As emerging technologies like artificial intelligence and robotics make a deeper impact, the focus shifts on how it will affect the people that run our supply chains. How could our supply chains look like in the future, and how can we make sure no one is left behind?

Written by Henrik Batallones

 

It began with Industry 4.0.

The belief was that we were entering an era where the convergence of various technologies would unlock greater operational efficiencies across industries, leading to fundamental shifts in everything from the way economies work to the way people live.

While the term only came to wider prominence in the last ten years or so, the technologies that were seen to push things forward have long been in place. Computing speeds have increased exponentially in the last two decades, for one. Methods of transmitting information more speedily and efficiently were devised. Brought together, these have enabled the key themes of Industry 4.0: better connectivity between people and machines; better access to greater amounts of information, allowing one to make more informed decisions; technology augmenting humans in tasks; and increased automation in systems. Thus, all the buzzwords you may have heard, or worked with, in the past decade: data analytics, cloud computing, robotics, the Internet of Things, blockchain, artificial intelligence—all were posited to bring forth a massive shift in the way we live and work.

In many ways, they have. The advent of 3D printing, for instance, has opened new possibilities in creating certain products faster and at a lower cost. Perhaps the challenge, especially for bigger companies, is the speed with which they can take advantage of what these new technologies present. Arguably it’s what’s led to the rise of “disruptors” in different industries—digital-native companies that leveraged technologies quickly to address evolving customer needs.

One industry where the possibilities of Industry 4.0 were realized faster than most is in logistics. It also became a buzzword of sorts: “Logistics 4.0”. The movement of supplies and components to manufacturing facilities, as well as that of goods to stores and customers, was ripe for a revolution, particularly as companies looked to further reduce costs and improve service levels. As customer behaviors changed with the ubiquity of mobile connectivity and the coming of age of e-commerce, businesses had in their hands more data that allowed them to not just understand what customers wanted at a micro level, but also sense trends in demand faster and sooner. Advances in warehousing technology, particularly in automation, meant they can sort, store and dispatch products much more efficiently. Some have even ventured into new methods of delivering products directly to their customers, such as Amazon’s forays into delivering via drones.

The advantages weren’t only enjoyed by businesses. Customers tracked their purchases through their mobile devices, for instance, allowing them to better grasp the speed of their deliveries—and forcing logistics providers to keep up. In some cases, Industry 4.0 technologies provided a new shopping experience: the advent of the “supermarket of the future”, such as the Freshippo chain of the Alibaba group, allows customers to shop seamlessly, and learn more about the provenance of the produce they picked up along the way.

The monumental nature of Industry 4.0 meant governments rushed to make sense of it and adopt it as part of their strategies. The Philippines made it a key plank of its Inclusive Innovation Industrial Strategy, seeing it as a means to jumpstart our manufacturing industries, particularly in sectors such as automotives and electronics. But just as it felt like an inevitable future we should all be preparing for, questions about its negative impact were posed. Perhaps the most important was its impact on jobs, especially for blue-collar workers whose tasks are mostly repetitive and can be easily done by machines. In Philippine logistics, this is most evident in our warehouses, which rely heavily on workers to manually store, pick and transport items.

The high cost of adopting Industry 4.0 technologies is also a key concern. While recent years have seen investment costs decrease to the point of being more accessible to smaller companies, it’s still evident that fully embracing its possibilities requires high investment levels both for businesses and for economies. Even then, the benefits beyond increased operational efficiencies—and, potentially, increased competitiveness—remain unclear. The possibility of unequal growth—between industries, countries and demographics affected—also looms. Other concerns include risks to data privacy, threats to security of production and trade secrets, vulnerability to limitations of existing network infrastructure, and the lack of needed skills among affected workers to adapt to the dawning of Industry 4.0.

 

The COVID-19 pandemic, and its resulting disruptions across the global economy, served to highlight both the advantages and downsides of both Industry 4.0 and Logistics 4.0.

The global supply chain crisis that marked the early months of the pandemic—particularly its varying impacts depending on where you are in the world—is one example. Countries that have long invested in digitalization, particularly in ports, were better able to weather issues such as congestion and container shortages. Investments made towards higher port efficiency, like advanced equipment and transport management systems, allowed these hubs to normalize operations faster than others.

This isn’t to say that those countries have had it much better. Congestion still existed in major ports in Asia and America, for instance, because of a shortage of empty containers, which was caused in part by these containers being stuck in lockdown. In addition, many aspects of industries and supply chains have yet to fully realize the supposed promise of Industry 4.0. The actual transportation of goods through various points of the supply chain, for instance, still rely on human drivers—and while technology has long aided these journeys to make them faster and more efficient, these points were still vulnerable to disruptions caused by black swan events like the pandemic. Also, these limitations have existed before the pandemic: the United States, for instance, has seen a shortage of truck drivers due to surging freight costs, and was seen as a significant logistical bottleneck in the country.

