[ANALYSIS] Pandemic awakens demand for data-driven automation

China-made Tesla Model 3s are seen during a delivery event at its factory in Shanghai, Jan. 7, 2020. Reuters-Yonhap

Supply chain disruptions from COVID-19 drive Samsung, LGES, Hyundai Motor toward 'lighthouse manufacturing'

By Kim Yoo-chul

The COVID-19 pandemic presented an opportunity for manufacturers in global supply chain systems to embrace significant challenges. Korean conglomerates like Samsung, LG and SK also had to adjust to the crisis by revamping their supply chains and embracing more innovative manufacturing processes.

Steps taken by advanced and emerging economies to control their coronavirus infection spikes resulted in national lockdowns and temporary halts in the flow of raw materials and subsidiary products, disrupting manufacturing processes.

The pandemic itself didn't necessarily bring about any new challenges in supply chains; in some business areas it merely shone a light on earlier unseen vulnerabilities, including increased inventory levels due to closures and resultant profit losses. Executives at Korea's leading exporters noted that the pandemic accelerated the identification of problems that already existed in supply chains.

Sources and executives at Samsung, LG and SK groups' technology units told The Korea Times that COVID-19 forced them to make their supply chain strategies more sustainable, resilient and even collaborative with key stakeholders such as suppliers and customers.

"Companies usually scale back their investments in a crisis, however, during the pandemic, Samsung didn't stop investing in technology improvements, highlighting the company's focus on the value of a digitally connected supply chain to help the firm respond quickly to volatile supply and demand situations," an official at one the conglomerates said.

Last year, Samsung Electronics, the world's top manufacturer of TVs, smartphones and memory chips, said it planned to spend 450 trillion won on "focus areas," specifically artificial intelligence (AI) and application semiconductors. Company representatives said Samsung is also working on advanced robots and AI.

In January, Samsung invested $46 million in domestic robot maker Rainbow Robotics. This move, which gave it a 10.3 percent stake in the firm, was seen as showing its commitment towards advancing supply chain technologies such as AI, data analytics, and robotic process automation and control towers, while retaining its current staffing system. "Maintaining a high-performing supply chain in terms of both efficiency and visibility has become a competitive necessity," another company official said.

Transitional path, Foxconn model

However, officials at the country's leading exporters said while they have no questions about the necessity of updating supply chains for resilience and operational excellence, it's highly unlikely that manufacturers will see any visible progress in the smart factory concept in the near future.

A woman holds a Google Pixel 4 phone during a Google product launch event in New York City, in this Oct. 15, 2019, file photo. AFP-Yonhap

"Data acquisition and analysis, and factory automation are required for a smart factory because it is more about a high level of customization and how factories operate," said Jeong Hong-beom, an executive in charge of handling smart factory-oriented strategies at Hyundai Motor, the country's top carmaker. Crucial to a smart factory is the technology that makes data collection possible, which includes sensors, motors and robotics on actual production and assembly lines.

Because the basic structure of a smart factory includes the integration of information, communication and production technologies, with the potential for integration across manufacturing supply chains made possible via the internet-of-things (IoT), a presidential aide handling industrial policies under the former Moon Jae-in administration said it should be possible for Korean firms to pursue hybrid models according to different production bases as part of efforts to initiate smart factories.

"Simply put, smart factories require a shift in mindset because they are about data management and not just factory automation. Smart factory initiatives are complex to execute and require the backing of employees and business units. Such initiatives could also face resistance to change and cause confusion inside an organization. Given the regulatory risk in terms of data transparency, auditability and labor-centric business structures, Korean manufacturers will remain in the early stages of this for a considerable period of time," the unnamed aide said.

LG Energy Solution (LGES), for example, has recently created a chief data officer (CDO) position, as part of efforts to establish a data-driven smart factory structure. A spokesman at the top battery supplier for Tesla, said it is still in the process of hiring specialists, and classifying data for specific purposes. As a long-term strategy, the spokesman said LGES aims to get potential clients to think more about smart manufacturing utilizing robotics, data analytics and AI.

Min Kyeong-do, an executive at Gaon Partners, a consulting company, said what is happening inside Taiwan's Foxconn is worth watching for Korean manufacturers, which have substantial overseas exposure, as the world's top maker of electronic components is taking steps to build data-driven lighthouse manufacturing networks in the wake of supply chain disruptions.

The Apple logo is seen hanging at the entrance to the Apple store on 5th Avenue in Manhattan, New York, Oct. 16, 2019. Reuters-Yonhap

"Foxconn's move to build big data- and high tech-rich smart factories in only some of its target markets is thoughtful and very smart. You can't keep expanding your businesses overseas, ceaselessly, however, you can help other companies located in your target markets automate their factories with your products, parts, networks and cloud computing. Samsung, LG and SK groups' technology affiliates should be able to pursue Foxconn's strategy as they have clients, a production hub (Korea) and a global footprint in diversified locations," the executive added.

Foxconn is the main assembler of Apple products. While their core businesses are different because the Taiwanese company is only an assembler not a manufacturer, Samsung and LG's technology affiliates supply displays, batteries, components and semiconductors to a number of global big tech companies including Apple, Tesla, BMW and Google.

Experts say the next format of the technology supply chain in a post-pandemic era will be a "hybrid" one, a mix of short-term, regional production and existing hub production in the home country, as the global technology industry is being reshaped by a few rational players. That means, if a company doesn't have a better supply- and demand-predictive structure that will work on a data-driven framework, then the sustainability of that company will be questionable.

A representative at Samsung Electronics said it's been helping hundreds of its domestic suppliers to build intelligent manufacturing systems and perform corporate digitalization by offering consulting services since 2015. Hyundai Motor said its intelligent manufacturing system has been applied to the Genesis car production line at its domestic Ulsan plant, adding that its smart factory system, dubbed E-Forest, is fully available at its innovation center in Singapore.

Company executives and analysts said using data science to advance manufacturing processes will be vital for the technology industry ― post-pandemic ― from a supply chains standpoint. They added Apple and Google's moves to internally develop key components for use in their hardware devices illustrate the fact that the two global firms are committed to pursuing vertically integrated business structures.

"Google and Apple's efforts to sharpen their product- and content-centric ecosystems will push key partner companies here to introduce smart factory technologies so as to end reactive practices and move supply chains management toward a more responsive and even resilient mode," a senior executive at one of LG Group's technology affiliate said.