Rise of the Robots: Why You Should Pay Attention to Automation

We have entered an era of automation. Recently McKinsey forecast the Australian economy will realise gains from automation worth between $1.2-4 trillion by 2030. However, McKinsey also believes up to 46% of Australian jobs could be displaced during the same time period. Automation solutions are already transforming a diverse range of industries in the Australian economy, including the mining, retail, finance and tax industries.


Mining

In Western Australia’s Pilbara region, which is a two-hour flight north of Perth, Rio Tinto uses 300 tonne trucks to transport iron ore around the red dirt landscape. However, the trucks that have always been driven by humans now drive themselves. Their navigation is also autonomous, with the trucks using pre-defined GPS courses to transport iron ore from the mines to the trains. If a truck requires assistance, a Perth based mine controller will intervene through a supervisory system. Rio’s managers welcome the financial and productivity benefits that the technology contributes to the mines. Autonomous trucks are 15% cheaper than manual trucks. They can also operate 24/7 as they don’t require weekends or holidays.


Rio has also automated its drilling in the Pilbara region and its drills are now operated by employees based in Perth. Rio’s head of Iron Ore, Chris Salisbury appears pleased with the results stating autonomous drills are 10% more productive than manual drills every hour and they last for a third longer. Global accounting firm BDO agrees with Salisbury, recently forecasting autonomous drills will reduce the global per tonne digging cost by 30%.


Retail

E-commerce retailers are also embracing automation to achieve the next level of growth. In a town in Wuxi, near Shanghai, Alibaba has recently opened China’s largest robotics warehouse. The warehouse contains 700 robots including 500 autonomous guided vehicles that can transport packages weighing up to 500 kg. The robots intelligently select the items to carry and the route to use which ensures they deliver items to staff using the most efficient method available. Alibaba has also installed IOT sensors into its robots which allows them to give way to each other and also helps to prevent collisions. Alibaba believes its AGV robots will increase its warehouse efficiency by 30% and will also reduce the number of steps that staff take each day by 50,000.


Other e-commerce titans are also investing in automation. In 2012, Amazon acquired Kiva robots for US$775 million and renamed it ‘Amazon Robotics.’ Like Alibaba, Amazon is focused on introducing AGVs into its warehouse to improve the efficiency of its warehouse transportation. Since engaging robots in its warehouse, Amazon has recorded overall productivity gains of two to three times for pick to conveyor operations and five to six times for pick to cart and pick to pallet operations. When fulfilment centres are more productive, e-commerce retailers reduce their travel times and when travel times are lower, customers receive their items faster. Amazon is pleased with the results it has achieved stating robots have reduced Amazon’s travel times by 50-60% and its operating expenses by approximately 20%.


Amazon is also introducing automation into its retail stores with the company recently combining computer vision and machine learning to automate the checkout process in its new Amazon Go stores. Before shopping in the stores, customers are required to download the Amazon Go app on their smartphone. After they have downloaded the app, they can scan the app’s barcode to pass through the security gates and enter the store. Once they are inside, customers can select the items they wish to purchase from the shelves and place them directly into their backpack, instead of a traditional shopping basket. When the customer has finished shopping, they can leave without stopping to pay, as the entire checkout process has been eliminated from the store. Amazon’s technology records the items the customer has placed into their bag, charges the customer via the app and emails them a copy of their receipt. The automated checkout saves customers valuable time and helps Amazon get customers into and out of its stores faster.


In Australia Woolworths and Coles are following Alibaba’s lead and investing in automated distribution centres. In Dandenong, Melbourne, Woolworths has spent $562 million to launch the most advanced distribution centre in the southern hemisphere. The warehouse is 57,000 square metres or the size of 20 soccer fields, which also makes it the largest distribution centre in the southern hemisphere. The centre contains 50 robots from ABB that can pack 650 cartons per hour (which is four times faster than a manual distribution centre). It also contains 14 km of high-speed conveyors that were designed by a leading international automation solutions provider. Once the Dandenong distribution centre is complete, it will increase warehouse output as its automation solutions are more productive and the centre will be open 24/7. Both Woolworths and analysts agree the productivity improvements and cost reductions achieved by the distribution centre each year will be worth between $40-50 million. One of the distribution centre’s most impressive features is its use of robots to select cartons from shelves and arrange the pallets in a variety of combinations to meet the different customer preferences and supermarket layouts that exist throughout Melbourne. The distribution centre will also improve Woolworths’ product range, reduce delivery times to stores, enhance on-shelf availability and reduce the company’s labour costs.


