How technological advances are strengthening supply chains
- Increasing labor productivity and higher demands on supply chain resilience have challenged offshoring strategies.
- Technological advances are now reengineering manufacturing and enabling reshoring with flexible value chains and a more reliable, agile, and sustainable business.
Since the 1980s, many Western corporations have been offshoring their manufacturing to low-cost countries, offering cheap prices through exceptionally low wages and cheap real estate for manufacturing facilities, combined with huge economies of scale. But with the accelerating progress in transformational technologies like robotics, advanced analytics, artificial intelligence (AI) and machine learning, companies are now breaking free from that dependency.
Combined with rising geopolitical tensions, this process is increasingly driving companies to look at strategies to make supply chains more resilient by moving production closer to home.
Thanks to technological advances like AI and robotics, the era of chasing the lowest wage rates possible has become a thing of the past, replaced with a more sustainable business approach. Nowadays, what matters more is to secure sustainable, highly flexible production located as close as possible to demand while maintaining a reliable supply chain.
The benefits of automated production
Automated production with connected robots has made it possible to produce more with fewer resources compared to a traditional, old-fashioned factory. Some companies are already doing this.
In April 2020, Ericsson opened the doors of its brand new, fully automated 5G factory in Lewisville, Texas—the company’s first production plant in the US market. Since then, the 300,000-square-foot plant has been producing 5G and advanced antenna system radios to meet the demand for rapid 5G deployments in North America, which is Ericsson’s biggest market for 5G. Because of the high degree of automation at the site, enabled by 5G private network technology, output per employee has improved 2.2 times. Meanwhile, energy consumption was reduced by 24 percent and indoor water usage by 75 percent compared to a traditional factory, and the building is powered by 100 percent renewable electricity. With this type of return, it makes a lot of sense to invest in local production closer to customers, challenging the conventional thinking that sets labor costs as the major cost driver. As technology has developed, a more flexible supply chain has become a reality.
Technological advances redrawing global manufacturing
Geopolitical dynamics and the COVID-19 pandemic are, without doubt, two driving factors behind the new map of global manufacturing. However, technology development within robotics, 5G, data management and AI are the primary driving forces behind the reshoring and near-shoring trends.
The acceleration in the adoption of intelligent, digital technologies is growing across industries, from electric vehicle production to electric batteries and solar panels. Another fitting example is the steel industry, which was up until recently characterized as a slow-moving, conservative business. In the wake of Russia’s invasion of Ukraine, European steel companies are now ramping up their capacity to break free from Russian dependence. With this ramp-up, they are increasingly adopting 5G for their networks to create more reliable, agile and sustainable businesses.
Steel players have learned, since the outbreak of COVID-19, the importance of investing in technological agility to adjust for more flexible and resilient operations, such as the ability to shut down, restart and ramp up iron- and steelmaking capacity in response to ups and downs in demand. One such example is Luxembourg’s Arcelor Mittal, the second largest steel producer in the world, which is transforming the way it operates through Industry 4.0 and 5G technologies that improve reliability, operator safety, productivity and quality in its factories.
How technological advances enable industrial decarbonization
As industries seek to decarbonize, technological advances will also play a key role in managing changing supply chains. Take, for example, the European steel industry. While the war in Ukraine has accelerated the move away from coal dependence, this is only possible because of advances like electric arc furnaces—a type of furnace that heats materials using an electric arc instead of burning coal—and green steel, which uses hydrogen as an energy source.
Europe’s steel industry is aiming to cut carbon emissions by 55 percent by 2030 compared to 1990 levels and to achieve climate neutrality by 2050. To do so, technological developments enabled by and combined with supply chain changes are key. Steel production is likely to relocate to countries that can offer green electricity instead of electricity made of coal.
Some players are already doing this. Swedish startup H2 Green Steel plans to produce Europe’s first commercial green steel by 2025. The electricity, used to make the hydrogen that powers the plant, comes from local fossil-free energy sources, including hydropower from the nearby Lule river as well as wind parks in the region. Similarly, French startup GravitHy plans to open a hydro-based plant in France in 2027 while Arcelor Mittal and the Spanish government are investing in green steel projects in northern Spain. German steel giant Thyssenkrupp has announced that it aims to introduce carbon-neutral production at all its plants by 2045. All of this is enabled and advanced by technological innovations.
The current geopolitical uncertainties, the increasing demands on supply chain resilience and the urgent need to adapt to a net-zero transition have forced companies to reevaluate their business models as global industry players.
Adapting to a new reality and embracing disruptive technological innovations is critical for those with the ambition to remain in business a decade from now.
Have you considered leveraging automation to make the move toward local production?
This blog post was originally published by the World Economic Forum.
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