Dive Brief:

• Companies that invest in "smart factory" technology will see a 10% to 12% average increase in metrics including manufacturing output and labor productivity, according to a recent survey of more than 600 manufacturing executives conducted by Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI). The survey looked at the change in various measures at these facilities over the last three years.
• Quality sensing and detecting was the most commonly used smart factory technology, and 87% of respondents are already using or piloting the technology, the survey found.
• The use of quality sensing technologies makes the entire value chain more efficient and can eliminate disruptions, according to Paul Wellener, one of the report's authors and a vice chairman of industrial products and construction at Deloitte. "If 100% of what you're receiving as a manufacturer from your suppliers is good quality product that can be assembled or manufactured into your product, then you've got a relatively smooth supply chain, you don't have disruptions based upon" having to reorder product, Wellener said in an interview with Supply Chain Dive.

Dive Insight:

In the report, Deloitte and MAPI say labor productivity in the U.S. has "stalled," with annual growth below a single percent between 2007 and 2018. The most recent numbers show labor productivity above 1% year-over-year growth since the fourth quarter of 2016, according to the Bureau of Labor Statistics. The report suggests utilizing the right technologies could improve these labor productivity numbers.

Manufacturers that have begun to adopt smart technologies have seen a more than 3% annual increase in labor productivity between 2015 and 2018, Deloitte found. This group is expected to see 1.38% annual growth in labor productivity over the next decade. Those that have not adopted smart factory technology could see an initial 4% increase in labor productivity after adopting the technology, which would level off to 1.38% after about five years of use, the report said.

When asked if the increase in productivity was the result of layoffs, Wellener noted "it's not the direction that we're seeing. It's actually, I would say, the opposite." (If production remains constant, but employees are replaced with automation, then it would show up as increased labor productivity.)

Wellener pointed to another study Deloitte released last year, which found 4.6 million manufacturing jobs will need to be filled between 2018 and 2028. "As people free up labor ... in their facilities, they're generally redeploying it into other areas to help enable growth," he said.

Some of these technologies — including quality sensing, smart conveyance and asset intelligence — tend to provide operational benefits to the users, including speeding up material delivery, lowering the rejection rate for finished product and faster prototyping. Energy management, the use of a command center and asset tracking have more of a financial benefit, the survey found.

Manufacturers seem to agree smart technology is where the industry is headed. The survey found 86% of respondents agree smart factory initiatives will be the main diver of competitiveness in five years, and 83% agreed it will change the way products are made in the next five years.

The argument that technology will improve labor productivity is not exactly new. Better machines and more skilled employees are seen as two ways to improve productivity, according to the BLS. Some research has shown increased use of industrial robotics resulted in higher labor productivity. However, a paper published last year by David Autor, an economics professor at the Massachusetts Institute of Technology, and Anna Salomons, an economics professor at Utrecht University, was unable to conclude if automation was labor-augmenting or labor-displacing.

"Since the net effect on wagebill is positive, it is tempting to interpret the net effect as labor-augmenting," Autor wrote. "But this inference would be premature. In our model, a technological change is labor-displacing if it reduces labor’s share of output. Our results so far do not reveal whether this is occurring."