As a business consulting firm, O’Keefe & Associates Consulting LLC has increasingly seen a need to advise its clients on the best ways to invest in automation equipment. Tim Thompson, the firm’s managing director at its Grand Rapids office, spoke with MiBiz about how investing in automation equipment can affect an organization’s long-term investment strategies.
Why does O’Keefe have an interest in automation?
We care about it because you have to make intelligent decisions when you’re spending capital on this new equipment, on this new technology. I think it has ramifications for capital structures. I think it has ramifications for capital cycles. I think these things will tend to accelerate. The capital cycle will tend to accelerate with the new technology constantly coming forward.
Does that mean companies should prepare to invest more money more quickly to adopt automation technology in the future?
Yeah, or at a higher velocity. Maybe not necessarily more money, but in different ways, meaning that instead of buying a $5 million piece of equipment or investing in a $10 million plant, you are spending a million dollars every year upgrading your software systems.
Are companies making these types of decisions currently?
I think a lot of middle market companies right now may be a bit paralyzed by that. As opposed to making a decision, they’re choosing essentially not to decide and not to spend that money. With that, I think they risk the possibility of obsolescence or giving way to competitive forces.
How do you advise clients on the best way to purchase this equipment if they’re a bit wary of making the investment?
I think it’s a matter of understanding what kind of return you’re going to get and what it’s going to do to your operation and how it affects the entire value chain or the entire span of the business. Those investment decisions need to be looked at in pretty good detail to understand the ramifications that it has on all aspects of your supply chain, your actual operation, your distribution and ultimately your customers.
What else regarding automation equipment are you watching?
I’m a firm believer that while technology can solve some of your problems, I think that (companies need to) make sure that you are as lean and as efficient as possible prior to making your technology decisions. A lot of the work that we end up doing is helping them get to the point of optimization prior to making those decisions.
What sort of real-world challenges are companies facing when deciding whether to invest in automation equipment?
I don’t think there’s any real true standards out there. If the technologies are pretty wide open, you always risk having to reinvest if it changes to some standard or your future investment changes some standard, which requires a massive overhaul of what you’ve done before. On the regulation side, I don’t necessarily foresee anything specific.
What are some of the larger societal implications that widespread automation could have?
As we stand currently, it’s typically a mass production plan, hub-and-spoke type distribution network. Does that get flipped on its head if this equipment and technology becomes so cheap that anybody can start up their own manufacturing operation and produce a product for every individual? That would become more of a proximity economy. Does proximity become more important than who’s producing it?
Are you talking about a localvore-like movement for large-scale manufacturing?
Yeah. Think about Etsy. You have basically local craftspeople managing their business through the Etsy website, but it’s locally produced products. Now, of course, you can get stuff from anywhere but it’s highly specialized, highly customized, small-batch production, that’s facilitated through Etsy.
What about on the dystopian side?
You can imagine the worst. They’ve made movies about it where machines take over nearly all jobs. They’ve talked about a universal guaranteed income but that would essentially require some sort of government intervention. It’s hard to say if the government would be capable of doing something like that. It would create a major economic disconnect for humans if there were no jobs to be had, there was no work to be done. You would have a major massive wealth transfer, even more so than you do today. … I think that’s pretty far in the future though.
For companies bringing in new automation equipment, how should they communicate with their employees to mitigate those fears?
Right now, I see it as a replacement play. Machines are brought in to improve productivity. Yes, there are some pretty advanced robotics out there these days. But in general, I think they’re used to just improve productivity of a certain process or a certain aspect of a process. I think the goal of that for a company should be to repurpose the employees to higher functioning jobs.