- Tags : Automation
By: ProcurementIQ Analyst, Torsten Edstam
In recent years, automation’s effect on the manufacturing sector has been well chronicled. According to the Center for Business and Economic Research at Ball State University, over 85% of the 5.6 million manufacturing jobs lost between 2000 and 2010 were due to increasing productivity from automation. Automation’s disruption of other areas of the economy, however, including the construction, transportation and financial services sectors, has been less widely covered. ProcurementIQ suggests that procurement professionals take time to understand how automation has already begun to impact markets outside the manufacturing sector, as these trends will likely continue in the years ahead. This month, ProcurementIQ will look at a selection of these markets and how automation is actually beneficial to businesses purchasing their services.
Construction productivity has grown at a sluggish pace in recent decades. The construction sector is currently one of the least digitized sectors of the economy. Moreover, it is currently experiencing a worker shortage, with about 225,000 unfilled positions as of June 2017, according to the Bureau of Labor Statistics. The current lack of digitization and the strong demand for labor has made the construction sector ripe for investment in automation.
The majority of this investment in technology will directly automate aspects of the construction process. For example, Construction Robotics’ SAM100 bricklaying robot can lay up to three times as many bricks per day as a human worker, vastly cutting employment needs. Construction companies also benefit from automating non-production tasks, such as by using unmanned aerial vehicles for surveying, checking inventory and securing work sites. Although this technology will require capital investment, it will ultimately allow construction companies to reduce labor costs and ancillary personnel expenses, such as workers’ compensation insurance, which can cost up to $20 or more per $100 in payroll. As a result, automation will help slow growth in wages and other operational costs for a variety of markets, including general contractor services and industrial building and warehouse construction. Even as demand for these services rises in line with construction activity and pressures prices upward, lower labor costs will constrain price growth, thereby benefiting buyers.
In recent years, transportation companies have begun automating parts of their operations. For example, many trucking services suppliers have replaced paper logs with electronic logging devices (ELDs) in response to a Federal Motor Carrier Safety Administration mandate affecting all commercial vehicles involved in interstate commerce.
The transportation sector’s investment in technology is expected to accelerate in the coming years. In particular, the development of self-driving cars and trucks will be a major disruptive force for transportation companies that focus on consumer transit and commercial freight trucking. These changes are anticipated to be so dramatic that the US Department of Transportation has formed the Advisory Committee on Automation in Transportation to help establish federal policy on the issue.
The taxicab services market, which has recently been facing fierce competition from ridesharing companies, is expected to lose even more market share as automated passenger vehicles become available. In 2017, ProcurementIQ estimates that the average taxicab service provider allocates 62.4% of total revenue to wage costs. However, this expenditure is projected to drop substantially as drivers are replaced by self-driving vehicles. Major ridesharing companies, such as Uber, have already invested significantly in developing self-driving technology to maintain a competitive advantage against other providers.
Trucking markets are also expected to see drops in employment due to automation. These markets, including local freight trucking services, national trucking services and drayage services, dedicate a significant share of revenue toward drivers’ wages. However, this expense category is expected to fall as automation increases and trucking companies reduce their workforces. Consequently, these companies will be able to pass cost savings on to their customers in the form of lower list prices, even as rising e-commerce sales drive up demand for their services.
Financial Services Markets
Professional services markets that provide highly skilled, knowledge-based work are also vulnerable to the effects of automation. Among the financial services markets that ProcurementIQ tracks, accounting services, audit services, bookkeeping services and payroll services are some of the most likely to experience significant changes as a result of automation. Providers in these markets are increasingly investing in new technology, such as artificially intelligent software programs, to automate their operations. As a result, positions that primarily focus on process-driven tasks, including bookkeeping and data entry, face a high risk of replacement. While ProcurementIQ estimates that the average service provider in these markets currently allocates more than 30.0% of revenue toward wages, these expenditures will fall as automation increases. Because wage pressures will have less impact moving forward, price growth in these markets is expected to slow, benefiting buyers.
Insurance markets are projected to undergo a similar change as automation increases. Providers in the professional indemnity insurance, building & contents insurance and supply chain insurance markets rely heavily on actuaries, underwriters and claims processors. However, in recent years, these companies have begun to increasingly use software to analyze and interpret data related to risk assessments and claims. These automated systems operate more quickly and accurately than humans, often reducing the time to insurance payouts. Consequently, as insurance providers invest in automation technology, their efficiency is expected to increase as expenditures on wages decrease. Ultimately, buyers will benefit from this faster service at lower prices.
Wide Effects of Automation
Automation will substantially disrupt markets throughout the economy in the coming decade, ranging from construction to financial services. By understanding how technological changes will impact these markets, businesses can take advantage of the situation. Most importantly, buyers should be aware that falling wage costs will help slow price growth in these markets, potentially providing the flexibility to delay purchasing decisions.
Buyers should note, however, that the full implementation of automation is still a work in progress. For instance, in July, a K5 Autonomous Data Machine security robot manufactured by Knightscope fell down a set of steps into a fountain at a retail complex in Washington, DC. So, at least for now, employment in the security guard services market looks relatively safe. In following months, ProcurementIQ will examine some of the software tools that are already being used to automate the procurement process and business operations.