Changing Paradigms. Industry 4.0 - II

Expensive Manufacturing technology required huge capitals that led to the creation of factories. As technology cost decreased and logistics became more efficient, manufacturing started to be off-shored to places with lower labour cost.

A simplified view of the evolution of Industry and the underlying forces in this evolution. Clearly the situation is much more articulated and there is actually no clear cut jump from one phase to the next but a lot of greys...

2. From Labour intensive to Robot Intensive

As you recall the industrial revolution was driven by machines and capitals. In the XVIII century technology made possible to multiply the strength, resilience, and effort of workers through mechanical machines (powered by water, both streams and steam…). The increased capital required was compensated by higher revenues created by an expanded market thanks to greater affordability (low cost deriving from higher production volumes). In turns that implied concentration and the birth of factories (Wow! The industrial revolution in a single paragraph!).

The first wave of logistic improvement and more effective manufacturing tools led to the Industry 2.0, i.e. mass market production, characterised by the "assembly line". The second wave of logistic infrastructure improvements that basically slashed the cost of transport (both in the supply and distribution chain)  and the advent of ICT supporting remote design and control, made the decentralisation of production (read off-shoring) possible (I would call this Industry 2.1). Low labour cost drove companies to take advantage of low income Countries. In some production areas there was/is a need for skilled labour force that can only be created through better education. That led to aggregation of off-shore production in a few areas, read China, Taiwan and India (other places like Singapore and then Malaysia fell behind because of the increasing cost of labour resulting from better economy).

The acceleration in technology evolution that in turns led to an acceleration of market offering and hence shorter life cycle led to Industry 3.0, where in spite of higher cost, the human labour started to be flanked, and then replaced, by robot labour. A robot costs several times more than a Chinese worker but Foxconn nevertheless “hired” one million robots for its plants in Shenzhen. The reason is that robots are fast to learn new production processes (you just need to reprogram them) and are more consistent in their output. 

However, and we are right now in this shift, robots are as expensive in China as they are in Europe or in the US. Hence there is no longer a labour cost favouring one production zone over another. This is steering global companies to in-shoring manufacturing (see the Apple example).

We are also seeing that the value chains (suppliers/production/distribution/retail/consumers) are getting flatter and mashed: products are more and more “softwarised”, that is a significant part of the features they deliver are software based and Companies are pushed towards opening of the product to solicit the creation of new functions by third parties. No investment and higher value perceived by the end customer! A good deal.

The relations among players in the value chain is getting fuzzier (providing a software add on in many instances does not require entering into a negotiation with the company providing the “raw product”, you just make available as “add on” on the Web.

In a way, the increased “softwarization” of products and the increased latitude of functionality and customisation is bringing the end customer inside the production pipeline, generating, as a side effect, nightmares in providing customer support.

Author - Roberto Saracco

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