In the past year, robotics suppliers have been hurt by a decline in manufacturing, caused in part by regular macroeconomic cycles, trade conflicts, slowed automotive demand, and, most recently, the coronavirus outbreak. However, many middle-market manufacturers remain optimistic about revenue growth in 2020, found BDO USA LLP in a recent survey of chief financial officers.
According to the “Manufacturing Growth in a Connected Economy” report (download PDF), 77% of manufacturing CFOs surveyed said they anticipate an increase in revenue this year. Chicago-based BDO provides assurance, tax, and advisory services and is part of BDO International Ltd.
Eskander Yavar, national leader of BDO’s manufacturing practice, recently spoke with Robotics Business Review about what robotics developers and suppliers should know to prepare for this changing market.
Concerns about recession, timing
Economists have been predicting a recession for the past few years, and 53% of manufacturing CFOs expect one in the next two years, found BDO.
“A year ago, there were indications of a recession in 2019, but it didn’t happen,” Yavar said. “We did have a slowdown in some manufacturing, particularly in automotive, but CFOs across industries now think it will be after 2020 or 2021.”
“We asked 100 CFOs at middle-market manufacturers — with $250 million to $3 billion in revenue — and they think the recession will be pushed to late this year or beyond because it’s an election year,” he explained. “Economists are a bit more conservative and expect entry this year.”
“We’re starting to see impacts of the coronavirus in the automotive and aviation industry, as U.S. companies halt manufacturing across China to try to stem its spread,” he said. Chinese manufacturing had already slowed, but temporary factory shutdowns could lead to more production in other countries.
Reasons for optimism
“The majority of respondents were pretty optimistic about this calendar year, expecting increasing revenue and profitability,” said Yavar. ‘We’re still at all-time lows in U.S. unemployment.”
“There’s a common misperception that robots will take jobs, yet a lack of labor-pool candidates and STEM [science, technology, engineering, and mathematics] students means there’s a gap between jobs and availability,” he said. “We’re not seeing massive job displacement on the ground or in the marketplace, and 76% are either currently hiring or expect to increase headcount in 2020.”
“One battle that CFOs and CEOs are facing is the perception that manufacturing is a dirty job,” Yavar noted. “Manufacturing is no longer necessarily blue-collar work — it’s more engineering, software, and data-related.”
Digital transformation in manufacturing
“We’re getting past the buzzword effect of ‘Industry 4.0,’ but it’s not that total transformation of factories and businesses overnight,” Yavar said. “It’s more about a use-case approach and incremental wins for automation.”
“Three years ago, CFOs didn’t know what it was. Last year, they knew they needed help with strategy,” he added. “Now, executives understand that investments in robotics and automation will help reduce costs and make their companies more efficient in response to trade and competitive pressures. Fifty-seven percent said investing in technology or infrastructure was their top business priority.”
“Digital transformation is happening with improvements across technologies, such as sensors, predictive analytics, and customer interfaces,” said Yavar. “Really, 82% of CFOs said that they should get the same experience in their professional lives as in their personal ones. They want full transparency, visibility into the supply chain, high quality, and on-time delivery.”
Manufacturing as a service
These consumer-led executive expectations are reinforced by accelerating product cycles, greater insights into production data from the Internet of Things, big data analysis, and the application of machine learning and deep learning.
“Manufacturers expect operational excellence and greater responsiveness,” Yavar said. “Within certain segments, higher capital-intensive assets are being produced, such as commuter trains or aircraft engines. But many manufacturers are moving toward service-based contracts rather than product contracts.”
“Instead, companies get the service on a monthly basis because of the complexity and rapid changes of the technology,” he said. “They can have a higher degree of confidence in maintenance schedules and uptime with KPIs [key performance indicators]. Instead of buying trains, transportation authorities could buy the service of moving people.”
This is similar to software-as-a-service contracts or the Robotics-as-a-Service (RaaS) business model.
“Manufacturers want to sell services rather than products, especially when it comes to data and proactive measures, as cycle times get shorter,” said Yavar.
Manufacturing and policy
“The two big policy drivers are a combination of protectionist trade policies and a potential recession,” Yavar said. “We’ve seen some strong proposals from the presidential candidates, but they’ll likely move toward the middle.”
“For example, with China, uncertainty between leaders encourages businesses to take a more conservative view,” he said. In the past 12 months, 21% of respondents experienced an interruption in their supply chains, and 43% are considering alternatives for sourcing, said BDO.
The push toward more robots and artificial intelligence in manufacturing is likely to continue, regardless of economic or political challenges, said Yavar.
“CFOs are not technologists, but they are investing in automation and Industry 4.0, albeit on an incremental basis,” he said. “We’re starting to see ‘touchless warehouses,’ where robots pick, pack, and ship goods. Those who thought automation would go away were wrong. As the technology advances, new markets are picking up those techniques.”