What’s more, manufacturing is no longer a rigid industry that produces uniform, one-sided goods. There is constant communication between customers and businesses for hyper-customization. Not only that, machines and products communicate within a smart factory, and factories exchange data with other factories. Manufacturing is no longer limited to production plants. Moreover, the data generated in the manufacturing process is combined with customer information, and a new service can be created. This combination of manufacturing and services is resulting in creation of added value. In the midst of such drastic change, how can companies stay competitive?

Staying Competitive Through Connection and Convergence

Global manufacturing companies are at the forefront of the 4th Industrial Revolution, as evident in their smart factories. A smart factory collects data generated from the production process using ICT technology, and the system controls all processes from material input to the final product. This has led to flexible production systems with the ability to make various products in one factory or to expand the range of products on the basis of connectivity. Typically, when a company builds a smart factory, it can improve productivity by 20 to 30 percent. A 20 percent improvement in efficiency in the manufacturing sector is a significant, outright increase in global competitiveness.

SEE ALSO: How Smart Factories are Changing the Manufacturing Industry

Siemens Electronics Manufacturing Plant incorporates robotics, AI and IoT to its production processes. (Source: Zawya)

If the productivity of a plant can be improved through smartization, it is important to also think about connectivity with the ecosystem that exists outside of the plant. Once a smart factory is built, all the data from customer orders to production and delivery are collected in a system via sensors. The customer, product and production data create meaningful connections with each other and provide extensive insight. Examples of added value creation through meaningful connections include hyper-customized goods, data-driven after-sales services to customers and collaboration among companies connected within the smart factory’s external ecosystem. Such advancements will lead greater product quality, production stability as well as shortened delivery times between value chain suppliers.

The Adidas Speed Factory and GE Brilliant Factory are examples of successful smart factories. Adidas customers choose the materials, colors and design of their sneakers, and have them manufactured and shipped within 24 hours in an automated factory.

GE has built a system that can produce all of their widely-diverse products in one factory. When the factory receives customer orders, it operates in a flexible production system which starts with the necessary raw materials, inputted by the automated scheduling system that controls the entire production process, including the final distribution system.

The Future of Manufacturing

Overall, the adoption of innovative changes in the manufacturing sector is likely to progress from lighter industries to the heavy industries, from B2C to B2B sectors. Small plants, quick manufacturing and B2C companies can more readily adapt to rapid technological and market changes. On the other hand, heavy industries like steel and B2B companies with continuous and heavy manufacturing, large production volume and numerous linked companies are likely to be slower to adapt to changes.

It is much more difficult for traditional, heavy industries to adapt to changes. (Source: Live Mint)

For example, adapting to the changes of the 4th Industrial Revolution in the steel industry may be slow, but it is inevitable. What’s more, the long-term adaptation process is more likely to be systematic and deliberate.

As a leading company in the global steel industry, POSCO is pursuing a long-term, systematic “Grand Design” to reinvent its systems to align with the changes of the 4th Industrial Revolution.

First, POSCO built a pilot smart factory in their steel mill, Gwangyang Steelworks, in 2015 that is currently in operation. The company used IoT to collect big data on site, analyze it in real time and build a smart factory that enables optimal control through AI and self-learning. As a result, the Gwangyang Steelworks is reaping the benefits of a smart factory not only in cost reduction but also in improved steel quality, minimized malfunctions and a safe and stable production environment. This year, POSCO plans to expand and apply smart factories to all of its production processes.

POSCO built a smart factory in Gwangyang Steel Mill.

Smart factory application throughout the entire steel mill will improve overall efficiency through a flexible production system. In addition, the factory will be able to respond directly to various customers in real time based on platform construction with customers within the connected ecosystem. The customized characteristics and design of the steel grade for each customer can be applied to production in real time.

SEE ALSO: How Factories Produce Steel – the Smart Way

Ultimately, a smart ecosystem that links manufacturing, processing and distribution with customer input will lead to a new, innovative ecosystem within the steel industry. In Europe, some companies are experimenting with material libraries and steel distribution platforms. The material library displays a variety of materials for customers to see, touch and test the workability and performance of the materials, and get information about the characteristics, design and delivery times through the order platform. Customers can designate the shipment date on the spot. This will be one of the new promising business models that steel and other material companies will strive towards in the coming future.

POSCO’s Grand Design includes a step-by-step approach to smart factories to expand the use of IoT, AI and Big Data in its production systems. To this end, POSCO ICT has developed PosFrame, a standard software platform that collects basic data of production processes and collectively manages, controls and analyzes the information.

