AD Ports Group - Creating the Future of Manufacturing

Creating the Future of Manufacturing

White Paper

The redesign of industrial ecosystems to keep pace with a changing world

INTRODUCTION

After the disruption of COVID-19 and associated lockdowns, the global manufacturing sector is undergoing a period of significant reorganisation, seeking to enhance resilience and make the most of new innovations to drive productivity and minimise waste. Customers want tailored products delivered on-demand at a ordable prices, leading manufacturers to reconsider their production methods, labour costs, and transportation expenses. In addition, established strategies such as o shoring, outsourcing, automation and always-on connectivity are all being re-evaluated in this new context.

This resulting wave of industrialisation and investment has been dubbed ‘Industry 5.0’, building on the progress

EXECUTIVE SUMMARY

This whitepaper reviews contemporary thinking on the opportunities for modernisation and development within the manufacturing sector, as well as the kind of ecosystems expected to make a success of such investments.

We surveyed experts to learn which factors are considered most important in the development of an Industry 5.0 manufacturing strategy and looked to see how this approach was di erent from earlier digitalisation and modernisation strategies (‘Industry 4.0’). In parallel, we ran a comparison exercise in order to comprehend how di erent international free zones and industrial hubs were attempting to attract this new generation of smart factories, to draw out competitive di erentiators. Participants highlighted key factors they saw as critical to the discussion:

made to date in interconnecting new technologies and moving towards a new era in which high-skill technicians work alongside robots and smart machines to create new manufacturing environments.

However, this transformation raises critical questions for business owners and their customers. How can companies deploy these new technologies without overly disrupting existing structures and organisations? How can they find an optimal balance between e ciency and productivity – and where do human resources factor into the equation? With resilience and sustainability at its core, what kind of ecosystems does Industry 5.0 require to be successful? And, how far-reaching will its impact be across the value chain?

• Innovation: At its core, the redevelopment of manufacturing requires the successful deployment of new technologies and their sustainable integration into production methods.

Ecosystems: Successful Industry 5.0 strategies don’t take place in a vacuum – they require a network of suppliers, partners and distributors that are able to adapt to the new requirements of smart manufacturing.

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• Access: One key consideration stressed across the interviews was that consumer behaviour and expectations have changed irrevocably, requiring faster delivery times and immediate gratification. Positioning manufacturing facilities closer to key markets and major transport nodes was stressed as a potential avenue for meeting this demand.

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Employees: Even with the focus on technology and innovation, the human factor – the role of people in the factories of the future – remains a key consideration for manufacturers. As Tesla and Twitter Chief Executive Elon Musk has observed, ‘excessive’ automation can be a mistake, tweeting that: “Humans are underrated.”

OUT OUR RESEARCH

In the second half of 2022, we conducted interviews with global experts from across the industrial production sector. Our survey questions focused on defining the upcoming Industry 5.0 transition and forecasting how it will impact the business strategy and processes of future-looking manufacturing and industrial production firms.

By collating their shared thinking, this whitepaper seeks to outline the key considerations for businesses looking to enter the new industrial era with confidence, so that they can reap the benefits of lower operating costs, collaborative innovation, and positive environmental impact.

ENABLING TECHNOLOGIES

The importance of innovation-led environments

In its report on Industry 5.0, the European Commission emphasised the importance of economic and business growth in driving the added value this revolution aims to achieve, stating: “Economic targets such as productivity and competitiveness must not be neglected but set within agreed ecological and social values. This can be achieved through business models which value ecological and social value creation or incentives from legislation.”

While Industry 4.0 embraces digital disrupters such as automation, Artificial Intelligence (AI), and the Internet of Things (IoT), Industry 5.0 calls for the integration of these new technologies to drive positive impact in areas such as business resilience, sustainability, and improving the human experience of work.

Our respondents highlighted several core technologies driving current innovation, such as robotics, digital twins, predictive maintenance, 3D printing and 3D scanning. One interviewee said: “If you look at it from a global perspective, IoT is growing – data collection, analysis, interconnecting di erent machines and devices – because you cannot manage what you don't measure.”

The precise analysis, operational overview, and increased capacity for prediction that digitisation provides is supporting industries to construct production systems that are more e cient, and allow for increased flexibility, enabling businesses to adapt to environmental changes and shifts in global demand. Within the area of sustainability, technology can support processes to repurpose and recycle resources, while increased personalisation can optimise resource e ciency and reduce waste. Industry 5.0 strategies are also looking to improve the human experience of work by making jobs safer. For example, in Australia, where automation has been rolled out across several ports,

one positive result has been a reduced risk of heat-related injury during the summer months. Industry 5.0 also has the potential to make human jobs more fulfilling where repetitive tasks are replaced with more satisfying work – the training for which may be undertaken through AI.

A report by the World Economic Forum estimates that AI could replace 85 million jobs by 2025 but will also lead to the development of 97 million new jobs within the same timeframe. These new in-demand jobs will include engineers specialising in machine learning, robotics and AI maintenance, as well as data scientists.

