Manufacturing Automation: Debunking the Myths – Part 1: Industry Output

manufacturing automationWe recently published an article talking about how manufacturing automation was only going to reduce jobs by 5%, but then the Canadian government started worrying people with their statement that a whopping 40% of the Canadian workforce would be replaced by machines. Then Bill Gates started talking about how we needed to tax robots like humans to offset the extreme upcoming job losses … so clearly there’s a lot of confusion right now.

If you’ve been curious about the real story behind how automation stands to change the economy and our American workforce, this three-part series will help explain the facts. Read on for part one of Manufacturing Automation: Debunking the Myths.

Fact: Automation Creates Opportunity

Though the McKinsey Global Institute just completed an exhaustive, 148-page study of workplace automation in January of 2017, which clarified exactly how many job tasks would be replaced by automation (5%), the myth that machines will take our jobs is still prevalent. It’s time to banish this myth.

Consider your smartphone or your computer. Back in the day, before computers and smartphones, we were able to complete less work in a day. Paper-based calculations were slow and error-prone (and dull!), and communications with clients had to be done over a landline or through the mail. Orders were slower, manufacturing was slower, distribution was slower … everything was slower.

With computers and smartphones, the pace of life and the pace of business have increased exponentially. The dull paper-based calculations of yesteryear are now both accurate and lightning fast, and communications are mind-bogglingly quick. These days, a customer may hear of your company for the first time ever at 12:32 PM, and make a purchase from you by 12:35 PM.

The internet and computers have opened up entirely new markets through globalization and have expanded customer accessibility and business exposure at rates we never thought possible. Why? Because using computers is faster and cheaper than the way we used to do business.

Computers, however, are only part of the solution. They can help us complete more transactions and run more reports, but sales potential is still limited by inventory counts. In other words: computers can sell product all day; but if there’s nothing left to sell, your customers won’t pay you. Automation helps solve this part of the problem because it helps companies keep up with consumer demand by creating more product—faster. And more sales naturally lead to more jobs.

But this doesn’t answer the whole question. After all, if manufacturing now has access to all these new markets and opportunities, and if automation helps meet increased customer demand … why are there job losses in the industry? Shouldn’t there be job growth?

Fact: As a Whole, Manufacturing Is Losing Money

Unfortunately, though consumer demand is higher, sales are not higher. One of the reasons that pundits keep saying automation is stealing our jobs is because of skewed statistics. These inaccurate statistics are perpetuating their own myth and adding to the fear that automation is stealing jobs.

The skewed numbers: Since 2000, manufacturing employment rates have dropped 30%, but manufacturing output has increased sharply. How can manufacturers produce far more with fewer people? We all assume the answer is due to automation.

The real numbers: In fact, since 2000, manufacturing employment rates have indeed dropped by 30%, but manufacturing output is currently 5% lower than pre-Recession numbers. Low output and low sales leads to low employment rates.

Why is there such a difference between the skewed numbers and the real numbers? Ironically, we can blame that on computers.

The skewed numbers come from the extreme output of the computer industry, including semiconductors. Computers only comprise 13% of the total manufacturing industry, and their output is measured in a bizarre way that has nothing to do with reality: their “output” is measured on computing performance. In essence, a computer that’s faster than last year’s model can technically do the job of last year’s computer, plus some.

To put that another way, if this year’s consumers are willing to pay 15% more for a computer that offers faster speeds and higher processing power than last year’s computers, those computers would be worth 115% of last year’s computers. In the computer industry, “output” is calculated based on perceived value of each comparable unit, not on number of units produced or sold.

Since it doesn’t take any more or less time for a worker in a computer factory to manufacture this year’s faster computer—the parts are still the same, but the chips are faster—the computer industry’s numbers are flawed. If we measure the output of the computer industry based on units produced, their production has actually dropped 7% since 2001.

Yet in that same time period, we’ve all bought far more computers. If we’re not making new computers, where are they all coming from? Got any guesses? Find out if your guess is right in the next installment of our series on automation.

Would Manufacturing Automation Create Opportunity for Your Company?

Find out real, relevant numbers behind manufacturing automation ROI in companies and industries like yours with help from the automation experts at Scanco.

Since 1989, we’ve been providing tools and solutions that help manufacturers and distributors do their jobs better and faster, so they can increase their sales and grow their businesses. We’re happy to lend a hand toward your business growth as well—for free!

Contact Scanco online to schedule your free consultation and learn more about how automation tools for Sage 100, Sage 500 and Acumatica can help your business reach new heights.