POSCO uses its software platform, PosFrame, for data collection and analysis.

When the software becomes standardized and reliable enough to extend to other sectors, it will be applied to other business areas such as energy and construction, as well as to POSCO’s affiliates.

Manufacturers will have to take into account the heavy production environment, the slow industrial change cycle and the complexity of related industries and affiliates to implement the most effective, long-term, systematic upgrades to its production systems. This will result in a brand-new production and business model for manufacturing companies that will align with the new environment of the 4th Industrial Revolution.

Cover photo courtesy of Sputnik International.

The Demographic Cliff

Economic forecaster and author of “The Demographic Cliff,” Harry Dent, says people between the ages of 45 and 49 are typically the heads of families and spend the most money on things like housing, cars and appliances. As populations age, fewer people will make up the prime spending age group of 45 to 49, and there will be a drop in consumption. Dent calls this the “demographic cliff,” or the “consumption cliff”. The world has seen proof of this theory in places like Japan, Western Europe and the U.S., where economic downturn has come at times of a population downturn.

The Japanese stock market crashed in the early 90s, and they have yet to fully recover. (Source: Huffington Post)

Japan, for example, was one of the first nations to experience a demographic cliff in the early 90s. It was also the time when its stocks and real estate prices fell 60 percent. Those prices never rebounded. Since then, the country has spiraled into debt (the world’s highest at 246 percent of GDP) with an increasingly aging workforce and stagnant economy. From 2010 to 2015, Japan’s population decreased by almost 1 million people, and the government is working to prevent the population from falling below 100 million by 2060.

The U.S. 2008 Financial Crisis came shortly after its demographic cliff. (Source: Reuters)

Dent also argued that the American baby boomers of the early 60s peaked in 2007, at their highest spending age, and then the economy experienced a downturn, in the form of the 2008 financial crisis. Since then, the U.S. government has added USD 8.4 trillion in debt. Although the reasons for the 2008 crisis are complex, Dent does prove a point: demographics have a huge impact on economics.

Falling Steel Consumption

As it was with Japan and the U.S., consumption will decrease in industries critical to the steel market. In Japan, steel consumption decreased 81 percent from 1995. According to a report by POSCO Research Institute, construction accounts for 42 percent of total steel demand and the auto industry accounts for 18.5 percent. Decreased spending on homes and cars due to the demographic cliff will have a significant impact on the steel industry. Decreased demand in other industries such as machinery and home appliances will also affect steel demand.

The construction industry will be the hardest-hit by a demographic cliff. (Source: CNBC)

Moreover, manufacturers will be faced with the problem of a shrinking workforce. Those entering the workforce will do so with the burden of sustaining government programs with a larger portion of their paychecks, and employers will start to notice the gaps not only in age but experience and skill as well. With fewer people entering the workforce, employers will be forced to outsource jobs and governments may factor in more lenient immigration policies to fill the gaps.

How can Steelmakers Prepare for the Future?

Although there is no quick solution to the aging population and low birthrates, steelmakers can start preparing for a demographic cliff in two ways. Enter markets with growing populations and introduce smart technology to fill the human labor gap.

In developing countries in Asia and Africa, there are little signs of population and economic stagnation. As those countries invest in their infrastructure and start to consume more homes, cars and appliances, steel will be in high demand, more than those countries can produce domestically.

India’s solar energy industry will lead to an increase in demand for steel. (Source: WLE)

India is one of the countries with a growing population. The government is undergoing numerous projects to boost its economy and prepare for growth, including the project to boost its solar energy market. The Indian government has plans to invest USD 100 billion and 100 gigawatts (GW) of solar capacity for the country by 2022. Steel is a vital part of solar panels and suppliers like POSCO are already partnering with Indian firms to provide the leading material and technology for India to meet its growing renewable energy demand. POSCO also has partnerships in the U.S., Bangladesh, Myanmar, Uzbekistan and more to help each country fill their supply gaps.

In order to fill the domestic labor shortage, POSCO is incorporating leading AI technology, IoT and big data to its smart factories.

It is true that today’s developed nations have reached, or are heading towards a demographic cliff. Japan is a classic example of how detrimental a shrinking and aging population can be for a country’s economy. Governments and industries have to start factoring in demographics to their long-term strategies and plan for a changing future.     

Cover photo courtesy of 24×7 Daily.