On the flipside, the pandemic has seen companies that quickly adopted digital-first practices surge. Online retailers in Southeast Asia saw record revenues as restrictions in mobility forced customers to rely on them for their basic needs. Traditional retailers and even some manufacturers scrambled to transition to e-commerce. While these companies certainly had the resources to quickly make the move, it illustrated the general hesitation among businesses to truly embrace the possibilities of Industry 4.0, with some choosing to wait until a clearer business case can be made—at least until the pandemic made it absolutely necessary for them to adjust. In making the move they embraced insights and learnings made by the companies and ventured before: the demand for greater transparency and speed from first order to receipt of the products.

Even then, e-commerce in Southeast Asia—and particularly in the Philippines—would not have seen the heights of the past few years if not for the human element. We leaned heavily on delivery personnel for everything from meals to groceries to even gadgets and furniture. In countries like ours where the ecosystem is not ripe for more automated methods of delivery—then again, what country is?—human workers still provided a critical part of the supply chain.

Beyond the pandemic, Industry 4.0 presents a high risk of displacement not just for workers whose jobs will be replaced by technology, but for businesses and communities who fail to invest early in said technologies. While, again, entry costs have decreased and some of the opportunities offered by Industry 4.0 are within reach of small businesses, the playing field remains imbalanced, skewed towards enterprises that already have the resources to fully embrace emerging technologies, or startups that can afford to be aggressive. Sometimes I personally feel that all the buzz surrounding Industry 4.0 fails to take into account the capability of businesses to adapt and absorb. Perhaps you can say it’s capitalism at its purest: only the toughest survive.

Arguably it’s also down to who’s leading the conversation on Industry 4.0. Not many governments have plans for it. The Philippines has, in a way: its industrial strategy makes an effort to address potential inequalities the disruption may cause, by advocating for reskilling of the labor force as well as providing greater support for companies looking to adopt these technologies.

With all that said, perhaps the greatest—and most visible—impact of the possibilities of Industry 4.0 is one that customers don’t get to see or immediately appreciate. While it’s advanced concepts like the Internet of Things, artificial intelligence and robotics that capture the imagination, the tools that enable those are already firmly in place in more businesses than we realize. Data analytics is one example: now that businesses understand that it’s not so much about what software you use but how you gather and analyze information that is relevant to you, more of them are able to make better business decisions with it. Leveraging data to better understand customers is already revolutionizing the marketing and advertising industries. Digital supply chain models also allow managers to better visualize complex networks and understand the impact of seemingly minor decisions.

Finally, technology has further enabled communication and collaboration across various parts of a business, fighting back silo thinking, further integrating value chains, and allowing them to take a whole-of-business approach to better serving customers, shareholders and partners.

 

Perhaps it’s a matter of how Industry 4.0 was packaged: the emphasis on shiny new technology in most conversations about it, the arguably frosty goal of improving operational efficiency (and the resulting savings) above all else. It’s not that it’s done nothing for businesses—and, ultimately, to customers—but talk of anything new and daunting without properly explaining the benefits and implications would raise apprehensions, and perhaps lead some to approach with caution.

That said, a key concern—that the impact of the move towards Industry 4.0 on people would be big, and not always positive—definitely needed to be addressed. And perhaps, this was the view when the concept of Industry 5.0 was first mooted. While it is still early days for it, the ideas mostly coalesce around a more human-driven perspective providing a balance to the technology-driven ethos of Industry 4.0: not of robots and artificial intelligence replacing humans, but of humans and technology working together and smarter, unlocking improvements to processes that will lead to further societal development. It envisions a future where technologies previously heralded as the hallmarks of Industry 4.0—artificial intelligence, automation, big data, the Internet of Things—are designed to augment human efforts, and amplify human innovation and imagination.

This has also led to the concept of Logistics 5.0—of logistics systems and processes where humans and technologies work together, smarter. In some ways, we are already seeing this in practice. In countries where establishing and maintaining fully-automated warehouses is expensive, like in the Philippines, semi-automated systems are becoming more common, and are packaged as a way to lessen physical strain, reduce errors and improve efficiency. For one, pick-to-light and pick-to-voice systems—where the warehouse worker is aided by gadgets that tell them where to sort and place a certain item—allows a company to integrate technology at a lower cost than with a fully-automated set-up, while also reaping the benefits. A similar approach can be seen in the use of warehouse transport systems such as conveyors and automated guided vehicles: apart from reducing physical strain, it frees up warehouse workers for more important tasks. The development of advanced robotic systems with a view of augmenting human workers rather than replacing them completely is another step in this direction.

