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Thu, 23rd February 2017

Anirudh Sethi Report

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Rise of robots puts pressure on ‘world’s factory’

China feels the heat as companies elsewhere repatriate manufacturing

Factory robots will play a key role at Adidas’ cutting-edge German factory.

Companies across the globe are reducing their reliance on China by adopting cutting-edge technology and bringing production back home, a trend that puts pressure on the country and other offshore manufacturing locations to modernize as well.

Innovation factories 

Uniqlo clothing chain parent Fast Retailing and sewing machine maker Shima Seiki Manufacturing banded together to launch the Innovation Factory during the fall in the city of Wakayama, in western Japan. The joint venture today produces seamless sweaters and dresses at the cutting-edge manufacturing facility. 

Shima Seiki possesses “the highest level of technology in the world,” said Tadashi Yanai, Fast Retailing’s chairman and president. Yanai was so impressed that he chose Shima Seiki as a partner to embark on the innovation of production technology, an area that his company has not touched before.

Yanai also felt a strong sense of urgency. If changes aren’t made, “the industry will cease to exist,” he argued.

Fast Retailing last autumn relinquished its fiscal 2020 sales target of 5 trillion yen ($43.2 billion), citing future headwinds. 

The system of offshore manufacturing in low-wage countries that has supported Fast Retailing’s growth is being disrupted, as rising labor costs and other expenses come to the fore. As of 2015, China’s manufacturing costs scored a 95, according to a gauge by Boston Consulting Group, a figure approaching the U.S. benchmark of 100.

The partnership with Shima Seiki is Fast Retailing’s attempt to burnish its manufacturing technology and enhance product values to absorb rising labor costs.

‘Speedfactories’

Some companies are reversing course on offshore production. German sports apparel maker Adidas eyes a manufacturing framework not swayed by labor costs. Adidas built a “Speedfactory” in the southern German town of Ansbach to manufacture shoes domestically for the first time in 24 years.

 Instead of relying heavily on human labor, the plant near Adidas headquarters will embrace the “fourth industrial revolution,” which includes fully leveraging industrial robots and the internet of things connecting machinery.

The company would miss opportunities if it has to spend six weeks transporting products made in Asia to Europe, Herbert Hainer, then the Adidas CEO, said at the time, citing the increasingly diverse demands from consumers and rapidly changing fads. Those views guided him as he revamped the production structure.

Adidas seeks to use robots to churn out a broad mix of low-volume products and quickly provide the goods that customers demand. The plant will connect directly to retail locations via the internet of things and calibrate production based on inventory, minimizing waste. The company will debut a robot factory in the U.S. soon, and a new Japanese plant is also on the table.

Chinese worries

These innovations threaten China’s position as the “world’s factory.” Mainland companies are furiously buying time with money. Some 67,000 industrial robots were sold in China in 2015, data from the International Federation of Robotics shows. That accounts for 30% of global demand. The country has been the biggest market for industrial robots since 2013.

It’s not only foreign companies that are rethinking their manufacturing operations. China’s Midea Group bought a large stake in Toshiba’s white goods section in June. Midea’s executives show up every day at the section’s Kawasaki headquarters near Tokyo. The group is reviewing the Chinese-centric way of doing things, Midea Vice President Andy Gu said.

Midea had risen as a global home appliance maker through low-cost manufacturing, but Gu says the era of growth through volume has ended. The company also has nearly completed a buyout of German industrial robotics firm Kuka, a move dovetailing with the focus on products.

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