Disruptive influence

posted on 3rd April 2018

Will robots bring manufacturing home? Stuart Todd investigates the potential impact on air logistics of technological advances such as 3-D printing and robotics

During a discussion this summer with analysts, Kuehne + Nagel’s CEO, Detlef Trefzger, said that ‘disruption’ and ‘disruptive’ were the ‘buzz words’ of 2016 in freight transport and logistics.

He was responding to a question about the impact of  ‘disruptive’ technologies in manufacturing, such as 3-D printing and robotics, on global supply chains and the consequences for intercontinental trade flows by air and sea.

Certainly, some serious claims have been made for 3-D printing (or ‘additive manufacturing’) and robotics, namely that they have the potential to revolutionise not only how goods are made, but also their journey to market. The argument goes as follows: the globalisation of trade led to manufacturing being shifted to remote locations − the so-called far-shoring trend, China being the prime example − where the key factor was low-cost labour. However, with 3D-printing and robotics, this competitive advantage on wages disappears, allowing firms to re-think their sourcing strategies and bring manufacturing ‘back home’ to consumer regions such as North America and Europe.

Proponents will doubtless point to the recent ‘near-shoring’ decision taken by German sportswear group Adidas, which has a number of plants in Asia, to set-up a ‘Speedfactory’ in Germany, where automotive and robotic manufacturing techniques will be employed for the large-scale production of shoes destined for European markets.

It is currently an 18-month process to get a new product to market, from idea to shelf, including design and development, sell-in to retail partners, production, and shipment, an Adidas official explains. “This could go down to a few days with ‘Speedfactories’ being closer to our consumers and retail partners being able to order based on current demand and trends,” Adidas adds.

“If you look at the production of the shoe itself, this currently takes a few weeks depending on the products as not all components are produced in the same location. Going forward, this will be cut down to something like a few hours − and is five hours currently for shoes, including ‘Boost’ technology.” In addition to Germany, Adidas is also planning to open a ‘Speedfactory’ in the US.

The role that disruptive manufacturing technologies are destined to play in driving change in supply chains has attracted broadly contrasting views.

Robotics has been present in automotive plants for many years, while 3-D printing is already well-established in the aerospace industry − traditionally a major customer of air freight − as well as in the automotive and orthopedic sectors.

For those vaunting the 3-D printer as a game-changer in manufacturing, this is just the beginning, the technology being capable of transforming mass production and ushering in a new industrial landscape, characterised by localized manufacturing and shorter and less complex supply chains. This, in turn, will drive a great deal of disintermediation in the logistics sector over the next decade as shipping related to mass production diminishes.

At the other end of the scale, there are voices warning of the need to separate the hype from the reality when it comes to disruptive technologies.  They contend that 3-D printing is probably still decades away from reaching critical mass and, in any case, its scope is limited to prototyping or specialized manufacturing in small quantities, the technology it uses being too costly for the mass production of goods.

Indeed, the ‘realist’ camp goes further, insisting that 3-D printers are unable to make parts as complex or use materials as varied as those required for some of the most popular consumer products today shipped in large quantities by ocean and air, such as the smartphone. And if 3-D printing did take off in a big way, wouldn’t the materials and printers themselves still need to be transported, thus compensating for the volumes of freight traffic lost as a result of more localised manufacturing?

Perhaps the only detailed study to date to have put a figure on the likely impact of disruptive technologies on intercontinental trade flows was carried out by PricewaterhouseCoopers (PwC) and published in a paper entitled ‘2015 Commercial Transportation Trends’. Research from data of nearly two dozen industry sectors led to the alarming conclusion that as much as 41% of the air cargo business and 37% of the ocean container business was at risk because of 3-D printing. This would be a direct consequence of 3-D printing becoming more common and that many products, their parts, or the raw materials needed in their manufacture could be made locally, reducing or eliminating the need to ship them to market.

One example, the paper notes, is jet fuel nozzles made by General Electric.

“As more types of products are manufactured in this way − direct to a finished good instead of assembled from dozens, hundreds, or thousands of parts − the need to procure parts from multiple sources around the globe will be diminished. And that, in turn, will eliminate or greatly reduce component and materials shipments, a mainstay of many transportation-sector business models today.”

Vulnerable sectors

PwC’s research also identified those industries most likely to reduce their reliance on commercial shipping because of 3-D manufacturing.

“Using suitability for 3-D printing as one gauge and the percentage of total transportation costs as the other, we found that footwear, toys, ceramic products, electronics, and plastics have the highest potential for disruption,” the study stated. “Sectors such as perishables and pharmaceuticals, however, find 3-D printing a less viable alternative.”

One source urging caution on the impact of robotics and 3-D printing − and of viewing disruptive technologies in isolation − is Professor Alan Waller, vice president for supply chain innovation at EFESO Consulting. “Suppy chains are complex, multi-phase processes and it’s not just a question of looking at manufacturing and getting the product to market,” he notes. “There’s a whole set of steps which need to be addressed individually as part of a total strategy. It’s quite important to remember that.