Moving further afield, the emergence of self-driving vehicles could also have an impact on the well-being of drivers and other logistics personnel. Allowing them to rest while still being able to deliver shipments on time could contribute to cost reductions. However, it’s still early days for this technology, and the infrastructure supporting driverless trucks is most certainly not in place in most places around the world—not to mention variations in road conditions, climate, and other operating factors.

But the pace of technology has accelerated in recent years. The emergence of AI-driven language models like ChatGPT—and the resulting AI arms race between computing giants Google and Microsoft—has shown how much further they can go, particularly when it comes to conveying information in a concise and easily-digestible manner. Could these models relay to us deeper insights into the data we are already collecting across our supply chains? Can we use them to help us understand potential problems and solutions faster, and address or implement them quicker?

These technologies have already raised concerns over the integrity of future creative works and the potential spread of misinformation—and those warnings serve as a reminder that, at the moment at least, these advances are still very much reliant on human input. ChatGPT and Bard “learned” to write by crawling through billions of web pages on the Internet, inevitably picking up incomplete, inaccurate, outdated, or outright false data—and these models only exist to write paragraphs, not check for, and stand by, the accuracy of its output.

 

The possibilities posed by Industry 4.0 already seem endless, but adding in the expertise of human workers, with its abilities that machines find difficult to replicate (for now), expands these possibilities even further. In the coming years, we expect these to be made even clearer, with the most daring of enterprises implementing early experiments and providing us with real-life case studies to base our approaches on. Nonetheless, the questions that surrounded Industry 4.0 and Logistics 4.0 also surround their 5.0 versions. I’ll attempt to sum it all up: how far will the revolution take us, and what can we do to get there as smoothly as possible?

It all depends, as always, on the readiness of our economy in embracing the possibilities of Industry 5.0. Part of this boils down to the level of support the government is willing to provide to enterprises looking to invest in such technologies. The threshold would be higher: there would be the need to demonstrate not just the amount of technology that will be brought in, but that it will not detrimentally impact human capital. There are opportunities here for potential disruptors to innovate on ways to further enhance human potential rather than diminish them.

That said, what kind of incentives and tax breaks will be provided to these companies? More importantly, is the ecosystem around the company able to adapt to and absorb these demands? I’m thinking of energy requirements, physical and virtual infrastructure, and the capabilities of those who will be working with these technologies.

The Philippines’ current industrial strategy makes a huge play out of the need to reskill employees to make sure they can work best with the opportunities offered by Industry 4.0 technologies. This would still be needed as Industry 5.0 dawns, but the view should extend beyond training for current and future needs of the job. Tech literacy should begin at an early age, perhaps integrated with existing STEM curriculum, to ensure our future workers are not just adept at using these technologies in the workplace, but can easily adapt to changes and make the most of what’s in offer in the future. The advent of AI poses a possible monumental shift in the way we educate our children, and it’s worth keeping an eye on.

We should also keep in mind that understanding the human impact of Industry 5.0 goes beyond employee welfare. The pandemic has brought forward the responsibilities of companies to ensure the physical and mental wellbeing of their people. Industry 5.0 gives us the chance to go beyond that—to integrate our ongoing efforts at taking care of our people, the communities that host us, and our greater environment, by utilizing technology. Already data analytics is being used to keep track and make decisions regarding sustainability goals. We can do the same to keep track of the resilience of our people, which will continue to be the greatest asset of our supply chains.

All that said, the direction of travel is still unclear. Industry 5.0 may emphasize the human factor, but our future will still depend on the priorities of global leaders both in government and the economy. On one hand, we have the somewhat utopian vision of humans flourishing with the help of technology. On the other hand, you have examples of enterprises that lean on technology to the extent that employees are just seen as their extensions rather than their drivers. Notorious stories of working conditions at Amazon fulfillment centers come to mind.

Again, the reality is, the playing field is not equal. Some countries and companies will be in a better position to start (or continue) their journey, while others will face multiple hurdles. Inevitably there will still be some displacement—those whose skills can’t keep up with, or are surplus to, what’s required; those who are unable, one way or another, to utilize the technologies available at their fingertips; those who are discriminated upon. How do we support those we end up leaving behind?

We can talk about social safety nets for those affected, but depending on the values espoused and argued upon by a country, this would be a long and uncomfortable conversation. What can be done now—and, indeed, what some leaders in industry and government are calling for—are policy and regulatory interventions that would enable technologies like AI to flourish, while protecting human workers who have a lot to lose when their jobs are replaced without them being adequately prepared for it. Protections must be put in place to ensure the integrity of both the technology and the way it is used. Now we struggle with the proliferation of deepfakes and disinformation; soon we may see AI become a means for nefarious actors to sabotage businesses and supply chains.

Industry 5.0—indeed, Industry 4.0—will ultimately reflect the values of the society that leverages it. These changes reach widely, and any discussion should not be limited to boardrooms and conferences, but involve every stakeholder—and it should be done sincerely and honestly, and with everyone’s best interests in mind.


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