down from 20% of GDP in 1980.
What is “Value Added?”
In manufacturing, value added is the increase in the price (value) that a company adds during the manufacturing process. For example, a window manufacturer may purchase sheets of glass, raw aluminum, plastics and paints from its suppliers. It fabricates and combines these materials to create a finished window. The value added is the difference between the cost of the raw materials and the price of the finished window. Value added is a common measure of manufacturing output.
Future Drivers of Manufacturing Growth in Developed Nations:
1) A substantial research & development (R&D) base
2) Engineering and scientific expertise
a) A substantial base in higher education
3) Regional manufacturing centers
a) Logistics and supply chain support and
infrastructure
4) A substantial base in advanced technologies
a) Robotics and factory automation
b) IT networks
c) Additive manufacturing
Source: Plunkett Research, Ltd.
Today, the growing use of robotics as well as the rising wages and other costs in offshore manufacturing centers, particularly China, is fueling intense debate about the future of manufacturing. Supply chain managers on the corporate side, along with analysts and planners on the government and economic side, are attempting to develop strategies for dealing with these changes on a nation-by-nation basis. To begin with, costs are clearly rising substantially in China, which has long been the world’s manufacturing growth engine. The most important change is the very dynamic situation in wages paid to Chinese factory workers. Wages have been rising steadily, over a period of several years.
At the same time, demographic changes are having a significant effect. Due to China’s lengthy history of “one child per family” regulations, the Chinese workforce began shrinking in number in 2011, while the senior segment of the population is growing at a rapid clip. Put another way, China is facing a massive aging problem (far more challenging than the aging population in the U.S.), while the number of young workers available to fill the factory ranks is tipping into serious decline.
Due to the development of a large network of universities across China, a growing percentage of young people are obtaining college degrees. These better-educated people, upon entering the workforce, generally do not want to work on the manufacturing floor, which they feel is beneath them.
These trends are having multiple effects on manufacturers in China. 1) As discussed above, firms are paying much higher wages than they did in the recent past; 2) Companies are turning more and more to factory automation in order to reduce their reliance on human workers; 3) The bigger companies are becoming more multinational in nature, moving much of their basic manufacturing to lower-wage nations such as Vietnam and Bangladesh; and 4) Chinese manufacturers are moving up-market, where the manufacture of technically-advanced products such as aircraft creates the ability to pay higher wages while taking advantage of the growing cadre of engineers who are graduating from China’s universities.
While China struggles to adapt to its changing costs and demographics, manufacturing has been booming in many lesser developed nations that offer lower costs for real estate and hourly wages. Such nations are found in Asia, including The Philippines, Laos, Cambodia, Pakistan, Bangladesh and Vietnam. However, Africa is likely to become one of the world’s basic manufacturing hubs for unsophisticated items such as apparel. Africa offers an abundance of raw materials, one of the world’s largest supplies of young workers, a rapidly growing population, a growing transportation infrastructure well positioned to serve markets in Europe, Asia and the Americas, as well as extremely low costs.
In Asia’s more developed nations, particularly Thailand, Taiwan, Korea, and Singapore, manufacturing of high value items has grown at a soaring rate over the mid-term, including automobiles, electronics and pharmaceuticals. India is often thought of as a center for business processes outsourcing, but it also has a significant and growing manufacturing base. To a large extent, this manufacturing is in heavy industries, such as steel and petroleum products. However, the manufacture of sophisticated products, such as pharmaceuticals, has become significant.
One of the biggest beneficiaries of China’s rising costs is Mexico. Mexico’s manufacturing sector is perfectly positioned to grow, thanks to a) its proximity to U.S. markets; b) NAFTA—the North American Free Trade Agreement; c) existing low-cost transportation infrastructure for shipments to and from the U.S.; and d) the relative ease of doing business between U.S. and Mexican companies. Mexico is positioned perfectly to grow with the recent trends of reshoring and nearshoring, where many companies want their manufacturing plants and suppliers to be closer to home. Recently, the Mexican manufacturing sector has also been boosted by the availability of shale natural gas that can be imported from the U.S. at low prices. Gas exports from the U.S. to Mexico nearly doubled from 2010 to 2013.
Robotics and Factory Automation: The International Federation of Robotics (IFR) estimated the total, worldwide base of operational industrial robots at the end of 2013 was about 1.3 to 1.6 million. Plunkett Research estimates that this base will expand to approximately 1.9 million by the end of 2015. The global value of industrial robots sold during 2013 was placed by IFR at $9.5 billion. Plunkett Research estimates that the value for 2015 will be $9.8 billion.
