Monday, September 29, 2014
Robotics, Big Data and the future of Supply Chains
After reading “How technology can drive the next wave of mass customization” by Mckinsey’s Anshuk Gandhi, I researched the possible effects that advancement in robotics will have on supply chain management, what industries are most and least susceptible to roboticization, and how robotics, in combination with big data, can revolutionize different industries through mass customization. Particularly shocking were the extent to which human labor can be roboticized, the centrality of big data in forecasting in an age when the customer can get exactly what he or she wants whenever he or she wants it, and the implications of robotics on strategic sourcing trends.
The industrial revolution fundamentally changed labor by increasing the productivity of humans; machines let unskilled workers make artisan-quality products at a fraction of the cost. The coming revolution is different; as Alexandros Vardakostas, cofounder of the burger-flipping robot company Momentum Machines, said in a recent interview, “[Our] device isn’t meant to make employees more efficient. It’s meant to completely obviate them.”[i] Besides fast food, what other industries will benefit from automation in the coming years?
To answer that, I found a study by two Oxford University researchers, Carl Benedikt Frey and Michael A. Osborne. Their paper, “The Future of Employment: How Susceptible Are Jobs to Computerisation?” estimates that 47% of the entire U.S. workforce could be automated using technology well within reach.[ii] They achieved this estimate by identifying three elements in which robots are currently weak, fine perception and manipulation, creative intelligence and social intelligence. Then, they assigned ratings to 70 occupations in terms of these three elements. Not only could transportation, construction, manufacturing jobs soon be roboticized, but so could office support, sales and low-skilled services.[iii] As companies successfully automate their workforce, their competitors will be forced to automate too or become uncompetitive. This will quickly lead to the automation of whole industries.
Customization was the focus of the McKinsey article, but the paper doesn’t really explain one important aspect of what makes customization possible: big data. Without big data and without data analytics, it’s much more difficult to make producing custom products profitable. Inaccurate forecasting almost always leads to lost profits, and demand variability is notoriously high when you begin to add hundreds of different options to a product. High variability implies a greater chance of inaccuracy which thus means a greater chance for lost profits. With big data AND a way to analyze that data using analytics thereby reducing variability, technology has finally advanced to a point where mass customization is doable and profitable.[iv]
For companies, the implications are stark. Just as firms that failed to offshore in the 1990s and 2000s found themselves at a competitive disadvantage, so will companies that fail to “next-shore.” From a strategic sourcing perspective, the robotics revolution makes offshoring much less attractive. First, with a vastly reduced labor force, there’s no labor cost arbitrage. Secondly, roboticized workplaces require a highly skilled labor force for monitoring, maintenance and troubleshooting. Thus, factories will have to be built in places with access to these workers. Lastly, companies will have to begin competing on the ability to complete custom orders and deliver them in a timely fashion. To make this possible, companies will have to depend more on big data to adequately predict demand on a wide variety of products AND custom features. Failure to do so will often mean failure of the firm as entire industries move in this more efficient direction.
This leaves me with a number of questions and concerns about the future of supply chains as well as policy. How will companies ensure that they have access to the data they need to deliver their products in an age where privacy becomes more and more of a concern? Will areas with stricter privacy laws than the United States, like the E.U., fall behind due to restrictions on how they can use data? Furthermore, will the public continue to support business friendly policies if companies employ fewer and fewer people (and more and more robots) even as profits soar? Will people replaced by robots be able to find work to support themselves comfortably? Or will there be a public backlash against roboticization? In any event, the future is sure to be an interesting time.
[i] Love, Dylan. “Here’s the Burger-Flipping Robot That Could Put Fast Food Workers Out of a Job.” Business Insider. August 11, 2014. Retrieved from: http://www.businessinsider.com/momentum-machines-burger-robot-2014-8.
[ii] Frey, C.B. & Osborne, M. A. “The Future of Employment: How Susceptible Are Jobs to Computerisation?” Oxford Martin School, Progamme on the Effects of Future Technology, University of Oxford. September 17, 2013. Retrieved from: http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf.
[iv] Peters, Brad. “The Age of Big Data.” Forbes. July 12, 2012. Retrieved from: http://www.forbes.com/sites/bradpeters/2012/07/12/the-age-of-big-data/.