Employee productivity will be at the heart of the next wave of industrial startups

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Many manufacturers have focused on increasing productivity in the past decade

In today’s environment, manufacturers are under constant cost pressure and face global competition. This is why they continuously need to optimize their processes to ensure further growth. In the last decades, this was achieved through various means such as outsourcing, temporary workers, the adoption of ERP, MES and other software systems, and more recently thanks to automation and the adoption of robots.

However, a big chunk of the P&L of a factory is still people. Globally there are around 340 million temporary and full-time manufacturing workers, it is clear that humans won’t become obsolete in factories anytime soon. This is especially true if you compare this number to only 1.7 million new industrial robots that will be deployed by 2020 according to the International Federation of Robotics.

To get a better picture of how manufacturers were able to increase their productivity, I looked at the ratio of revenue per employee (in $ or € million) of a random sample of major manufacturing companies. I calculated the value of this ratio for 2002 and 2017 to get a very rough estimate. The chart below shows my findings:

As you can see, all the companies I included (except GE) significantly increased the productivity of their workforce if you compare 2002 to 2017.

This result confirms the findings of the Economic Research Institute — RWI — which showed that productivity growth has clearly been stronger in the manufacturing sector than in the service sector in Germany (although overall productivity growth slowed down in the last years).

Gains through outsourcing and cost-cutting are shrinking

Most of this productivity increase was driven by globalization and outsourcing. However, the global environment is changing, and cutting costs this way has become harder. Rising wages in Asia are one of the reasons why some companies move back their production to their home country. According to a study from BCG, the total cost of production for many manufacturers will be only 10–15% less in China compared to the US within the next five years. The consulting company is picturing a world where:

The U.S. is becoming a lower-cost country, with a workforce that is increasingly flexible and productivity growth continuing.

Make workers more productive by providing them with better tools

We intend to work with the brands and boost efficiency by around 30 percent by 2025: in terms of factory costs, productivity and investments. 
(Herbert Diess, Chairman VW Group)

As Herbert Diess highlights, the VW Group sets very high goals for their productivity increase for the next years. If the trend mentioned above continues, and I don’t see why it wouldn’t, manufacturing companies have to find other ways to keep their productivity going up. With the shortage of qualified employees, the productivity of their employees becomes even more pressing.

Therefore, I’m very excited about industrial applications that increase the productivity of factory workers and enable them to focus on other tasks (almost to “power up” the workers).

Here are a few examples that illustrate well this approach:

  • Franka Emika: their cost-efficient and adaptable robotic arm helps workers to pick and place items faster without much coding. A good example of human-machine collaboration.
  • Falkonry: a ready-to-use Machine Learning system for factory workers to improve industrial operations without the need for a data scientist (“Data Scientist in a Box”).
  • Instrumental: they have created inspection stations and software that enables engineers on the shopfloor to detect and fix issues faster. Engineers can look at the images and use the software to deploy Machine Learning without programming by identifying failures and setting up rules so new units will fall off the line if they fail the test.
  • Workerbase: a platform to optimize manual work processes. Their software helps to organize tasks, notify workers, store process data and connect to existing business systems with the help of their industrial smartwatch as one of the possible interfaces.

These are just a few examples of rather young companies which are helping manufacturing workers to become more productive. What is interesting here is that companies also often re-engineer their processes by using some of these tools which can have a big impact on the whole production process overall. With that in mind, I see this as a great breeding ground for entrepreneurs and if you are working in this area, I’d love to hear from you.