Investor Insights:
- “Manufacturing 4.0” is a global revolution in mass production.
- The market for industrial devices will increase by over 200%.
- Position yourself to profit now with my ETF pick of the week.
I stood on a factory floor that housed one of the most advanced assembly line manufacturing operations in the world.
It was early 1993. I was a fresh-faced industrial policy researcher who recently arrived to New Zealand.
I’d been sent to Auckland to learn about advanced manufacturing techniques that the South African economy might adopt after the end of apartheid.
Fisher & Paykel Appliances was known as one of the most innovative manufacturers on the planet.
But the assembly line in front of me didn’t look very advanced.
There was a big S-shaped conveyor. Flanking it were several dozen workers, each with a large plastic bin of components. As pallets came down the line, the workers attached a part to the appliance in question.
The incredible thing was that each appliance on the line was different from the one before it.
Using just-in-time inventory control technology, the little Kiwi company had become a global player by offering customized products for the same price as mass-produced ones. Instead of making the same washing machine or dishwasher repeatedly, each one was made to order.
Fisher & Paykel’s techniques were part of a global revolution in manufacturing originating in Japan in the 1980s — we called it “Manufacturing 3.0.” It paved the way for the massive explosion of electronics manufacturing in Asia over the following two decades.
More than 25 years later, we’re on the cusp of “Manufacturing 4.0” … and investing in it now guarantees explosive profits.
The Smart Robots Have Arrived
In Fisher & Paykel’s factory, human workers were the linchpin of the operation.
As each product came down the line, its assembly diagram popped up on a small screen. It told the worker which part to grab from the bin and which tool to use.
The worker’s brain and hands were the interface between the data system managing the complex flow of parts for different appliances and the physical act of manufacturing.
Fast-forward a generation. Thanks to 5G technology, industrial robots are going to play that role.
You see, up until now, industrial robots haven’t been very smart. They can only execute actions predetermined by humans.
Those big mechanical arms you see in pictures of modern factories are programmed by humans to perform the same operation accurately thousands of times.
But changing what they do means reprogramming them. Unlike the workers at Fisher & Paykel, they can’t react to changing inputs on the fly.
That’s because they lack the ability to perceive what’s in front of them, make decisions based on that input and then decide what action to take.
All that’s about to change … thanks to 5G technology.
5G Makes Dumb Robots Smart
By now most of us have heard that with 5G wireless technology, we’ll download movies to our cellphones or computers in seconds rather than minutes.
But let me make a bold claim.
It’s going to be a while before anybody makes money in the consumer 5G market.
After all, would you pay twice what you’re currently paying for cellphone service just to be able to save a minute or two?
I know I wouldn’t.
Until the price of 5G consumer products comes down, most people are going to stay with what they already have.
That’s why I predict that the first real-world manifestations of the 5G revolution are going to happen on the factory floor.
The diagram below shows a typical manufacturing operation.
The process is overseen by an operations control center. Parts come into the factory based on purchasing managers’ plans. They’re then carried to the assembly line, where human-controlled robots assemble them into final goods. Once they’re made, products go into inventory, from whence they’re shipped to customers.
But look closely at the little wireless symbol at every stage. It’s where information about the manufacturing process is sent and received.
Right now, human beings receive and send those signals. That’s because humans can react to changing conditions much faster than machines.
It’s not because machines think more slowly than we do.
It’s because current wireless technology leaves a big gap — called latency — between perception, assessment and execution.
High wireless latency means autonomous machines can’t make correct split-second decisions consistently.
The workers on Fisher & Paykel’s assembly line could handle an endless variety of different products one after the other, because their brains could react instantly to changing conditions. There was no latency between what they saw on the screen in front of them and their reaction with part and tool in hand.
Basically, industrial robots haven’t been able to “think and do” fast enough to replace humans.
Until now.
Manufacturing 4.0 Means 5G Profits
Manufacturing 3.0 used computing power to manage complex inventory decisions. That allowed companies such as Fisher & Paykel to innovate customized manufacturing processes.
Rapid analysis of market data allowed the company to slash their inventory costs while simultaneously adding value for customers through customization.
Manufacturing 4.0 is going to involve smart industrial robots that can do what Fisher & Paykel’s workers did.
A pallet will come down the assembly line with barcodes that tell the robot what it is.
Using 5G technology, the robot will communicate with computers at operations control and find out what it needs to do with that specific product.
Thanks to 5G technology, that process will be instantaneous. So instead of doing the same thing again and again, industrial robots in Manufacturing 4.0 will perform an almost limitless variety of actions.
My colleague Clint Lee’s Chart of the Week proves my thesis about 5G.
Whereas the market for internet-connected devices for consumers will increase by 80% between now and 2025, the market for industrial devices will increase by over 200%!
There’s an ETF for That
It’s too early to tell which companies are going to grab the lion’s share of the 5G industrial automation market.
That’s why my pick of the week is the Robo Global Robotics & Automation ETF (NYSE: ROBO).
Like any exchange-traded fund (ETF), ROBO’s holdings will change as the industrial automation market matures and the winners become clear.
It’s never too early to position yourself to profit from what’s coming!
Kind regards,
Editor, The Bauman Letter
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