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Part Two: Team Japan (FANUC and Cisco)

Japan Races to the Factory of the Future

Japan's advanced robot technology and America's IT leap forward…together

Empire of canary yellow
The empire of canary yellow, all twenty-six factory buildings of it, sits reclusively in a forest beneath Mt. Fuji.

Reclusive on purpose.

Actually, reclusive is understatement for the $50-billion behemoth robot maker FANUC that works extra hard keeping itself secret from the world.

The forest, with a stone marker declaring it FANUC Forest, has an entrance way flanked by twin statues of Ebisu, the Shinto god of good luck. Beyond are the aforementioned factory buildings—mostly painted canary yellow—within which are hundreds of canary yellow machines busily building other machines which are themselves quickly painted canary yellow. Among, between and within the canary yellow buildings hustle groups of executives wearing canary yellow sports jackets.

Receptionists dress in yellow, company cars and busses are yellow, as well as the towels in the rest rooms.

FANUC’s canary-yellow-jacketed CEO, Yoshiharu Inaba, thinks too much contact with the outside risks leaking information to rivals, he told the Financial Times. He equates business secrets as “military secrets in combat”. Hence, the unobtrusive, quiet life in the country for the world’s largest maker of robots.

In addition to making robots, FANUC makes some 23,000 CNC machines per month; it holds a 65 percent share of global CNC machine sales. Over 80 percent of its robots and CNC machines are exported.

With a market capitalization of about $53 billion, FANUC is forecasting an operating profit of $2.3 billion on sales of $5.7 billion, for a tidy margin of nearly 40 percent. In addition, it’s sitting on $6 billion in cash.

Nice profitability for a recluse.

Inaba’s father, Seiuemon Inaba, founder of FANUC, is the guy who came up with the canary yellow color scheme, supposedly to make his robots stand out from the pack.

The company hides out while its products stand out.

Innovating a dilemma
However, that take on the world of business and manufacturing caused problems for FANUC.

“For years, this go-it-alone strategy worked well,” reports the Nikkei Asian Review, “and the company has been highly profitable with an operating profit margin of 40 percent. But the strategy seems to be losing its effectiveness.

In the current fiscal year through March, Fanuc’s operating profit margin is expected to fall to 26.4 percent.

“For instance, FANUC misread signs of change in the industry and was late in adopting touch screens to replace keyboards on its numerical controls, where demand was growing for touch screens among young factory workers and in countries across Asia. FANUC has lost its power to set industry standards and ‘started losing longtime customers,’ an industry official said.”

For an industry giant, FANUC was even late to the party with a collaborative robot, although now it has two.

Strangely, the preceding does not seem to fit the profile of a company that recently discovered the keys to the Factory of the Future.

FANUC seems more like the type of high-tech provider who must be wary of falling into the trap of Clayton Christensen’s Innovator’s Dilemma:  “The very decision-making and resource allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies.”

Feeling bulletproof in the empire of canary yellow can be dangerous, which is exactly what Team China (KUKA and Huawei) will probe and test in order to gain competitive advantage.

It’s called being innovative
Dangerous too is the fact that is wasn’t FANUC Japan but FANUC USA that hit upon the Cisco connection and eventual marriage.

Rick Schneider, who served as CEO and president of FANUC America Corporation (replaced by Mike Cicco in July 2016; Schneider now Chairman of FANUC America), credits himself as the wellspring of the Factory of the Future movement at FANUC.

Basically, Schneider says in an explanatory YouTube video that after a robot is delivered to a customer, contact with that robot for FANUC ends.

He knew that a robot costing $250K would have another $250K of servicing during its lifetime, however, he’d never be aware when one of the robots might malfunction and unexpectedly and abruptly halt an expensive manufacturing line.

According to Schneider, such downtime could cost a manufacturer more than $20,000 per minute and over $2 million per incident.

To know how a robot performed as it was doing its job; or better still, to know when it was about to fail, would be invaluable insight to provide his customers. Such insight offered the opportunity to repair or replace a part before an expensive incident occurred.

As he tells it, Schneider and his gang met up with the Cisco gang at a Cisco Internet of Things (IoT) conference. Out of that meeting came the idea of connecting FANUC robots to Cisco’s Intercloud Fabric which would “let FANUC remotely monitor industrial robots, proactively detect potential equipment or process problems, and reduce unplanned downtime.”

Here’s how the Nikkei Asian Review described this FANUC-Cisco marriage back in January of 2016:

 “FANUC and Cisco Systems are set to commercialize a technology this summer that promises glitch and disruption free factory operations. The Internet of Things based system monitors machinery and spots signs of possible abnormalities so that parts can be replaced more smoothly and without affecting operations.

The technology is a marriage of Japan’s advanced robot technology and America’s information technology. FANUC, an industrial robot maker, and Cisco, the communications network developer, hope their unconventional system attracts global demand from automakers and other manufacturers wishing to increase factory efficiency.”

Rowan Trollope, Cisco’s senior vice president for the Internet of Things and Applications, describes the collaboration as “an historic shift in the industry, with IoT, industrial automation and machine learning coming together to make the factory of the future a reality. It’s been talked about for years, but now it is really happening.”

