How will widespread industrial IoT change the automation value chain?


10 Dec 2019

21 UBS analysts explore the asymmetric impact of the industrial Internet of Things (IoT) explosion across the automation value chain

The concept of automation

Automation is the concept that uses tools to make repeated tasks automated or more efficient in order to replace or reduce involvement of human labor. Automating schemes range from forging using windmills to automobile production using advanced robots. More recent examples include cutting-edge cases such as radiology image analysis using AI tools that resemble algorithms of human thought processes.

Topics covered by automation

Automation covers a wide range of topics, but its framework can be divided into three areas. That is, “application”, “technology”, and “value chain”. Applications are the actual work that is targeted to be automated, technologies are the core technologies that drive automation, and the value chain is the participants who introduce and assess the technology.

Automation faces wave of digitalization

A big wave of IoT / digitalization is coming to this automation framework. A variety of data has been accumulated in the production facilities and processes in which “technology” has been introduced, and participants in the “value chain” are trying to provide new added value by utilizing the data.

Collaboration with 13 analysts covering non-conventional areas

We collaborated with 13 analysts covering four non-traditional market sectors (retail, food, medical device / pharmaceutical / healthcare, personal care products) and compared the degree of automation progress in each sector. From there, we captured the features as well as the relative positioning of automation trends in non-conventional applications.

Examples of underappreciated next drivers of automation

Within these four sectors, the retail sector was ahead with automation capex, in our view. Automation technology has been installed at many logistics facilities, and this itself does not seem new. However, beyond the efficiency improvement and cost reduction on the supplier side, retail firms accelerate automation capex in order to better meet customer needs such as shortening and diversifying delivery time, expanding product line-up, and directly connecting to differentiation strategy amidst intensifying rivalry. The elements are clearer in the retail sector than in the other three sectors. As the e-commerce market continues to expand, a lack of automation investment may imply less of a competitive edge.

Potential disruption in value chain

If the trend in "application" is simply the function of automation capex penetration in non-traditional areas, the "value chain" amongst different players in the Factory Automation industry may remain unchanged. However, the wave of digitalization is coming to “technology” at the moment. This is the IoT service where data collected through mechanization and automation in the manufacturing space is used to further improve production efficiency at a factory.

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