Coles has followed quickly, announcing an agreement with German automation specialist Witron which provides warehouses with automated storage and picking solutions. Over the next six years, Coles will spend $950 million to build one distribution centre in Sydney and another centre in Melbourne. Once these two centres are complete, they will replace five of Coles’ manual distribution centres. Coles has also signed an exclusive agreement with British online supermarket Ocado which involves automated completion of online orders and intelligent ‘last mile routing’ for efficient delivery. The deal is expected to double Coles’ home delivery capacity because the order packing in its automated distribution centres will become faster and more accurate.


Finance

Accounting firms have also started to use RPA technology and recommend it to their clients. RPA technology is the use of a software robot to complete a previously manual, high-volume, repeatable task. The software robots can be used to enter data, extract data, reformat the data into a report and send the report in a standardised email. Software robots can work 24/7 as they don’t need breaks or holidays and for some processes this can triple the amount of time a robot spends on the process when compared to a human employee. Software robots also have faster processing speeds. Deloitte believes if a task takes a human fifteen minutes to complete, the same task can be completed by a robot in one minute with an accuracy rate of 99%. The use of RPA technology is also growing — a 2018 KPMG survey found 46% of the survey’s respondents had already implemented the technology or were currently trialling it. RPA technology is also continuing to attract large amounts of investment. In March 2019, UIPath, which is a leader in the field secured US$400 million in series D funding at a valuation of more than US$7 billion.


Tax

The growth of robots will also have a tremendous impact on the tax industry and robots are expected to replace manual compliance roles. Robots will also become more intelligent as their AI capabilities continue to improve over time. AI and machine learning will also have a significant impact on the tax industry because the technology can handle very large sets of structured and unstructured data and firms will be able to use this capability to provide their clients with better tax solutions.


The Future

However, the current applications of autonomous technology and the improvements we have witnessed are just the tip of the iceberg. Rio Tinto CEO Jean Sebastien Jacques believes that after 2021 mining companies will receive even larger returns from technology and automation. And after successfully automating trucks and drills, mining executives are looking to automate mining trains and ships. The mining industry will also benefit from the entrance of robots which will help executives reduce costs, increase output and improve productivity. Robots will also improve the collection of data which will help mining executives make better decisions.

The retail industry will also continue to invest in automation technology. At the end of 2018, Alibaba announced it was planning to invest US$15 billion over 15 years into its logistics, network and automation technologies. While Amazon is dedicating its resources to developing robots that can pick up and place. In Australia, Woolworths’ management and analysts agree Woolworths will save between $40-50 million from its automated distribution centres. And Woolworths Chief Supply Officer Peter Graham believes this amount will continue to increase over time because the centre’s machine learning will work to eliminate glitches in the system. Coles has hinted at launching a new fulfilment centre in Brisbane and plans to continue its partnership with Ocado after the end of their launch phase in 2023. The agricultural industry is also introducing robots to help farmers control weeds and oversee crops. And robots are expected to have a significant impact on the Australian agricultural industry due to Australia’s high labour costs and the overall large size of farms. Finally, KPMG believes the use of RPA technology will continue to grow and that companies who are seeking to achieve the next level of value should combine RPA technology with machine learning.


Despite all the exciting opportunities that lie ahead, there are still areas where human employees have the edge over robots. For example, human warehouse staff can be relied on to notice spilt water in a warehouse, however a robot or sensor might not pick this up straight away. Humans are also better at providing sympathetic customer service to a disappointed customer. And when it comes to shifting millions of products that have different weights, sizes and shapes humans are superior to robots.

Implementing Automation

Around the world, companies are investing in automation to improve their financial performance, boost productivity and deliver excellent returns to shareholders. In the future, executives that research and prioritise automation will succeed and executives that ignore the opportunity available to them will fall behind. Before introducing automation, executives should streamline their company’s processes by removing any unnecessary steps. After this, executives should ‘block out the noise’ and focus on identifying processes in their company that can be automated. Executives will be able to automate some processes completely, but other processes will work better if they combine automation technology with some form of manual assistance. When executives save time and resources by automating a process, they should use the resources saved to create more value. For example if a process is automated, executives should transfer the relevant staff to higher value work instead of displacing them to achieve a short-term reduction in the company’s operating expenses. They should also use technology-based insights to enhance their strategic decisions and create long term value. Throughout the process, executives should maintain a wholistic approach to innovation that includes choosing the right partners and developers, effective use of data, stakeholder communication, change management and strong governance.

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