Published in Manufacturing

Recession could spur manufacturers’ investments in automation

BY Sunday, April 12, 2020 06:23pm

The fallout from the coronavirus pandemic may prompt a new spike in the adoption of automation among the region’s manufacturers and have a lasting effect on an already shifting labor market.

In the wake of COVID-19, manufacturers may decrease capex spending overall as a result of lost revenue caused by a nearly complete shutdown of operations, according to Paul Isely, associate dean and a professor of economics at the Grand Valley State University Seidman College of Business. 

Paul Isely COURTESY PHOTO

However, firms that have the cash to spend will put investments in automation at the top of the list, he said. 

“I think that firms have no choice but to push more automation,” Isely told MiBiz.

Throughout the economic expansion of the past decade, manufacturers were already automating more of their operations and gearing up for the fourth industrial revolution, known as Industry 4.0. Now, an economic recession will force companies to move faster into the new age of manufacturing. 

“We expect that during the course of the next downturn, firms will deploy the automation that they have started on and have been testing, but didn’t go full in on,” Isely said. “This is what has happened in all the last sets of recessions.”

After the recession of 2008, manufacturers deployed technologies and automation to the extent that it contributed to a longer period of high unemployment, according to Isely. 

“That really bad recession happened, and then they didn’t have to hire people back because they could just deploy the things they were already working on,” he said. “That’s why looking at this recession, the longer it goes, the more likely it is that firms will be able to do that as opposed to just hiring people straight back.” 

In a recent survey of executives by the auditing firm EY, 41 percent of respondents said they were investing in accelerating automation. 

Almost no occupation will be unaffected by new technologies in automation and artificial intelligence, according to a 2019 analysis by The Brookings Institution. Nearly 60 percent of jobs in the manufacturing sector have the potential to be automated, according to the data. In addition, more than half a million jobs in the Grand Rapids metro area are “susceptible” to automation. 

“For those who think that manufacturing is as automated as it can be, we still see very high exposures there,” Mark Muro, senior fellow and policy director at The Brookings Institution, said in an interview with Vox last month. 

Additionally, Muro said the coronavirus-caused recession could offer the perfect opportunity for companies to invest in new labor-saving technologies.

“It might seem that in hard times, in a downturn, human labor would be cheaper and therefore automation would go down. But in fact, it’s the opposite. What happens is that, because of the crisis of the bottom line and a crash in revenue, humans become relatively more expensive compared to automation,” Muro said in the report.

Shifts ahead

As opposed to strictly replacing jobs, this surge in automation and other Industry 4.0 technologies will further the structural shift in the labor market and its demand for skills, according to John Walsh, president of the Michigan Manufacturers Association

“Automation will be looked at more closely as we go forward. It’s improving in its application and functionality, but you’ll always need humans to help with the certain functions that can’t be done by a machine,” Walsh told MiBiz. “Our role as an industry will be to work on how to incorporate the machinery — this equipment, this automation — and at the same time, still work on the human element. There will always be that role.”

North American orders for robots continue to post year-over-year growth, according to The Robotic Industries Association (RIA), part of the Association for Advancing Automation (A3). Nearly 30,000 robotic units were ordered in 2019, up 1.6 percent from orders the previous year. However, the fourth quarter of 2019 was the weakest quarter of the year, down more than 10 percent from the same period the year before. 

The largest driver of the growth was a 50.5-percent increase in orders from automotive OEMs and a 16.6-percent increase from the plastics and rubber industry, according to the data. However, orders to automotive component markets were down, and all other non-automotive industries including food and consumer goods, life sciences, metals, and electronics also contracted in 2019. 

Eye-opening possibilities

Last month, Gov. Gretchen Whitmer ordered most businesses in the state to close in an effort to protect workers and slow the spread of the highly contagious COVID-19.  Many manufacturers were forced to idle or slow production at that time. 

However, manufacturers that still remain open to produce critical medical gear or essential supplies have already begun to deploy more robots and other technologies to help efficiency amid the crisis. 

Grand Rapids-based Feyen Zylstra LLC is working with local manufacturers that are still up and running to implement technology that will help keep people safe while still producing essential goods, according to Mike Cotter, the company’s director of digital products. 

“Even though these manufacturers are deemed essential, it doesn’t mean all the employees feel comfortable showing up for work,” Cotter told MiBiz. “What we’ve been discussing is how we can help them with remote monitoring and various types of automation to be able to handle capacity without having those workers physically be there.”

One example of technology that is being deployed right now is remote monitoring that can provide real-time machine data to staff about impending issues and allow access to equipment remotely. 

In the long term, the COVID-19 crisis will expose the risk of relying on human labor in manufacturing, an industry that was already facing labor issues before this crisis hit. 

“It’s going to open their eyes a little bit about maybe the vulnerabilities of depending on that workforce,” Cotter said. “For a while, labor has been the primary thing keeping these leaders up at night.” 

While much uncertainty remains, the lessons manufacturing executives learn now could help prepare their companies for future crises. 

“It’s good that people are starting to get more curious about Industry 4.0,” Cotter said. “It’s going to be key, especially in times like this, to keeping plant floors lean and addressing the labor shortage issues.”

Read 2392 times
SUBSCRIBE TO MIBIZ TODAY FOR WEST MICHIGAN’S FINEST BUSINESS NEWS REPORTING >