Automation Economics in the Downturn

Robert Dunlap

dunlaprobert@stanleyconsultants.com

Confusion happens

NOW is the time to invest in automation!

What else is happening?

BW 2/27: Jobs… dismalCSBJ 3/2: consumer spending uptickyahoo.com 3/2: Dow lowest since 96CSBJ 3/3: 40 new jobsAP 3/5: Jobless claims dropAP 3/5: Factory orders fell for 6th monthCNN 3/6: Highest unemployment

1. No more people

AI and satellitesNo engineering gradsHR

Cannot give incentive Not a value adder Cheap lawyer

2/3 have no talent management

1. HR and lawyers

“…not getting trapped by some recruiting formulas.”

“You are playing to a lawyer’s weakness to ask him to make a business decision.”

2. Unions

+428,000 union jobs in 2008Government +0.5% in 2009Manufacturing -3.9%…automation and computerization are "the

enemies of the postal union." - Sam Anderson, EVP, APWU Local 1, 9/16/04

2. Productivity?R2 = 0.5789

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3. Infrastructure plan

Demand risingColorado to receive $2.8B stimulus$11B for (smart) Electrical grid

Failures cost $150B/year

$19.4B for water

4. Automate for value

Marketing in South Africa No money = no loyalty? 100% wrong

GM made $ thru 1930’s!

4. 8000 hits

“…automated systems and sensors, … promote quality and compliance...”*

“Automating … saves on labor, newsprint, and overweight postage.”*

*sec.gov, 3/2/09

5. Green is coming

Carbon -83% 2005 to 2050 (!) Trade $13~$20/ton Gasoline +12 c/gal Consumer power bill +7% $150B for green

Red Herring 3/2/09, BusinessWeek 3/5/09

1. Intellectual capital

Invest now - it’s cheapNo innovations in a long timeR&D = 1.8% of sales*People leaving the industry

* sec.gov, 3/12/09

2. Growth is coming

Media sells emergenciesUnemployment

Natural rate 5% Germany 10% US 8% CO jobs -0.8% in 2009

Your customer will be ready

3. 1987, 1937 or 1929?

Dow 1929 1987

The Depression became GreatCyclicals

4. Information is valuable

Reliability Council example$100B, $300B, $1 TrillionSecurity worsens in downturnPlug customer leaks

Papers = 1 Products = 0 The 14-second test

4. Information opportunities

ProtectionDashboardsInformatics

5. Understand user

What you’re not doing: Benefits Your product’s cash flows Their cost of quality Innovating production

SUPPORTING SLIDES

FOLLOWING SLIDES TO BE USED FOR SUPPORT; RESPONSE TO QUESTIONS

Engineering Graduates

http://www.engtrends.com/degrees1945.html

Not Enough Engr Grads

“At the same time, the United States is also falling behind in general STEM [Sci, Tech, Eng, Math] education. According to the American Society for Engineering Education, China will likely produce almost eight times the number of engineers than will graduate in the United States this year. Students in India are also studying science and engineering at an average rate of three times that of the students in the United States.”

http://thetartan.org/2009/2/23/news/jobs [CMU]

Engineering Grads - $15MM?!

“Topeka — State legislative leaders Tuesday announced the formation of a task force to address the shortage of engineering graduates in Kansas… Last year, the deans of the three engineering schools unveiled a five-year plan to increase the number of engineering graduates from 875 per year to 1,365 per year, an increase of 490 annually. The proposal was supported by industry. But the plan would cost an additional $15 million …”

http://www2.ljworld.com/news/2009/mar/03/task-force-formed-address-states-

shortage-engineer/

Brandeis – good example

Lovers, Tyrants, and Other Enemies: Greek Tragedy from Aeschylus to Brecht

Reggae Representation, Race and Nation

The Renaissance: When France Became France

A bad union?

Argumentum ad nauseum: proof by assertion

Median teacher salary: $47,900$47,900 * 40/36.5 * 12/9 = $69,990

Data from bls.gov retrieved 3/10/09; Manhattan Institute for Policy Research Jan 2007

Beta and Cyclicals

CPN 0.00 GIS 0.26 XOM 0.46 SO 0.46 K 0.50 XEL 0.52 COP 1.18 GE 1.21 HON 1.45 FCX 2.21

Automation… what?

design of photolithographic masks fare-collection systems spinning and cloth manufacturing case running back office metal anodization, vacuum metallization of

plastic design of custom semiconductors customer shipping…replenish branch inventories

Automation… who?

http://www.sec.gov: 8000+ Annual report: 8000+ Between 3/3/08 and 3/3/09: 8000+! Golfsmith – merchandise Thrifty Car Rental – ordering and deliv Oncor – 600,000 automated meters Mobile Mini – automated pallet racks Northwest Natural Gas – meter reading Olympic Steel, Roper Ind, UPS

An innovation

Utilities are worried about renewablesAutomate weather trading, weather

forecasting, hedging, dispatch

IP theft fm MES + Automation

1997: Last known year PRC made crank starts 2003: BMW licenses 3 and 5 to PRC 2005: PRC passes Germany in production 2007: PRC exports BS6 to Germany 90.1%: PRC (propaganda) literacy rate 2007: GM to increase PRC suppliers; executive

sees “no quality problems” 2009: PRC forex res $1.946TWikipedia, Car and Driver, The Economist, RAD, Reuters

NERC CIP: A challenge to mgmt

Can you define SHA-1?Would you approve a product using MD-

5?How long does it take a logic bomb to

deploy?Have you blocked *.cn packets?1 day to get in nuke, 1 wk to control