SMEs need to take a serious look at incorporating new technologies into their operations
TECHNOLOGY has advanced by leaps and bounds in recent times. Automation and digitalisation are fast changing the world as we know it.
In today’s digitalised era, known globally as the fourth industrial revolution or Industry 4.0, technology can boost businesses by enhancing productivity. Entire operations can be run with automated lines and systems can be managed remotely.
And as technological advances gain a better insight into manufacturing systems, manufacturers will be able to know the status of their production orders – what is lagging and what is lacking – and be able to predict the necessary actions to be taken to keep things going smoothly.
Government agencies and trade associations have been actively pushing for small businesses and manufacturers to look into the usage of technology to increase efficiency, enhance productivity and grow sales.
The computerisation of manufacturing will enable companies to counter the rising cost of labour and reduce their dependency on manual labour.
But SMEs have not seriously moved into automation and have not taken full advantage of the digital economy and e-commerce.
The Federation of Malaysian Manufacturers (FMM) notes that small businesses are still finding their way around technologies that are suitable to their needs.
“The readiness of the Malaysian manufacturing sector in adopting Industry 4.0 depends on various factors including the nature of business, their products and services and business model.
“Most multinationals and the larger companies may already be implementing Industry 4.0. But many SMEs could still be at the exploratory stage of understanding and identifying the Industry 4.0 technologies most relevant to their operations,” the organisation says.
According to FMM, while most companies are aware of the need to embrace Industry 4.0, only a small percentage of them have actually installed such technologies.
In the 2H2017 FMM-MIER Business Conditions Survey, which looks at the status of adoption and awareness of FMM members towards the nine pillars of Industry 4.0 technologies – industrial Internet of Things (IoT), cloud computing, simulation, additive manufacturing, Big Data, cybersecurity, vertical and horizontal system integration, augmented reality and autonomous robots – the top three technologies which are already in use by its members are cybersecurity (35%), cloud computing (27%) and industrial IoT (24%).
These were also the top three technologies which other respondents had indicated that they intend to introduce into their operations.
Interestingly, the survey also notes that 67% of the respondents would not be using autonomous robots, which are thought to be one of the more common options for SMEs looking to automate their operations.
In addition, 72% of the respondents indicated that they would not be using additive manufacturing, 71% would not be using augmented reality and 62% would not be using simulation technologies.
“The awareness of Industry 4.0 among FMM members is high. About 93% of respondents to the FMM-MIER BCS 2H2017 were aware of autonomous robots.
“However, only 7.4% of the respondents are using and 19.3% intend to use robots in their production. Of the 7.4% of survey respondents which are currently using autonomous robots, 23.3% are SMEs,” it says.
But SMEs need to embrace Industry 4.0 to stay competitive amid the rising cost of doing business.
SME Association of Malaysia president Datuk Michael Kang points out that costs, particularly labour cost, will only continue to rise and automation is one of the factors that will help them remain competitive in a challenging market going forward.
Notably, the initial cost of automating and digitising their business could be a challenge for small businesses.
Additionally, they lack the relevant talent to lead them forward in these developments. Most senior management teams of SMEs don’t have a deep understanding of new technologies and are often reluctant to explore them.
Industry observers note that a lot of the developments in e-commerce, robotics, Artificial Intelligence and the IoT are lost on these small companies.
“They don’t know how to make use of the potential. SMEs don’t have a direction and they don’t have the talent to hand-hold them for these different technologies,” says Kang.
FMM also points out that incorporating new technologies such as IoT, cloud computing, e-commerce, Big Data and information security into a business involves risk, which further causes SMEs to be cautious about adopting them. This is particularly so when there is a possibility of down time to accommodate the transition between technologies and a need to customise solutions to their needs.
“While manufacturers may recognise the importance of investing in these technologies to improve productivity and reduce reliance on labour, there is also a need to ensure that planned introduction of these technologies are timed to coincide with stages of their business development and growth, availability of infrastructure, and access and provision to necessary support service and training,” FMM says.
According to a 2016 FMM-MDEC-Monash University study on the adoption of ICT among FMM members, 74% of 148 manufacturers indicated that the top determining factor to adopt new technologies is their organisation’s need followed by set-up cost and security (69% of respondents), and compatibility with their existing system (58% of respondents).
Other factors that affect their adoption of ICT technologies are the lack of knowledge (53%), the lack of skills (51%) and the lack of external technical support (52%).
Given that most SMEs don’t have deep pockets to dig into, FMM advises companies to carried out a self-assessment of their entire value chain and operation processes before embarking on any project or implementation of new technology.
“This is to enable companies to identify processes which could be improved, integrated and digitised as well as create a benchmark for measurements and target outcomes of the project,” it says.
This process, of course, takes time. And small businesses need to also manage their expectations as they embark on transforming their business.
One of the things that industry observers have pointed out about the Malaysian market is that the government has been a strong driving force in encouraging SMEs to embrace Industry 4.0 and adopt new technologies.
“It is not a strategy that is employed by the other countries in the region. It is usually a very sporadic trend where a few brilliant minds will come together and decide to implement a technology.
“Singapore and Malaysia are an exception. The strategy is driven by the government and they know that it’s going to happen. We are, in a way, ahead in terms of the adoption curve. It was very clear when Budget 2018 was announced that our country is digital focus,” says Sharala Axryd, chief executive officer of Asean Data Analytics eXchange (Adax).
FMM welcomed the announcement of matching grants and tax incentives for smart manufacturing, automation and digital technologies under Budget 2018 that would help to reduce cost of implementing Industry 4.0 technologies for manufacturers.
Based on the FMM–MIER BCS 2H2017, 38% of respondents expected to benefit from the Accelerated Capital Allowance (ACA) and Automation Equipment Allowance (AEA) incentives on automation, while 35% welcome the export promotion programmes especially the Market Development Grant (MDG).
Meanwhile, 30% of respondents expect to benefit from the ACA on ICT equipment and software purchases and development of customised software for 30% of respondents, 21% for ACA and AEA to adopt Industry 4.0 technology, 16% for loan guarantee to SMEs to automate, and 10% for insurance credit and credit financing facilities for SME exporters.
But apart from a supportive national budget, FMM says there are other efforts that can be done to encourage manufacturers to automate. Some note that there needs to be more aid for real implementation of technology instead of just building awareness among SMEs.
These include creating an ecosystem that supports automation for the manufacturing industry, providing sufficient information on available technology and providing accessibility to shared resources for knowledge on automation.
There should also be some assistance through the development of self-assessment tools as well as other incentives and grants for the industry to help them with the adoption of new technology.
Another element to getting SMEs to embrace Industry 4.0 is to ensure the availability of relevant human capital for the industry. This could take place in the form of establishing educational institutions that are able to help the industry innovate.
Note that there is also an active move by the Human Resources Development Fund (HRDF) to up-skill and re-skill talent to ensure that they remain relevant in the industry even as more manual jobs are taken over by technology.
But while going digital is a national agenda, SMEs themselves need to take the initiative to relook their operation processes to identify ways to future-proof their business.
Malaysia may be ahead of the digital curve in the region for the time being. But this may not last for long if local businesses refuse to take advantage of this lead time to change and improve themselves.
“We used to be the manufacturing country in the region. But not anymore. Most of these jobs are going to countries with lower operating cost. So they are harvesting on that for now.
“But there will come a point in time when the other countries will catch up to this digital curve. It may be a gradual process or a sudden leap jump. It may not happen so soon, but it will come.
“We are lucky to be in a much more forward-thinking position. But people have to re-skill themselves and have the learnability attitude to remain at the forefront,” adds Sharala.