Monday, May 30, 2016

How many jobs can a fully automated factory create?

I am in favor of decreasing physical labor through automation on factory floors in the US. I consider this the only viable strategy for improving the employment picture in the manufacturing sector in the US.

Some people hear this and start doubting my ability to do simple arithmetic. Their perspective is that automation kills manufacturing jobs and hence it is to be avoided if we want to boost employment numbers in the manufacturing sector.
This blog post tries to explain how automation creates high paying service sector jobs. As a thought experiment, imagine a factory that is fully automated --- no human contributes to any physical activity needed to transform the raw material into finished products. It is highly unlikely that a factory would be of any practical value. The presence of humans provides tremendous flexibility in manufacturing operations. However, for the sake of argument, let us assume that such a factory exist. Would such a factory be useful to the community where it resides from the employment perspective?
Below is a representative list of tasks that humans will need to perform to support a fully automated factory. 
  • Design/Engineering Services: Manufacturing companies work closely with customers to help them design and refine their products to make sure that products are optimized for manufacturing. 
  • Financing/Accounting: Running a factory requires actively managing the cash flow. 
  • Sales/Marketing: Drumming up business for the factory requires a competent sales and marketing team. 
  • Purchasing/Procurement: A functioning factory needs to purchase raw materials, tools, and supplies. 
  • IT Services: A modern factory cannot run without IT services. 
  • Infrastructure Maintenance: In order to function, a factory requires access to infrastructure. This infrastructure needs to be maintained. 
  • Shipping and Transportation: The raw material and finished products need to go in and out of the factory. 
  • Equipment Maintenance and Service: The equipment in the factory needs to be maintained and serviced to keep it functional. 
  • Utilities: The factory needs access to utilities such as energy and water. 
  • Building/Construction: Factory buildings need to be maintained and updated. 
  • Insurance: Factories need tailored insurance products to manage risks. 
  • IP/Legal Services: Factories need legal services to protect their IP.
All of the jobs listed above will continue to be performed by humans in the near foreseeable future. My analysis indicates that a region with healthy manufacturing operations gains quite a few service sector jobs. In my opinion, it is better to automate and keep the service jobs to support manufacturing operations rather than let the manufacturing move to low wage countries and lose both manufacturing and service jobs. Unfortunately, in a globally connected economy there is no other viable alternative. Ultimately, continued erosion of  critical manufacturing infrastructure will compromise the national security.  Hence, we have no choice but to embrace automation to maintain a healthy manufacturing base.

Unfortunately, existing robotics technologies do not help small production volume operations in reducing manual labor. Hence, such operations often find themselves in an unfavorable position from the cost perspective with respect to low wage countries. Recent advances in robotics are creating hardware and software that enable robots to be used on non-repetitive tasks. Hopefully, this will lead to a wide scale adoption of robots in small production volume operations and help in growing manufacturing operations in the US. 

The transition to increased automation in the manufacturing sector will not be easy. We will need workforce training programs to ensure that people who are laid off as a result of automation are trained to do other jobs at the factories.

I would like to thank Scott Macdonald, CEO, Maryland Thermoform Corporation for his insightful feedback on this topic.