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MICROSOFT CORPORATION

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Coronavirus turmoil fuels the rise of AI-powered companies

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06/17/2020 | 05:22am EDT
Screen shot of partially assembled Motorola mobile phones from a software system built by Instrumental Inc, a Palo Alto

By Rajesh Kumar Singh

For the past seven years, a Munich-based firm called riskmethods has tried to interest companies in buying software that allows them to track all their suppliers in a way that minimizes risks in operating globally spread supply chains.

Until recently, that has been a tough sell.

But in the wake of mass disruption caused by the coronavirus pandemic, riskmethods' subscribers have increased by 20%, and requests for trials of its risk-intelligence services in the current quarter have surged by more than 200% from a year ago.

With pandemic-induced lockdowns cutting off supplies of critical raw materials and components, and social distancing guidelines increasing the cost of manual labor, business is booming at companies like riskmethods that offer digital tools to help map out supply-chain risks, run factories and even forecast demand.

In modern multi-tier supply chains, production processes are often spread across dozens of firms operating in multiple countries in a bid to maximize economic efficiency. A study in 2014 found that Japan's Toyota Motor Corp employed 2,192 suppliers in its production process.

As many companies discovered during the initial wave of lockdowns, any break in this complex and elongated supply chain can cause production interruptions. Still smarting under the shock, they are now scrambling for tools to protect operations from future disruptions.

In the aftermath of the outbreak, riskmethods launched an application that was focused on providing intelligence about the contagion's impact on supply chains.

The response from companies and even suppliers to the application was "overwhelming," said Bill DeMartino, chief customer officer at riskmethods, adding that the pandemic has rendered investments in supply-chain risk management a "mainstream requirement."

Similarly, Instrumental Inc - a digital startup in California - is fielding a threefold jump in inquiries from electronics manufacturers for its artificial-intelligence platform that enables companies to maintain control of production processes at distant and offshore locations without sending engineers on site.

"They are not looking for a solution nine months from now," said Anna-Katrina Shedletsky, chief executive and founder of Instrumental, referring to manufacturers contacting her company. "They want something next week."

A survey by PricewaterhouseCoopers of chief financial officers at U.S.-based companies last month showed more companies are planning to use automation in the supply chain in response to COVID-19.

Orders at Minneapolis-based Hartfiel Automation, which distributes robots and automation hardware, are up 20% within the past two weeks, and inquiries are up 40%, said CEO Myron Moser. The orders and inquiries are mostly from businesses that were shut down at the height of the pandemic, he said.

Longer-term, setting up autonomous guided vehicles, robotics welding or material handling systems could contribute to further job losses even as the U.S. unemployment rate languishes in double-digits.

Automation could put more pressure on millions who lost jobs to the pandemic. At the same time, riskmethods has bolstered its overall team by nearly 33% globally this year. It plans to increase headcount by another 12% before the fall. Instrumental, which had 30 employees as of February, wants to expand its workforce by 25%.

QUEST FOR SUPPLY-CHAIN VISIBILITY

Before the pandemic, many companies tended to have limited visibility of all but their top suppliers, and the process of tracking them was mostly manual.

Now, some companies are deploying vibration sensors in the factories of their critical suppliers to track if they are running or not, said Justin Rose, managing director at Boston Consulting Group.

At Vermeer Corp, an Iowa-based equipment manufacturer, the virus' spread from China to Europe and then the United States and Mexico left the company's managers uncertain whether factories could operate from one day to the next.

Chief Executive Jason Andringa said his team has been working the phones for the past four months to track down potential broken links in the supply chain.

"It has been a daily and hourly thing that we have been worried about," he said.

The cloud technology units of companies such as International Business Machines Corp, Microsoft Corp and SAP SE are seizing the moment, as are a new breed of service companies like riskmethods.

The applications sold by riskmethods provide early warning signals of potential supplier disruptions like mass factory shutdowns, force majeure and bankruptcy to clients such as AGCO Corp, Cummins Inc and Douglas Dynamics Inc. They also help clients monitor the operations of their customers.

DIGITALIZATION DRIVE

Ecolab Inc, a St. Paul, Minnesota-based cleaning and pest-control services company, has been heavily investing in digital applications for the past six years. The investment has allowed it to monitor over 30,000 customer sites.

Chief Executive Doug Baker said this ability enabled it to remain effective while operating remotely and serve customers even at the height of the health crisis.

In response to the virus-induced business turmoil, Ecolab has slashed capital spending for the year by half. But the budget for digitalization remains intact.

The company is speeding up plans to automate facilities where human workers run the risk of infection and now aiming to implement the plan in next 12 months instead of two years.

(Reporting by Rajesh Kumar Singh in Chicago; Editing by Joseph White and Matthew Lewis)

Stocks mentioned in the article
ChangeLast1st jan.
AGCO CORPORATION 0.86% 73.56 Delayed Quote.-4.78%
CUMMINS INC. 1.56% 213.51 Delayed Quote.19.31%
DOUGLAS DYNAMICS, INC. 0.17% 40.17 Delayed Quote.-26.96%
ECOLAB INC. -0.94% 194.71 Delayed Quote.0.89%
INTERNATIONAL BUSINESS MACHINES CORPORATION 0.19% 125.27 Delayed Quote.-6.54%
MICROSOFT CORPORATION 0.10% 208.9 Delayed Quote.32.47%
SAP SE -1.37% 135.24 Delayed Quote.12.40%
TOYOTA INDUSTRIES CORPORATION -0.32% 6160 End-of-day quote.-2.69%
TOYOTA MOTOR CORPORATION -1.43% 7181 End-of-day quote.-6.91%
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Financials (USD)
Sales 2021 157 B - -
Net income 2021 48 985 M - -
Net cash 2021 81 454 M - -
P/E ratio 2021 32,5x
Yield 2021 1,04%
Capitalization 1 581 B 1 581 B -
EV / Sales 2021 9,57x
EV / Sales 2022 8,52x
Nbr of Employees 163 000
Free-Float 98,6%
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Average target price 229,59 $
Last Close Price 208,90 $
Spread / Highest target 24,5%
Spread / Average Target 9,91%
Spread / Lowest Target -13,8%
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Satya Nadella Chief Executive Officer & Non-Independent Director
Bradford L. Smith President & Chief Legal Officer
John Wendell Thompson Independent Chairman
Kirk Koenigsbauer COO & VP-Experiences & Devices Group
Amy E. Hood Chief Financial Officer & Executive Vice President
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