Amazingly, all of the pieces for the Factory of the Future already existed on lots of shelves scattered about the high-tech domain, all ready and waiting to be knitted together by someone with the idea to do it.

In April, the shelf picking and the shelf pickers expanded when Rockwell Automation and a Japanese artificial intelligence (AI) start-up calledPreferred Networks (PFN) were added.

“By working with Cisco, Rockwell and PFN, FANUC says it will be able to offer a complete systems including network and computing infrastructures, applications, as well as an enabling middleware platform.

“It adds that the open platform will allow application developers, device-makers, systems integrators and others to build systems that improve equipment efficiency, manufacturing output, and quality.”

“By connecting machine tools and robots and making them smart, we hope to create an autonomous working environment.”

                                                       —Yoshiharu Inaba,  chairman and CEO, FANUC 

Divine wind returns
For Japan and for Japanese manufacturing, they’ve been here before: this is another of those classic moments when Japan gathers itself together and creates a new industrial empire. What historian Yoneyuki Sugita calls a “divine wind” that comes just in the nick of time to rescue the country’s embattled economy.

Since the 1930s, Japan has been visited six times by an industrial divine wind: in the 1930s manufacturing Dodge trucks; in the 1950s after buying Bell Labs’ plans for the first transistorized computer; with Joe Engelberger’s robot in the 1960s; with W. Edwards Deming in the 1960s for management and manufacturing; in the 1970s for creating the modern automobile industry; and now here in 2016 for its sixth with the Factory of the Future.

See related:Emperor of All Robots Put to the Test

The effect of past divine winds resulted in four titans of modern Japan: Japan’s automobile industry; “kaisen” of continuous improvement in manufacturing; electronics; and robot-driven automation.

Each time, the divine wind originated from outside of Japan, in the West; and each time it was immediately recognized, acted upon, and wrought into a fabulous industrial colossus.

Divine winds do not last for very long. Japan has no choice economically to tarry, and it appears that the Abe government and Japan’s high-tech giants fully realize that this is it, the time is now: their great country is in a bad way and failing fast; this opportunity must not be allowed to be missed…or else!

The Organisation for Economic Co-operation and Development’s June (2016) forecast summary for Japan is really bad news arriving at an even worse time: “Output growth has been slowed by a drop in demand from China and other Asian countries and by sluggish private consumption. Growth is projected to be around 0.7 percent in 2016 and 0.4 percent in 2017…Raising output growth is essential to reduce the ratio of public debt to GDP, which will reach 234 percent in 2017.”

Falling growth is bad; it should really be closer to 2 percent rather than crashing to 0.4 percent by 2017. Public debt to GDP is worse than that of Greece and twice as bad as that of the U.S.

Japan can take heart in the fact that as late as 2005 Germany’s economy was tabbed “the sick man of Europe” and now Germany’s resurgent economy is bailing out the rest of European Union from its dire financial straits: From Sick Man of Europe to Economic Superstar: Germany’s Resurgent Economy.

Prime Minister Shinzo Abe’s plan for Japan’s recovery can work if…

All good winds gather force
Toru Nishikawa, CEO of Preferred Networks, predicts that the collaboration “will further accelerate the advancement of the manufacturing industry. Since the start of our work with FANUC, leveraging machine learning and artificial intelligence has been aimed not only at making machines and robots smarter, but also towards a continuous improvement of manufacturing productivity through intelligent real-time coordination and collaboration between robots and machines.”

Toshimitsu Kawano, managing director of Beckhoff Automation Japan, a German-based automation equipment maker, said “this gives FANUC a tremendous competitive edge because it would be the first player to provide such a service.”

“Bringing the concept of app stores to the factory robot industry is what U.S. and German companies are all planning for, but haven’t been able to do.”

Inaba, the leading man in the yellow sports jacket set, is succinctly blunt in his confidence: “We believe this will be a de facto standard for factories around the world.”

His confidence may well be buoyed by the fact that FANUC and Cisco have already pilot tested the system with 1,800 robots, including with FANUC’s customer General Motors.

“FANUC says that the test has already saved its customers $38 million.”

It’s a partnership that was swiftly followed by a similar one with GE. GE said it would use Cisco’s IoT tech to pilot in 100 of GE’s factories.

“This is definitely a game changer,” says Andy Denny, VP of Robot Operations FANUC America.  “Think of that. A facility that predicts when equipment is going to fail before it fails.”

If it all comes to pass, it’ll be a tremendous triumph for a now struggling Japanese economy. This divine wind could well last for a long, long while.

The only other contender for the crown is Team China (KUKA-Huawei), which could well become a formidable challenger. To date, Team China is more like a mirage on the near horizon shimmering with potential.

But as we’ve seen with Team Japan, building out the Factory of the Future can be done in a hurry. Most all of the pieces already exist. Vitally necessary is the will and capital to get underway as well as the innovative skill to put the pieces together in the right way…without too many technical stumbles.

Team China is eminently capable of mounting a furious challenge; and with both teams knocking heads along the racecourse to the Factory of the Future, the fallout of high-tech innovation for robotics could be of epic proportions.

So far, it’s Team Japan resurgent and with a long, decisive lead.​

Part 1 of 3-part: Race to the Factory of the Future

Part 3 of 3-part: China Responds: The Long March at a Quick Pace

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