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Industry Insights
March012021
The Great Engine of Change: How Automation is Transforming American Manufacturing, Distribution, and Retail

Marcy Greenfield, CPA and Robert Pokorny, CPA

3.1.21 | Industry Insights

In his book, The Fourth Industrial Revolution, the economist Klaus Schwab wrote about an impending revolution brought about by new technology and digitization. As the past year has shown, this technological revolution has been accelerated by the COVID-19 pandemic, specifically as it pertains to digital technologies such as Artificial Intelligence (AI) and automation. The pandemic and associated economic and social dislocations have only increased our reliance on e-commerce and other advanced, even cutting-edge, technologies to assist us in carrying out the ordinary tasks of daily life.

Impact on Manufacturing

This trend very much extends to the world of manufacturing. Recall, exactly a year ago, how the pandemic quickly revealed the shortcomings and vulnerabilities of global supply chains. In the ensuing 12 months, businesses ranging from multinational corporations to mom-and-pop corner markets had to scramble to adjust to a world where, at times, cities and states had shut down, movement over national borders was curtailed, and modes of transportation had ground to a halt. Faced with a multitude of challenges, manufacturers came to increasingly rely on automation in distribution and retail to weather the crisis. Yet, as the crisis of the past year begins to fade, the means the industry employed to not only survive, but also to lower costs, increase production, and reduce response times are likely to become even more widespread, setting the stage for a wide-ranging transformation of American manufacturing.

It should be noted that none of this is exactly new: the trend toward automation in manufacturing has been well underway for well over a decade. According to a study by the economists David Bloom (Harvard University) and Klaus Prettner (Vienna University), “the number of industrial robots increased by factor of three over the course of a decade, rising from a little over one million operative units in 2010 to a projected 3.15 million units in 2020.” Indeed, automated technologies such as Artificial Intelligence (AI), Machine Learning (MI), and the Internet of Things (IoT) are replacing traditional assembly lines and streamlining production in industries as disparate as automotive, aerospace, and personal computing.

Impact on Distribution and Retail

Today, the trend toward automated processes is extending out from the factory floor and down the rest of the supply chain: to distribution and retail. This is particularly true in the age of e-commerce, which has placed unprecedented demands on distribution centers to quickly, accurately and efficiently fill orders and keep track of inventory. Warehouses are employing AI in the work of optimizing the storage, placement, and retrieval of inventory. Robotics (or in some cases “cobots,” i.e., robots designed to work alongside workers) are tasked with conveying the inventory onto loading docks and into trucks for delivery.

And once the product leaves the distribution center, we enter the world of retail.

The emergence of online shopping as an alternative to traditional brick and mortar has, in many ways, upended the way people shop and the way businesses must operate in order to survive. As a result, automation also has the potential to change the way traditional retail is done.

According to a joint report by the IBM Institute for Business Value and the National Retail Federation, “80% of executives in both the retail and consumer products industries expect their companies to be using intelligent automation by 2021.”

Changes in retail brought about by automation predate the COVID-19 pandemic. For years now, groceries and pharmacies have provided the option of automated kiosks as a check out option, while fast food and airport restaurants have made use of touch screen menus and online payment options. Today, automated technologies are being used to keep track of inventory, while AI applications are able to analyze sales trends. In order to free up their employees to focus on enhancing the overall in-store customer experience, retailers are pushing to automate various back office functions such as payroll, work schedules, invoices and performance evaluations.

Another area where automation has been key to improving the customer experience is in order tracking. This is particularly true in the world of e-commerce. Today, customers who order online – whether from Amazon, Nike, or Whole Foods – receive a series of texts or emails notifying them where their item is, or customers have the option to track the progress of their purchase in real time online. Retailers are also taking advantage of advances in behavioral analysis to better understand the needs of their customers.

Taking Action

Companies are under considerable pressure – margin pressure, demand pressure, cost pressure, etc. This makes automation a requirement and not a choice. Without question, automation is changing manufacturing, distribution and retail business models, creating organizations with fewer layers and a better trained and trusted workforce empowered by real time analytics. Organizations that understand the implications and act quickly to address them will be clear winners in their sectors.

For companies that are yet to explore how automation will enhance their processes and overall business operations, the following provides some initial steps suggested for successful implementation:

Determine what processes will benefit you the most. You can’t have it all from the start, so identify what automation processes will benefit your business the most. Factor in costs, reduction in human effort, and areas where you currently experience the most difficulties or errors.

Choose what you can get done quickly. To begin to leverage the advantages, identify those processes in your organization that can be automated fast – typically these are “stable” processes such as those that you have been doing manually for years and fully understand. Also consider processes unique to your industry that you also have a firm grasp on.

Rally management and the team. Automation is a group effort and it is crucial to get the buy-in of both management and the team. This would include laying out the benefits for management to designate team leaders with defined responsibilities for specific tasks.

Bring your business units on board. Clearly, your IT team must be deeply involved, but you also need to consider other areas including human resources, which may be involved in both training and retraining.

Get an understanding of the process. If possible, meet with professionals who have already gone through the automation process. Also consider process mining. This approach seeks to discover, monitor, and improve real processes by examining data from the event logs of information systems.

Identify ways to improve the process. Look for ways to simplify the process, make it easier to understand, and enhance the overall experience.

Choose your partners. This depends on your internal capabilities. If you already have team members who are both willing and technically proficient to embark on an automation project, it is a matter of setting tasks and assigning goals and responsibilities. Otherwise, you should consider partnering with an outside provider, ideally with experience in your business sector.

For an overall understanding of robotic process automation or RPA, click here.

As the pandemic moves on and businesses continue to be challenged to meet the needs of their customers, companies that are not starting to implement automation, are likely to fall behind their competitors. In order to sustain and thrive in the future, companies should start assessing their internal processes immediately and determine how automation can help them remain competitive and control the pressures and demands of change.

Questions: Contact Marcy Greenfield, CPA at 516.806.3425 | MGreenfield@BerdonLLP.com, Robert Pokorny, CPA  at 516.806.3474 | RPokorny@BerdonLLP.com, or your Berdon advisor.

Berdon LLP, New York Accountants

 

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