Smart factories can’t survive? In fact, the cost of robots is more expensive than you think

Adidas' closure of its smart factory fully demonstrates that the cost of highly intelligent machines is no cheaper than manual labor.

After three years of trial, Adidas finally gave up on the smart factory. Under the pressure of cost, the two robot factories in Germany and the United States that carried Adidas' "money-saving plan" are entering the countdown to closure. As 2020 approaches, Adidas' production line will focus on the Asian market again. Facts have proved that the fully automatic, high-tech robot factory does not seem to be as cost-effective as imagined.

Three years ago, under cost pressure, Adidas withdrew to its home country and aimed at a robot factory that could "solve the problem once and for all". Ironically, three years later, under cost pressure, Adidas had to abandon the robot factory and return to the Asian production line. According to Reuters, German sportswear group Adidas announced on the 11th that Adidas' two high-speed factories in Ansbach, Bavaria, Germany and Atlanta, Georgia, USA will cease operations at the latest in April 2020. Both factories use robots and 4D printing technology to produce sports shoes.

Although Adidas did not disclose the specific reasons for the factory closures, the outside world has already found clues from various aspects. Martin Shankland, Adidas's global operations director, said that these factories helped Adidas improve its expertise in innovative manufacturing, but applying what it learned from suppliers would be "more flexible and more economical." It is understood that Adidas' production in Asia currently exceeds 90% of its total production.

Such a result somewhat caught the outside world off guard. After all, when Adidas chose to build these two factories, it was full of expectations. In 2016, Adidas announced that it was going to start a robot factory in Germany. The name "high-speed factory" has hinted at everything. In 2017, Adidas struck while the iron was hot and opened a second high-speed factory in the United States. The two factories went into production in 2017 and 2018 respectively, and are almost 100% operated by robots. In 2012, Adidas closed its last factory in China due to rising labor costs.

At that time, Adidas emphasized that these automated productions can tailor shoes for customers, and the high production capacity of smart factories is widely used to replenish the inventory of limited and out-of-stock shoes. According to Adidas' plan, the products and sales brought by smart factories will account for half of Adidas' revenue in 2020, three years later.

Adidas once hoped to offset the cost pressure with the sales brought by speed, and this is the significance of the high-speed factory. It is understood that before the establishment of the high-speed factory, it took about 18 months for a pair of shoes to go from prototype to shelf, but 3/4 of the shoes entered the promotion stage in less than a year. In the fast-moving market, the high-speed factory solves exactly this pain point. A pair of shoes from start to completion takes only about 5 hours.

Adidas once estimated that the annual production capacity of the two high-speed factories in Germany and the United States would be 1 million pairs of shoes, which sounds like a huge number, but in the face of Adidas' overall production capacity, 1 million seems insignificant. It is understood that Adidas currently produces about 400 million pairs of shoes per year, with an average daily output of more than 1 million pairs.

In addition, high-tech robot factories also mean that the cost of machines is not a small amount, so the high cost is also considered to be one of the main reasons for Adidas to close the factory. Although Adidas has not disclosed the cost of the two factories, only saying that it will be included in the research and development expenses, Adidas's research and development expenses have increased significantly between 2015 and 2017. Data shows that Adidas's research and development expenses were 126 million euros in 2014, and then increased year by year. In 2017, this expense had increased to 187 million euros, and fell back to 153 million euros in 2018.

The dividends of the automation era are full of temptations. Fully automated production replaces manual labor, and 24-hour high-efficiency production seems to have become the perfect automated factory in people's imagination. Adidas has tried automated factories, and so has Nike. The Financial Times reported that since 2015, Nike has been working with high-tech manufacturing company Flex to add greater automation elements to the labor-intensive shoemaking process to achieve faster manufacturing speeds, reduce costs and increase profits.

However, the good times did not last long. Like Adidas, Flex announced its breakup with Nike in December last year, saying, "It is clear that we cannot achieve commercialization and feasibility. With Nike's consent, we will close our factory in Guadalajara, Mexico on December 31." The final result was that Flex lost up to $30 million, and the chief financial officer of Flex, who finalized the cooperation with Nike, stepped down.

The beautiful vision of automation can easily lead people into unrealistic situations. Not long ago, the hit of "American Factory" drew attention to the various problems of the American manufacturing industry, the complex entanglement between unions, employee benefits and corporate profits. High labor costs have made the American manufacturing industry increasingly weak, and at the end of the documentary, a large number of automated industrial robots began to replace human labor.

In the US market, "machines replacing people" is becoming more and more common, and the number of robots in factories is increasing. No one can deny that it is an inevitable trend for robots to eventually replace human labor, but as far as the current situation is concerned, the machine itself is a high-investment existence, not to mention that the example of Adidas also proves that not all jobs can be replaced by automation.

Another point that may be overlooked is the impact of the overall environment. At present, trade friction is something that no multinational factory can ignore. The parts used in robot products often use a wide range of raw materials, and the steel and aluminum tariffs that emerged last year have also begun to "make waves."

Gary Shapiro, president and CEO of the Consumer Technology Association (CTA), once said: "The technology industry accounts for 10% of the total U.S. GDP and creates more than 15 million jobs for Americans. This year, the U.S. technology industry has suffered a huge impact due to tariffs. Our industry cannot afford an additional $1 billion in tariff costs per month." Andrew Storm, CEO of collaborative robot manufacturer Eckhart, also pointed out: "Due to the recent tariffs imposed by the U.S. government on a large amount of imported steel, we and other competing companies have come under tremendous pressure."