Global Supply Chain News: Using Robots to Attack High Labor Costs – in China!

Chinese Labor Costs Twice that in Mexico and Four Times in India, Chinese Factory Told Sept. 6, 2016 SCDigest Editorial Staff Trillions of dollars of goods are produced each year in China by companies that used to manufacturer in the US or Europe, moves made primarily to take advantage of what was once China's very low cost labor. But that labor situation has certainly changed, as all the demand for workers pushed wages much higher in recent years, especially in the coastal areas to the East, and that trend is expected to continue. Supply Chain Digest Says... A general manager at the company says the manufacturing process doesn't use any direct production workers. In August, Yao Jingyuan, a labor expert with the State Council, told an economic forum that Chinese wages were likely headed much higher still, as the size of the nation's working population (aged 16-59) has fallen by 11 million people since 2013. Yoa said China's labor force peaked at 940 million in 2012, and dropped to 930 million by 2014. That figure is expected to decrease by another 29 million by 2020, a drop of 4.1% compared with 2012 figures. And the rising costs are hurting China's economy. Chinese exports of labor-intensive goods increased by 22% in 2013, but slowed to just 0.2% growth in 2014 and saw negative growth last year. The answer? Robots of course. A Chinese television station ran a story last week on a Chinese factory producing lenses for glasses sold by German company Zeiss Group. "In 2012, the Zeiss Group informed us that labor in China was twice as expensive as in Mexico and four times that in India. We were very surprised at this huge gap and started to think of how to improve productivity," said Zeng Zhiyong, of Carl Zeiss Vision Technologies. The factory introduced new automatic machines and techniques called "free form" to replace humans in manufacturing. Now, the machines can take care of most of the major steps, from pasting protection films, cutting shapes, polishing glass and packaging. In 2012, the factory had 440 workers producing 4 million lenses every year. In 2015, the number of workers decreased by 70 people but output increased to 5 million. "In fact, the productivity improvement neutralized China's rising labor costs. Now our cost per lens is the lowest of all the Zeiss factories in the world," Zeng said. Or take the case of Rongxin Packaging Corporation, which produces over 600 million cans every year, or 1.8 million cans per day. A general manager at the company says the manufacturing process doesn't use any direct production workers. Carl Zeiss Vision Technologies has Widely Deployed Robots in its Chinese Factory "In 2013, we bought a new production line for over 34 million US dollars. We used to have 60 workers in one shift but now we only need 48. And they're only responsible for quality control and machine maintenance," Ji said – the new machine does the actual production all by itself, apparently. But, as with much use of robotics in Western companies, while the robots are taking away many jobs, those that remain are often more rewarding and have higher pay. "Because the machines are more complicated than before, we need more skilled and better-educated workers. The young workers have to at least graduate from technical schools," said Ji Yonghong of Rongxin. While other factories may have difficulties in keeping workers, employees at Rongxin earn 10-20% more than the average. It's all thanks to the productivity improvement brought by machines. Last year, SCDigest reported how the Changying Precision Technology Company factory in Dongguan has automated production lines that use robotic arms to produce parts for cell phones. The factory also has automated machining equipment, autonomous transport trucks, and other automated equipment in the warehouse. Previously, there were 650 employees at the factory. With the new robots, there's now only 60, most of whom monitor a computer control system. Luo Weiqiang, general manager of the company said that the number of employees could drop to 20 in the future. And production has soared with the robots, with output up some 300. Production per employee has increased from 8,000 pieces to 21,000 pieces, an increase of162.5%. In March of 2015, the Guangdong government announced a three year plan to increase automation in the region by subsidizing the purchase of robots, under a program referred to as "robots for humans." Will China's drop in working age population be enough to offset the loss of jobs due to this kind of automation? That's a huge question, and one that could lead to social unrest in China if the jobs disappear too rapidly.