A Factory for All Seasons
Mudguards today, car roofs tomorrow: Robotics manufacturer Kuka, insurer Munich Re and MHP consultants want to sell smart factories as a service. Companies can use them to produce whatever they want
They certainly got the colour right. Kuka, a robotics manufacturer, has set up a test factory in a former dumpling plant behind Munich’s Ostbahnhof, and the building itself is almost as orange as the company’s robots. Kuka is not the only business involved in the factory. The project is a joint venture between Kuka, the Munich Re insurance group and MHP, a consultancy firm belonging to Porsche.
They are using the facility to demonstrate their latest product, which they call the “Smart Factory as a Service”. “Digitalisation is eliminating the divisions between companies”, says Till Reuter, CEO of Kuka. “We have to work together in the future.” He predicts that more flexible business structures will be replacing the traditional ones. And that things will have to move faster.
The test facility aims to show how that might work. “This is not a toy – this is reality”, says Torsten Jeworrek, member of the Board of Management at Munich Re. And you can tell that he is excited about having smart factories be service providers that produce goods for other companies. The idea would allow companies to invest much less capital in machines and facilities, and even very small production runs would become possible. Everything is networked within the factory, and huge amounts of data are collected. A smart factory can produce mudguards for one company today, and car roofs for another company a week later. The robots can be reprogrammed automatically and quickly set up for a different purpose, for example by equipping them with new grippers or welding tools. That is MHP’s job, as the project's consultant. “We see digitalisation as a gift”, says MHP partner Markus Kirchler in Munich.
As for Munich Re, it is contributing its experience with risk, business interruptions and industrial losses to the project, as well as its know-how in the field of sensor technology. The reinsurer also intends to help with financing – providing both its own insurance funds as well as its excellent access to the capital markets. The smart factories are to be owned by SPVs open to investors. And many such smart factories are planned.
Reuter, Kirchler and Jeworrek are using the test facility to demonstrate how the machines work. During this evening’s test run, the machines have been programmed to manufacture puzzles. First, an image arrives at the factory as a file, and is printed out. A laser robot then cuts the image into the size and number of pieces ordered by the customer. The pieces then move to a gluing station – but one of the robots suddenly breaks down. Though this is all part of the plan: the management team also wants to show how the facility handles malfunctions. The stoppage is reported to the plant operator, together with an estimate of the expected lost revenue. The longer the machines stand still, the higher the costs. The plant operator also receives an estimated price for conducting the necessary repairs. If, despite all the state-of-the art equipment, the factory does have to stop production, Munich Re pays immediately – no loss advice or adjusters needed. The only prerequisite is that the shutdown last for a predetermined time. “We then pay in real time”, says Jeworrek. “If the banks can manage it, plant operators have their money before they can blink an eye.” But of course, the idea is for the machines not to break down in the first place. Sensors throughout the plant apply “predictive maintenance” to constantly monitor and adjust the robots, reporting in advance when any parts need to be replaced, and keeping business interruption costs to a minimum. According to Jeworrek, “We will be learning to predict how the factory behaves.”
The world’s largest reinsurer is thus reacting to a disturbing trend: its core business is under pressure because there is too much capital on the reinsurance market. And at the same time, sensor technology – when applied cleverly – has been leading to fewer losses to buildings and machines. Yet fewer losses sooner or later lead to fewer premiums.
Munich Re therefore intends to use smart factories to profit from a trend that has otherwise constituted a challenge. The reinsurer is working not only with Kuka and Porsche, but has also signed a cooperation agreement with Bosch that also focuses on networked production, sensors and financing. Jeworrek is aware of the risks of the new business, but “is not losing any sleep over it.” He claims that the risk is manageable: “We have good algorithms and good data.” Though Jeworrek, Reuter and Kirchler all agree that it will be a while before companies start taking up the new service. “But when this gets going, the market will be worth billions.” Jeworrek does not want to make any financial predictions about smart factories. “Business plans are the death of innovation”, he says. Sometimes he sounds like he works at one of the start-ups across the street.
This article was first published in the Süddeutsche Zeitung on 22 June 2018.