One country taking the lead in this area is the UAE, through initiatives such as Abu Dhabi’s Industry 4.0 Enablement Centre. One expert who is involved with the project explained: “The UAE is creating an investor-friendly environment where testing out new technologies is encouraged not only from a production provision point of view, but also from a usage point of view.”

This new, more human-centric industrial revolution emphasises the use of tech that maximises the combination of human and artificial intelligence in day-to-day working practices to achieve the best results, in turn enhancing human jobs through increased safety, opportunities for upskilling (creating new jobs), and driving economic growth (creating more jobs).

Simultaneously, the UAE is also investing in training and upskilling humans to capitalise on the roll-out of new technologies. For example, the country’s Advanced Trade Logistics Graduate (ATLG) programme initiative encourages Emirati women to develop skills and careers in technology, demonstrating how enabling innovation can contribute to the realisation of wider societal goals.

INTEGRATED ECOSYSTEMS

Connecting industries to close the sustainability gap

One major di erentiator between previous industrial transformations and ‘Industry 5.0’ is the call for businesses to balance economic growth with sustainable business practices to mitigate their environmental impact.

With one-fifth of the world’s carbon emissions and 54 percent of the world’s energy consumption coming from the manufacturing and production sectors, according to the World Economic Forum, placing sustainability at the heart of the next industrial revolution will o er a profound contribution to a cleaner, more productive future.

According to experts, firms of all sizes are developing strategic business goals that are built upon sustainability principles. However, there is an execution gap globally where tangible results are not yet being fully realised. One leading consultant specialising in intermodal hubs told us that: “Industrial symbiosis is going to be critical to reducing the sustainability gap in the manufacturing sector.”

He further explained that, when considering the future of sustainability in the sector: “It is important not to look at manufacturing production facilities in silos, but as a grouping of certain industries in proximity to one another to ensure that unused materials from one player then become relevant for the other. Industrial zones, speciality zones, and logistics complexes, therefore, are going to be crucial in helping firms advance their agenda.”

As a result, while organisations still look to leverage traditional benefits such as geographical location when choosing where to establish operations, interviewed specialists predicted that businesses would begin to seek out integrated business ecosystems from where

they can collaborate with like-minded organisations to implement sustainable production processes that limit waste, conserve energy and recycle resources.

This industrial symbiosis directly complements the circular economic model, which is being increasingly adopted by industry leaders. In the UAE, the circular economy forms a cornerstone of the recently launched Abu Dhabi Industrial Strategy, which is a promising industrial vision that supports those manufacturers that align their operations with the ‘reduce, reuse, recycle’ foundations of sustainable business.

Facilitating Abu Dhabi’s transition toward a circular economy is a key pillar of AD Ports Group’s strategy within its Economic Cities and Free Zones cluster driven by KEZAD Group, which provides innovative enterprises with a competitive business ecosystem from where they can create the future of manufacturing.

Today, KEZAD Group’s integrated and purpose-built economic zones are home to a diverse range of clients who are pushing the boundaries to move their industries away from the traditional ‘take, make, and waste’ model, whether that be in energy production, textiles manufacturing, or zero-waste farming, among others.

Describing the far-reaching benefits of integrated business ecosystems such as KEZAD Group, one expert concluded that: “We're talking about learning from one another, about peer pressure across industries. These are ‘soft’ factors, that, in the end, will play a pivotal role. If you look to the left and the right and you see sustainable practices being both encouraged and executed, you suddenly have an exciting and transparent exchange across organisations. This is going to be very important in the future.”

PROXIMITY TO CUSTOMERS

Changes in the global economy, driven by enhanced technology and rising o shore labour costs, are transforming the manufacturing cost proposition. The development of new technologies enables factories to shift from a low-skill, low-cost labour model to automated environments operated by highly skilled technicians. These advances are making the arguments for o shoring less compelling than they were, prompting companies to consider alternatives.

A key consideration for many businesses – sharpened by the recent experience of the pandemic and its impact on supply chains – is the importance of boosting resilience by reorganising the delivery of raw materials and the production and distribution of finished goods.

Near-sourcing – moving operations closer to where end products are sold – was cited by multiple interviewees as a key opportunity for businesses. The benefits of shorter supply chains, such as faster delivery, improved responsiveness, and shorter times-to-market, have been emphasised by the experience of lockdown and global supply chain congestion. In addition, tighter control over shipping costs, flexible access to raw materials and shorter lead times, all contribute to the attractiveness of near-sourcing as part of the changing industrial ecosystem.

One senior executive of a major industrial zone explained: “Shorter supply chains also mean shorter lead times, an essential consideration following the impact of COVID-19 on consumer behaviour. In addition, with the shift toward e-commerce reducing interest in physical retail, demand for next-day deliveries on a greater range of products has increased and can be more easily serviced by prioritising distance to customers.”

