| Written by Dr. Urban Siller
How the global pandemic has changed the perspective.
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For many years the strategy in mass production was clear: Implement the greatest degree of automation possible with the ultimate target of becoming a “lights-out” plant requiring no human presence on-site. Significantly higher investments for automation as compared to manually organised production processes were justified by the assumption of never-ending growth. Why should we suddenly challenge this assumption?
If we take a look back: All global economic crises were caused by the burst of a speculation bubble. Bad loans, high inflation, problems in the banking system or world wars. The 2020/21 global economic crisis has a different route cause: The global economy came to a stop because of a global pandemic triggered by a virus that forced almost all countries in the world into a simultaneous lockdown.
This time it is not an isolated problem somewhere in the world that is big enough to drag the global economy down, followed by a quick recovery and a path back to business as usual. The current pandemic and its lockdowns are affecting everyone's lives and have the power to change people's behaviour forever.
A few examples to illustrate the long-term impact of COVID-19 on the automotive industry:
Working from home became (practically overnight) an accepted work culture for white-collar workers, even in companies that weren't originally promoting remote work. This change to remote work suddenly drew attention to another topic: working from home means less office space and less expenses for the said.
According to a survey from Enterprise Technology Research (ETR), the percentage of workers permanently working from home is expected to double in 2021.
Working from home made online B2B sales meetings overnight acceptable where a formal business trip would’ve been mandatory prior to the pandemic, ultimately leading to fewer business trips which are affecting the airline and automotive industry equally.
Another change that can be witnessed is a rising “from home culture” triggered by multiple lockdowns due to the pandemic, making cars more and more obsolete. Amazon and home delivery replace driving to a shop, Delivery Hero instead of drive-through restaurants, Netflix instead of driving to the movie theatre, and YouTube fitness courses instead of going to a public gym by car.
Prior to the pandemic the discussion about individual transport focussed on ecological positions about drive systems – electric-powered vehicles versus combustion engines – now it’s more about: “Do I need a car at all”?
Some urbanites have already answered that question with “No” and shifted to alternative modes of transportation e.g. car sharing. In more remote, rural areas people still rely on their own car, however, they drive a lot less than prior to the pandemic. While this is resulting in a reduced need for new vehicles affecting OEM’s globally, the effect on tier 1, 2, 3 suppliers is less obvious.
Tire manufacturers are an interesting example. They qualify as tier 1 suppliers for automotive OEM’s on the one hand and spare part suppliers for the aftermarket on the other hand. Typically, during an economic downturn, the distribution channel of a tire producer shifts from OEM to aftermarket business since customers extend their re-purchasing cycles for new vehicles. However, the annual total tire output is hardly affected by the economic downturn.
This is different now: In the current economic crisis, individuals drive so much less that they don’t need a new car nor a new set of tires for their existing vehicle. This is new to the tire industry which could always rely on a growing OEM market and/ or an increase of the annual mileage driven by individuals. All of a sudden an end of the never-ending growth assumption became reality.
What to do now? How do tire manufacturers react to this?
The answer is two-folded:
On the one side, tire producers re-think investments into new manufacturing plants which can easily exceed half a billion Euros in investment cost. If the plant still gets built in the current economic environment, they re-think their automation approach: What should’ve become a fully automated production plant now becomes a semi-automated plant. Automated Guided Vehicles (AGV’s) are getting replaced by simpler technology that comes at a fraction of the cost and much lower implementation risk. “Smart Factory” is the guiding principle in the sense of smart automation to help and guide human workers without sacrificing productivity and flexibility (learn more about how to record your production data in real-time and document quality automatically).
On the other side, tire manufacturers try to avoid investments into new production plants at all and seek to reduce standard cost per tire within their existing plant footprint. Smart automation of existing production plants has proven to provide up to 5% more tire output with the same input factors avoiding investments into machinery or personnel at all. Since scrap rates of raw materials get reduced significantly the additional output comes without additional material cost.
Smart automation (read: RTLS) instead of unmanned production is a typical example of playing smarter, not harder. It provides most of the benefits of a fully automated plant at a much lower investment cost and maintains the flexibility of manually controlled production processes. Why did it take a pandemic to come to that conclusion?
Read more about how Asset Agent will accelerate brownfield process optimization and improving efficiency and productivity.