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Lights out for manufacturing
Mike Redwood | 19 July 2018

In June of this year Google paid half a billion dollars, yes [[ArticleContent]].5 billion, for a 1% share in JD.com. Walmart already owns 11%. I imagine that a good proportion of readers of this article will not know who JD.com actually is or what they do. It is China’s second largest on-line retailer and functions in some ways like Amazon. Its stated sales for 2017 were US $56 billion, putting it as the number three Internet company in the world according to Wikipedia - behind Amazon and Alphabet (Google). 20% of JD.com is owned already by Tencent, the fifth largest company on the Wikipedia list and the owner of WeChat, by far the best social media tool in use in China. 

We know that China worries the US right now, who fear that this new industrial giant will acquire the knowledge to allow it to go past the rest of the world in advanced technologies. The list of target technologies in the Chinese five year plan is certainly a comprehensive list of areas that the west thought they had leadership in. Yet a look at JD.com suggests that China may already lead in many areas. 

Much of the story of dark factories, which work with robots rather than people, is being told in China. Matthew Carr, Emerging Trends Strategist at The Oxford Club wrote last year about what was happening. “Wages in Shanghai” he wrote, “have doubled in the past seven years. And since 2001, wages in China have grown an average of 12% annually. Humans have priced themselves out of the market.” He picked out a factory in Dongguan, a location well known to the tanning industry, where Changying Precision Technology Company replaced 650 workers in their mobile phone factory with 60 robot arms leaving only 60 workers to mind the machines. “The results are mind-blowing. Productivity increased 250%, while product defects decreased 80%. The robots run 10 production lines that are going 24/7” wrote Carr. 

JD.com does not have factories but it does have warehouses, or what we now call fulfilment centres. It has a problem not merely of high wages, but of finding people at all. Their advanced logistics team say it is very hard to recruit workers to work in the warehouse and for last-mile delivery so the approach being taken is to remove people from these aspects of the business. 

The US looks to European warehouse technology
Recently US retail giant Kroger took a 5% stake in the small online UK grocer Ocado and signed an exclusive deal to use their automated, robotic warehouse technology in all their US facilities, as part of a programme to fight off Amazon’s grocery ambitions. Okado have developed what is known as the hive-grid machine which uses only one type of robot but in a way that is both scalable and modular. The surprise was that such a small UK business was needed by an American giant to access these skills. Mostly people are still required fir packing and unpacking. A video of the system is on YouTube :

While the hive-grid system is certainly innovative the imperatives in China consequent upon worker shortage (resulting from the one child policy) makes it look as though they are already ahead. The evidence from the new JD.com warehouse suggests they have removed people from both the unpacking and packing ends. Their new centre in Shanghai is reported to be truly dark, with only four workers maintaining all the machines.
 

For the “last mile” problem JD.com are currently testing drones for countryside delivery in four provinces, where they have been given permission. They are likely to meet fewer issues in China than Amazon in their joint project with the UK government. In crowded Britain citizens object to drones looking over their garden walls and there have been frequent incidents with commercial planes. In cities JD.com are testing self-driving vehicles in a number of Universities. 

With artificial intelligence high on the agenda, and vaguely discussed as being utilised by JD.com, and other areas like face recognition far more advanced in China than the west we may well find ourselves looking to China for the big changes in the way things are made and delivered in the future.

The lights may be going out in China, but it signals advancing technology. 

Mike Redwood
June 2018

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