Companies are reviewing near-sourcing as a tool to increase control over their manufacturing operations as well as contributing to their social and environmental goals. With near-sourcing, companies can visit manufacturing sites more frequently, conveniently and cost e ectively. Earlier trends of outsourcing mass production to countries with lower safety and welfare records has created reputational risk for major brands, and the process of bringing smaller scale production closer to home o ers the potential to mitigate that risk. However, despite the noted benefits, interviewees sounded a note of caution around the challenges of implementing a near-sourcing strategy.

“It’s clear that businesses need an in-depth understanding of their supply chain and potential risk factors before shifting to a near-sourced model – one size doesn’t necessarily fit all,” said one consultant. “You have to assess unit cost vs. total cost in the new model, as well as the response of your wider ecosystem of customers, suppliers and, ultimately, even your competitors.”

One key factor to watch is the rise of regional specialists who are well established to serve nearby markets, as has been seen by the growth of service markets in Romania and Albania for the EU, and the development of dedicated platforms for growth in the MENA region. Abu Dhabi in particular, is already reaping the rewards of the near-sourcing trend, with global businesses moving into the emirate to develop a regional base closer to new markets thanks to the holistic approach to trade taken by KEZAD Group.

Shorter supply chains boost resilience

THE CASE FOR ABU DHABI

How to attract future-facing manufacturers

The UAE is a strategic hub for industry, with business-friendly free zones and a fast growing economy attracting multiple businesses to set up operations in the nation. It is certainly leading the way in the current industrial paradigm, with ‘UAE Industry 4.0’, one of the core pillars of Operation 300bn, aiming to accelerate the digital transformation of its industrial base into a globally competitive, productive and sustainable sector at the cutting-edge of the Fourth Industrial Revolution.

Given the importance of human centricity, resilience, and sustainability, the concept of Industry 5.0 is set to complement the existing Industry 4.0 approach, o ering an opportunity for regional actors to develop local transformation strategies combining economic development with revitalisation programmes, with the emergence of new decentralised and circular value chains.

According to one principal of a leading business consultancy firm that was interviewed: “The GCC region is well-equipped when it comes to addressing the upcoming trends facing the manufacturing sector. Countries in the region have a very open approach to new technologies specifically and are investing a lot of money to set up projects that encourage and reward future-looking manufacturing companies.”

The UAE government is driving a forward-thinking agenda, focusing on sustainability, trade e ciency, industrial innovation, energy transition and the promotion of responsible consumption and production, having implemented several landmark initiatives which will ensure its position as a pioneer.

For example, the UAE is a global leader in energy transition, having invested more than US$50 billion over the past ten years in clean energy technologies. Additionally, the country has built three of the largest and lowest cost solar projects in the world, as well as

constructing the Arab world’s first nuclear plant. These add to the development of hydrogen and a plan to have net zero emissions by 2050.

The UAE Energy Strategy 2050 aims to increase the contribution of clean energy in the total energy mix from 25 per cent to 50 per cent by 2050 and reduce the carbon footprint of power generation by 70 percent.

Operation 300bn, the UAE’s industrial strategy which aims to raise the industrial sector’s contribution to the GDP from AED 133 billion to AED 300 billion by 2031, is aligned with national and global commitments outlined in the Sustainable Development Goals 2030 policy. Its objectives include deploying clean energy solutions, increasing the e ciency and sustainability of the production cycles and supply chains by driving research and development (R&D), and implementing sustainable industrial policies that reduce resource consumption while supporting climate action and carbon neutrality e orts.

The Circular Economy Policy 2021-2031 is a comprehensive framework that guides the country’s e orts to ensure sustainable and e cient use of resources with the aim of preserving them for future generations.

The government is keen to attract even more international talent, after launching its Thrive in Abu Dhabi programme to promote long-term visas and a pathway to long-term residency for talented scientists, inventors, entrepreneurs, and creative individuals.

This focus on the future will ensure that businesses that choose to locate and invest in Abu Dhabi are best positioned to make the most of tomorrow’s world of opportunity. The emirate is actively involved in the redesign of industrial ecosystems that will make Industry 5.0 a living, breathing reality.

CONCLUSION

Automation and innovation-led manufacturing are clearly disruptive and transformative factors, with the e ciencies and cost benefits realised by early adopters likely to transform the industry irrevocably.

As a recent paper from the European Economic Social Committee (EESC) made clear: “The proliferation of robotic automation is inevitable.”

Recognising that reality, it falls upon manufacturers to adopt best practices in deploying these innovations and addressing the disruptive impact at both operational and policy levels. Understanding how best to leverage new technologies and generate

the most value from human/machine interactions is likely to be a factor that di erentiates winners from losers in the manufacturing space in the future.

Crucially, the wider ecosystem plays a role in the success of implementing ‘Industry 5.0’ strategies. The opportunities to learn from peer businesses, implement processes that integrate suppliers and distribution network into a smart manufacturing approach and, most importantly, to collaborate on sustainable production processes are likely to a critical success factor in the evolution of the manufacturing sector.

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