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Korean SMEs

Smart factories drive Korea SMEs to reshore overseas plants

Aju Steel, color steel supplier of Samsung and LG, relocates plant from the Philippines to Korea, improving productivity, quality

By Mar 03, 2022 (Gmt+09:00)

5 Min read

Aju Steel’s staff checks a robot at an automated production line in its factory
Aju Steel’s staff checks a robot at an automated production line in its factory

South Korea’s small and medium-sized enterprises adopted smart factories for survival as the digitalized facilities improve productivity and quality while helping them deal with external risks such as the global supply chain disruption. The advanced production system also caused them to move their overseas production back home.

A smart factory integrates the entire processes of goods including planning, design, production, distribution and sales with artificial intelligence and the Internet of things to manufacture at the minimum costs and time.

The digitalized facility cut production costs by an average of 15.5%, raising productivity and quality by 28.5% and 42.5%, respectively, according to the Ministry of SMEs and Startups. Companies with the plants added 2.6 employees on average and reduced industrial accidents by 6.2%.

“It is urgent to increase productivity per capita by upgrading to smart factories since the falling working-age population is weakening the manufacturing sector’s competitiveness in the mid to long term,” said Noh Min-sun, a research fellow at the Korea Small Business Institute.

Local SMEs see the system as a solution to cope with risks from the global supply disruption, the COVID-19, surging commodity prices.

LEAVES PHILIPPINES FOR KOREA

Aju Steel Co., the global No. 1 maker of premium color coated steel, sold a plant in the Philippines last year and built a smart factory in Gimcheon, about 230 kilometers southeast of Seoul.

Aju established the facility in South Korea to manufacture customized products for clients since the Philippines did not have sufficient information and communications technology infrastructures for such a factory.

The steelmaker decided to liquidate a plant in China this year as steel sheets made at home drew more favorable interest among customers, proving a smart factory is more beneficial than cheap overseas labor.

“We succeeded in killing two birds with one stone by resolving the global logistics crisis and raising product competitiveness as we reduced reliance on overseas plants,” said Aju Steel CEO Lee Hak-yeon.

Aju with an annual sale of 930 billion won ($772.6 million) provides Samsung Electronics Co. with 60% of color-coated steel for home appliances such as Bespoke refrigerators, as well as LG Electronics Inc. with 90% of the steel for organic light-emitting diode (OLED) TVs. The steelmaker recovered losses from soaring raw material costs by the digitalization of the subsidiary material management.

It installed robots to rotating roll facilities that color cold rolled steel sheets while adopting an AI system to inspection processes that had been manually worked.

“Quality competitiveness improved as we effectively detected faulty products,” Lee said. “Labor costs here are double or higher by five times than ones in Southeast Asia, but the effect of the smart factory is more than offsetting the costs.

ATTRACT YOUNG TALENT

South Korea’s SMEs are attracting young talent with smart factories. Twenty- and thirtysomethings in South Korea often avoid SMEs because works at those smaller companies are seen as dirty, dangerous and difficult. But the digitalized facilities eased such issues.

Employees in their 20s and 30s of Hwashin Precision Co., a supplier of automobile transmissions and decelerators for electric vehicles to Hyundai Motor Co., account for a quarter of its total workforce of 125. Those generations had made up just 5% in the past, but young talent began flowing into the company from three to four years ago.

That came as Hwashin introduced the smart factory in 2017. Installations of robots improved the workplace environment, reducing accidents such as hand and foot entrapment, as well as musculoskeletal diseases of employees. The turnover of staff also fell to zero from as high as 15%.

“Smart factories are playing a leading role in revitalizing small and medium-sized manufacturers with improvement in productivity, increase in employment of youth and reduction in labor costs for simple tasks,” said Hwashin Chairman Kim Hyogeun.

Samhyun, a maker of precisely controlled motors, has hired 80 young employees in the recent three years as it upgraded its smart factories.

Samhyun was the first South Korean company that developed a dual-clutch transmission in 2013, but competitors launched the multi-speed vehicle transmission system to bite into its market share. The company upgraded its smart factories in 2019 with support from the SMEs ministry.

“It became easier to hire young talent as growing high value-added tasks, not simple works, created quality jobs,” said Kim Chang-gon, Samhyun’s managing director.

According to a survey by the Korea Federation of SMEs, 15.1% of companies increased employment after establishing smart factory systems.

“Young job seekers looked for careers (at SMEs) as smart factories changed the images of old plants such as oil smell, noise and dust,” said Kim Jung-hwan, chairman of the Korea Industrial Complex Corporation. “The expansion of smart factories will solve manpower shortages among SMEs and youth employment issues at the same time.”

IMPROVING SAFETY AT WORKPLACE

Smart factories significantly reduced industrial accidents, a chronic issue at small and medium-sized manufacturers. Hwashin has deployed robots throughout plants to reduce workloads and improve safety since 2017. The company has reported no incidents since then.

Aju had been notorious for industrial accidents, in which hands or feet are sucked into a rolling facility that goes around 30-180 times a minute. Aju installed automatic rotating roll facilities in 2019 to have robots clean up. It also set up about 7,000 IoTs at factories to prevent any accidents and malfunctions. The firm also has recorded no accidents in the three years.

Ahn Sung-Hoon, a professor at Seoul National University’s department of mechanical engineering, said the recent explosion at Yeochun NCC (YNCC) Co. could have fewer casualties if a system for avoiding industrial accidents had properly worked. Last month, a blast at the country’s major petrochemical producer killed four people and injured four.

“Smart factories not only prevent accidents but also significantly help identify responsibilities of incidents,” Ahn said.

Write to Dae-Kyu Ahn and Gyeong-Jin Min at powerzanic@hankyung.com
Jongwoo Cheon edited this article.
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