“There’s a lot of hype about what happens in individual elements of the supply chain − for example, 3-D printing, robotics or autonomous vehicles. These disruptive technologies will dramatically change the way in which the supply chain is strategically planned and operates in many sectors, and for many products. But it’s not a question of waving a magic wand. There’s a lot of strategic analysis involved and also the change has to be implemented.”

He highlighted current research on the difficulty of implementing change in the supply chain. “Whether it’s disruptive technologies that are driving that change or a new sourcing strategy or new go-to-market strategy, there is only a 50% chance of successful transformation, of getting it right,” he observes.

In terms of how he saw disruptive technologies affecting air freight specifically,  Waller replies: “At this stage, I don’t think it will be easy to find someone who can answer that question directly. It’s a valid point that raw materials required in the making of goods by 3-D printers would still have to be moved around to supply more localised production sites and the 3-D printing hardware itself too, but this would probably not compensate for the loss of volume in finished goods.

“However, my gut feeling is that air freight will continue to grow. Globalisation won’t be reversed, even globalisation in Europe. Disruptive technologies may slow it down a little bit in some areas, but I think we are in a world where globalisation is still increasing − and if you add to that positive world GDP and growth in international trade, the outlook for air freight appears to be fairly good.”

Dr. Markus Kückelhaus, Deutsche Post DHL’s vice president of Innovation and Trend Research, and his team have spent several years studying the possible impact of 3-D printing on supply chains and the consequences for trade volumes.

He too warns against the hype surrounding the disruptive technology and dismisses the claims that it is going to revolutionise mass production. “This is as naive as saying that everyone is going to have a 3-D printer in their garage,” he says.

However, Kückelhaus says 3-D printing will transform a number of industries whose activity focuses on high-value and customized components − as well as trigger leaner inventories and contribute to shorter lead times in new product development. “3-D printing is a key enabler for ‘batch size one’ production,” he says, pointing to it already being “a trusted technology in the healthcare sector for printing customized prosthetics and medical devices, as well as in the aviation sector for the production of aircraft components. But a comprehensive ‘dematerialization’ of the physical flows of manufactured goods is, however, still far off.”

DHL Innovation and Trend Research has teamed up with the Massachusetts Institute of Technology on a study of how 3-D printing will impact trade volumes in the automotive and life sciences industries by 2020. The unit’s own findings have revealed that only 2-4% of DHL’s ocean freight forwarding traffic on the key Asia-Europe trade lane is at risk within that period as a result of manufacturing in these verticals being moved closer to consumer markets.

No specific data has been released for air freight, but Kückelhaus believes that the impact will be no more significant than that on ocean freight. Indeed, along with the express and parcels segments, it could gain business as a result of 3-D printing and the infrastructure that he anticipates will develop around the sector.

“Regional logistics networks will become more complex due to a growing number of manufacturing strategies and a shift from global or intercontinental to more regional or local supply chains and distribution,” he says. “On top of that, I think the 3-D printing industry will in time be organized into clusters, with spare parts printed on an on-demand basis only from dedicated facilities serving regional markets, some which could be located at airports.”

Matthew Booth, a UK-based spokesperson on Product Lifecycle Management (PLM) at consulting firm Accenture, emphasises that disruptive manufacturing technologies  will lead to supply chains being extended and  spare parts becoming ‘smarter’ and able to be assembled in multiple locations, making contract final assembly much easier.

“This is likely to drive a rise rather than a decrease in air and ocean shipping but it will vary by industry,” he says. “On a more general issue, there are huge opportunities for logistics and air freight companies to become an integral part of the manufacturing service supply chain, partnering with the right companies and offering much higher value-added services and capacities than they do today.”

As for the forwarder perspective, Kuehne + Nagel CEO Detlef Trefzger plays down any possible negative impact of disruptive technologies on the company’s intercontinental freight flows and its business in general. “I don’t see a big major change,” he says. “If you look at the near-shoring trend over the past decade, it has led to growth in the [logistics] sector. For example, Mexico is benefiting a lot from near-shoring, similar to other markets, especially in the Middle East and also partly in Asia.”

Trefzger says that with K+N’s overall market share of 2.5%-3%, there is considerable scope for the company to capture new business. “We’ll find our niches to grow our volumes further,” he says.

Kerry Logistics’ MD for Europe, Thomas Blank, notes that while the automatisation of processes and increased use of robotics and 3-D printers is bringing about changes in sourcing and the location of production facilities, along with a shift in logistics routes and transport methods, “global supply chains have been in a constant state of re-design year after year, and disruptive manufacturing technologies are simply new factors to take in account”.

He adds: “For many decades, factories have been moved around the globe and products manufactured and shipped according to market demand. We currently see a drastic decline in air freight volumes because many of the products that were traditionally in the ‘flown’ category no longer require such swift transportation. Will it (air freight traffic) come back? In my opinion, yes − with new products that create demand and a surge in certain markets.”