Smart Factories Could Help Solve Labor Shortages

Even before the pandemic began, the United Nations published research predicting potential labor shortages for economies worldwide. The pandemic has only hastened and exacerbated the situation, and companies and manufacturers are having a difficult time finding the workers necessary.

“Inside manufacturing, companies are 100 percent seeing the need and reacting to the need to raise wages at all levels,” Ethan Karp, president and CEO of the Manufacturing Advocacy and Growth Network told NBC News. “They still can’t find people no matter what they do.”

One solution with enormous potential is the automation and adoption of smart factory technology, including the use of AI and robotics to alleviate labor shortages. A survey in 2020 reported that 24% of manufacturers were incorporating smart manufacturing into their business models, with an additional 50% of respondents reporting their plans to adopt the technology, reports ProShares.

Growth for the global smart factories market is anticipated to reach $135 billion by 2026, up from the current $80 billion projected for this year, according to a report by MarketsandMarkets. That demand is driven not just by labor shortages, but also by evolving technology, globalization forces, and supply chains that are increasingly more complex.

There are several companies already leading the way in smart factory techology. Swiss company ABB (ABB) is one of the main pioneers in smart factory technology, offering high precision robotics and twin technology, a virtual model of the manufacturing process that allows for troubleshooting and problem solving in a way that doesn’t disrupt production.

In the realm of automation, HollySys (HOLI) offers a wide range of options for factories, including motion and programmable logic controllers as well as human-machine interface products. All of their offerings allow for convenient, cost-effective production, enabling rapid response to inputs, and are used across multiple industries.

C3 AI operates across the entire manufacturing value chain and is completely customizable and scalable globally. Part of the toolkit of C3 AI includes the ability to predict maintenance, to optimize inventory, and to pull data from a variety of sources and roll it into AI models.

In a first of its kind, the ProShares S&P Kensho Smart Factories ETF (MAKX B-) provides exposure to the companies that are enabling the smart factory transition, helping businesses seeking to automate their manufacturing.

The fund seeks to track the S&P Kensho Smart Factories Index using a replication strategy. The index contains companies working in software and other devices that enable digitalization and integration of manufacturing; sensors, software and the equipment used to sense and monitor the environment and equipment health as well as predict maintenance; the sensors and technology that can identify issues with products, as well as predict and model equipment processes; demand response systems and their components that work to conserve energy in manufacturing plants.

At rebalance, an automated scan is used to sift through recent filings and find any that are relevant to the index. The filings are reviewed and deemed “Core” if the main business consists of factory digitalization products or services, and all others are labeled as “Non-Core.” The two categories are equally weighted, with Core allocations being overweighted in the index.

The index contains companies from the U.S. as well as non-U.S. developed and emerging market companies. Currently, the country allocation of the fund is: the U.S. at 83.39%, Switzerland at 5.05%, China at 4.93%, Israel at 3.53%, and Germany at 3.10%.

MAKX has holdings in ABB Ltd at 5.04% weight, in HollySys at 4.91%, and in C3 AI at 2.60%.

The fund carries an expense ratio of 0.58%.

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