September/October 2021 | Vol. 26 No. 5
by John Sheff, Director of Public & Industry Affairs, Danfoss North America
Prior to joining Danfoss, Mr. Sheff served as a Senior Policy Analyst for Energy and Environment in the office of former Maryland Governor Martin O’Malley.
The concept of “reshoring” America’s critical supply chain has gained attention since the beginning of the year.The well-publicized semiconductor chip shortage has brought new awareness to this issue, as has an executive order from the Biden Administration. This issue, however, has been gaining momentum for years. Dependence on Chinese processing for rare earth materials has been a challenge for decades and was brought to light again during the initial stages of the trade war several years ago. And, of course, the broader topics of globalization and bringing manufacturing jobs back to the U.S. are generally controversial.
The subject of automation arouses similarly strident opinions. To some, it’s a job-killing non-starter; to others, it’s the future of work in which millions of high- paying jobs are produced. Industrial automation is, in fact, neither of those things. It’s neither good nor bad, but rather the current and future state of this country’s advanced manufacturing base. And, if we want to pursue the strategic goal of reshoring our critical supply chains, implementing modern automation in our factories is the only option.
Often, we think of industrial automation as machines placing tiny chips onto motherboards, but it’s so much more. A modern American factory needs data, and those data are measured and retained by automated systems. Those data help people make decisions that redefine the meaning of productivity. They help run supply chains and predict future demand. They speed and enable manufacturing. They help us build things without waste—wasted materials, wasted space, and wasted time. Automation is the key to increasing efficiency daily.
The most common argument against investing in automation is that it eliminates jobs, but this simply isn’t true. Automation does, however, redefine the jobs it affects and changes their requirements. Automation requires workers to develop new skills and unlock what makes American workers so special—our ingenuity and creativity. We need to stop thinking about automation in terms of what it diminishes and start thinking about what it has the potential to create. Automation is not a jobs killer; rather, it is a manufacturing enabler, and the jobs created by automating our supply chains help us to compete on a global scale and to solve the problems that a 21st century economy presents.
The choice we have in front of us is not between automation and jobs. It’s between automation and irrelevance. American industries are not going to compete with overseas factories by manually building product faster. American workers are not going to accept lower wages and a lower standard of living to compete with their overseas counterparts. In fact, it’s logistically impossible to recreate overseas manufacturing models in this country. We simply don’t have enough workers or square footage to replicate overseas manufacturing. The only way for us to compete globally is to out-innovate and out-perform our competitors. If we can shorten supply chains and use domestic suppliers with proximate inventories, our industries will be able to maintain less capital, become more efficient, and decrease transportation costs. These are the little things that, collectively, make a big difference in our overall competitiveness.
Investing in automation is not only about increasing efficiency and competing in the 21st century economy. The other side of that coin is mitigating supply chain risk. The long, complex supply chains that developed over the past few decades created vulnerabilities that have been exposed during the last several years. Disruptions to shipping routes, overseas labor supplies, and trade relationships affected markets thousands of miles away. Investments in automation make it possible for global manufacturers to build strong domestic supply chains close to their markets and, thereby, help to offset those disruptions.
The pandemic has pushed manufacturers toward automation more than ever. In February 2020, just prior to lockdowns, the unemployment rate in the United States was less than 5 percent. By April, it had risen to nearly 15 percent. Once governments issued the stay-at-home orders, we saw industries begin laying off workers. While the government tried instituting programs to stop massive layoffs, certain markets were more affected than others. For example, oil and gas production saw massive reductions in personnel because the oil commodity price went down, and when the commodity price goes down, a reduction in capital spending soon follows. Fast-forward a year and we’re back to a position where it’s hard to find skilled workers. Nearly everyone who was laid off found a job elsewhere—unemployment is back down to less than 6 percent. As we see an increase in GDP and in manufacturing activity, we’re going to need to find better ways than just hiring more people to get output back to full capacity. Doing it with just more hands isn’t effective and it simply won’t work in this modern economy. Automation isn’t optional; it’s required. If we’re going to grow output without adding space, factories, and people, we need to automate.
Even if another global pandemic isn’t coming, we need to have more flexible manufacturing where we can ramp production up and ramp down to meet demand, so we don’t lose much when the economy fluctuates unexpectedly. When we see a reduction in activity in the short term, we tend to reduce employee headcounts. This can be economically dangerous—when we lose a skill, we’ll eventually need to replace it. The flexibility that automation provides not only allows production to meet demand with fewer layoffs but also allows companies to retain their most skilled and innovative workers through economic downturns.
An increased focus on automation and manufacturing efficiency will be critical moving forward. The U.S. cannot compete on labor costs, and we shouldn’t want to. We need to work smarter to be globally competitive. However, there is no single magic bullet. So, we need to focus on doing the right things, on paying attention to the details, on building a pool of creative talent, and on pushing innovation. In the past several months, we’ve seen how strategically important it is for the U.S. to bring its critical supply chains back to American soil. As prices rise and critical components become scarce, our workers and industries are put at risk. In addition, reshoring these industries would shorten supply chains and utilize domestic suppliers with nearby inventories, allowing companies to keep less capital on hand and become that much more efficient. We cannot achieve these important goals without investing in automating our industries. Strategic reshoring and industrial automation are, in fact, two sides of the same coin. ei