Just an International Business Report by Grant
Just imagine the situation where the
manager or the supervisor doesn’t have to negotiate with the union over wages.
Instead, he can just order the robot to perform the tasks. No questions asked.
As per the supervisor’s wish. This is exactly what is going to happen in the
future in most of the manufacturing industries as a result of automation in
businesses. The debate between the need for automation and the availability of
low cost labour has been going on for a very long time. Most of the people
arguing against automation cite the social and economical impact of rapid job
displacement as a reason. But at the same time, these people fail to see the
cost required for employing labour and the fact that every economy in the world
is facing a declining talent pool (skilled people eligible for employment).
If you look at our country, the rise of
service sector in India’s GDP is mainly attributed to our country’s large pool
of highly skilled, low cost workforce. Foreign multi-national companies are
outsourcing their work to India especially in the fields of business process
outsourcing and information technology services. The offshore outsourcing of IT
increased because of the cost of offshore labour. This labour cost has been a
powerful lure for foreign customers, but many expect this labour cost advantage
to diminish in future. With rising technological advancements and rising labour
costs, search for cheaper labour elsewhere will be a thing of the past.
Offshoring will thus possess lesser competitive advantage in the future.
IT service firms are shifting to
automation, cloud, Internet of Things etc. And it’s not just the IT services, the
arrival of automation has spread to almost all industries across the world.
According to an International Business Report by Grant Thornton in 2015, a
survey of more than 2500 executives across 36 countries, 56% of the firms are
either automating processes or plan to do so over the next 12 months.
The need to ensure productivity in every
department is what drives the companies to go for automation. The businesses
are now encountering situations where the capital costs are low while the
labour costs are increasing, increasing the clamour for automation.
In the field of manufacturing, automation
has played a significant role. Automation has enabled companies to produce
goods at lower costs by employing economies
of scale. Automation can also lead to shorter lead times, and more
efficient use of inventory and thereby, cash flow. German automotive giant
Volkswagen has observed that by automating the German factories, they are
achieving higher cost savings than moving the manufacturing unit to China.
Automation in India
Till date, the most significant
contribution of automation in India has been observed in the field of supply
chain and warehousing. Butler, an orange robot, developed by GreyOrange,
India’s largest warehouse robotics startup, helps online retailers and
logistics firms cut delivery time and cost. GreyOrange has Flipkart, DTDC, online
furniture portal Pepperfry and Delhivery as its clients. These robots (as shown
below) can also sort around 1.2 crore packets a month and they even have the
potential to replace 60-80 % of the warehouse workforce.
These robots are questioning the very need
for low cost labour as it is evident to the companies that in the long run, the
one-time investment required for the robot is much smaller in comparison to the
high monthly wages demanded by each worker.
Courier parcel service DTDC Express Ltd.
is using the GreyOrange Sorter since 2014. After deploying Sorter, DTDC has
been able to bring down the time required, to send a parcel from its hub, from
6-7 hours to 90 minutes. This was made possible by reducing the number of human
interactions involved while transmitting the parcel. This reduction in human
touch points not only increased the speed of transfer but also reduced the
number of human prone errors.
What could possibly go wrong with
Technical feasibility is the necessary
precondition for implementing any kind of automation. It has been estimated
that 59 percent of activities performed in manufacturing sector involves
operations in a predictable environment and thus could be automated, given the
technical considerations. But the remaining 41 percent of activities still
requires complete or partial manual intervention. This characteristic varies
across industries. Service sector, for example, is the top most readily
automatable industry in any economy. Almost 79 percent of activities in service
sector are in a predictable environment and hence, could be readily automated.
It is very evident that most of the
economies are shifting towards automation owing to the rapid rise in technology
and internet. But the economies/countries which will be severely affected by
this shift will be the ones that focus on rudimentary, low-skilled routine work
relying on labour arbitrage without associating the human sentiments to it.
This was bound to happen since the labour costs were increasing over the years
and the cost of machines were gradually decreasing owing to the technological
innovations. So, in the long run, the cost of machines (robots) will only come
down, giving the organizations/companies another reason for implementing
automation in their businesses.
On the other hand, if firms adopt the
low-cost labour strategy, the workers will end up doing the repetitive work
daily. These jobs may not possess immediate risk, but the growth opportunities provided
to the workers will be far and few. This can, in a way, make the workers
unproductive causing the firms to look for other alternatives.
All the evidences suggest that the
developed economies would be less affected because of this shift to automation
since these countries can support the high-end automation processes with a
highly skilled workforce and an advanced technological environment.
The important question right now will be
where and how to unlock value, given the cost of replacing human labour with
machines. The majority of the benefits may not arise out of reducing labour
costs but from the need to increase productivity by limiting errors and
improved quality and speed.