For decades, Canada has lagged many of its global peers in the types of business investment that would improve productivity. But the green shoots of an automation transformation appear to be sprouting
Michael Kilroe works with the robot to produce the necessary parts for a stairlift on May 18. Patrick Marcoux/The Globe and Mail
Amid the hums and clangs of Savaria Corp.’s factory in Brampton, Ont., two wildly distinct eras of corporate Canada can be found just a few steps apart.
In one cramped corner of the 33-year-old company’s plant, which manufactures accessibility equipment such as wheelchair lifts, custom stairlifts and home elevators, a team of 10 workers weld and grind curved steel tubes by hand. A short walk away, a single orange robotic arm Savaria installed earlier this year swings purposefully through the air doing the same task.
The math, as vice-president of operations Sebastien Bourassa sees it, couldn’t be simpler. In a day, those 10 workers typically produce two custom stairlifts. The robot, with two operators, currently churns out five – and that output is set to more than double over time.
“It’s impossible to expand on the old process if we want to grow our business,” Mr. Bourassa says, referring to the way Savaria used to build and assemble its products. “It’s impossible to find the people.”
For decades, the approach taken by many businesses in Canada when it came to automation looked a lot like that low-productivity corner of Savaria’s Brampton factory writ large. Canada has lagged not just the United States in the types of business investment that would improve productivity – in machinery and equipment, in information technologies, in intellectual property, in research and development – but many of its global peers, too.
Explanations for Canada’s uniquely resistant attitude toward automation vary, but in the untold thousands of hand-wringing news stories, government studies, industry reports and economic analyses that have charted Canada’s productivity gap over the years, one factor has been constant: corporate Canada’s overreliance on relatively cheap, readily available labour.
Those days appear to be over. The COVID-19 pandemic has accelerated demographic trends that were already building steam prior to 2020, particularly the pressures of an aging work force. Canada’s job market is running full tilt, with a record-low unemployment rate for core-aged workers – those 25 to 54 – of 4.3 per cent, while the number of job openings is near an all-time high.
Against that backdrop, there are now tentative signs that Canadian companies are finally making the large-scale investments necessary to boost productivity. The share of companies indicating they plan to boost their spending on machinery and equipment is near its highest level going back to at least the late 1990s, according to the Bank of Canada’s latest business outlook survey, while the number of robots being acquired by Canadian companies is at a record high.
The Globe and Mail mined transcripts of company earnings calls with analysts, finding a recent jump in the number of executives discussing their company’s automation plans in the context of the tight labour market.
A lot can still go wrong, especially as interest rates rise and the spectre of a recession mounts, both of which could cause businesses to curb their spending plans. But for now, the green shoots of an automation revolution in Canada appear to be sprouting.
“Companies didn’t feel urgency to invest over the past two decades because profitability was easy, but the forces that made that possible are changing – the start of deglobalization, the vulnerability of just-in-time inventories and the end of cheap labour,” says Benjamin Tal, deputy chief economist at CIBC World Markets. “You don’t invest because it’s a nice thing to do. You do it because you have no choice, and companies no longer have a choice.”
Boosting productivity at Savaria was one of the reasons behind the company’s purchase of Swedish stairlift manufacturer Handicare Group AB for $520-million last year, Mr. Bourassa says. “We wanted to bring their technology from Europe to North America because we were not as productive here as they are,” he says, adding that Handicare’s highly automated plants in the Netherlands are four times more productive than the company’s facilities in Canada.
While the deal is expected to more than double Savaria’s 2022 revenue to $775-million from where it stood in 2020, it’s proving transformative in more fundamental ways. In April, a team of productivity experts from Handicare’s operations in the Netherlands visited the Brampton plant as part of a “kaizen” event (a Japanese term meaning ”change for the better”) to study ways to further ramp up automation and make its operations more efficient.
Everything is on the table, from ambitious investments such as automating its paint operations and using robots to bring parts from the warehouse to the assembly line, to simpler projects such as abolishing paper and rearranging the factory floor so workers don’t have to walk as far.
“If we can make the job easier, more automated, then it’s more interesting for our employees,” Mr. Bourassa says. “You don’t just feel like a robot on an assembly line, because you’re participating in something that creates value.”
Canada’s central bank is certainly hoping companies catch the automation bug. In a speech earlier this year – back when the annual inflation rate was a mere 5.1 per cent, compared with 6.8 per cent in April – Bank of Canada Governor Tiff Macklem called on businesses to boost their investment in machinery and technology. Doing so, he said, would counter inflationary pressures while also allowing companies to pay higher wages.
“Productivity growth is vital to non-inflationary growth and rising standards of living,” Mr. Macklem said via livestream during an event organized by the Canadian Chamber of Commerce. “At a time when inflation is already well above our target, this is more vital than ever.”
Citing the bank’s business outlook survey, which shows corporate investment intentions are roughly 50-per-cent higher than the average of the past two decades, Mr. Macklem said the bank forecasts that Canadian business investment will grow at a faster pace than in the United States into at least the middle of next year.
Canadian workers are not at risk of being replaced by robots – but that might not be a good thing
If that forecast was met with skepticism by some, it’s understandable. In a recent paper titled “Where are the robots?” former Unifor economist Jim Stanford, who’s now director of the Centre for Future Work, lamented the declining use of technology in Canadian workplaces over the past 20 years, noting productivity growth creates the winning conditions for higher wages, safer jobs and more leisure time.
Indeed, as recently as last year, Canada still ranked dead last among OECD countries when it came to business’s share of fixed capital investment (even as it led all other OECD countries in the share of investment going toward building and renovating residential dwellings).
Yet this may be shaping up to be a reset moment for automation. “You already had automation technologies that were becoming more ubiquitous and accessible, and then this labour shortage hits on top of that, and it’s not going away,” says Brendan Sweeney, managing director at the Trillium Network for Advanced Manufacturing. “It’s an eloquent solution to a real problem.”
For one thing, the companies that help roboticize other companies are run off their feet. JMP Solutions, a London, Ont.-based automation and robotics company, is being inundated with orders from companies desperate to alleviate their labour-shortage woes. “Quite frankly, it’s been great for us,” JMP Solutions president Darryl King says. “We have more sales than we can execute.”
Revenues at JMP, which generated close to $100-million in sales last year, are on track to grow between 35 and 40 per cent this year. (Last August, New York–based private equity firm Crestview Partners acquired JMP as the first step in what it described as a US$200-million plan to build a global automation firm.)
Whereas in the past JMP’s potential clients would base their automation decisions on how long it would take to generate a positive return, the labour crunch means “that math doesn’t apply any more, because if you can’t get the labour, you can’t produce,” Mr. King says.
Meanwhile, the mix of companies seeking automation tools is evolving fast, he says. While vehicle manufacturers are already heavily automated, other manufacturers in the consumer packaged goods and food and beverage sectors are much further behind, having relied more heavily in the past on manual labour in their operations.
That’s reflected in new robot orders. According to the Michigan-based Association for Advancing Automation, a trade group, net new orders for robots in North America hit all-time highs in 2021.
In Canada, the number of new robot orders topped 3,080 last year, up 17 per cent from 2020, at a cost of close to US$150-million. The growth was shy of the 22-per-cent increase in robot orders in the United States, but included an 87-per-cent decline in robot orders by automakers in a year when production at many of Canada’s largest assembly plants shut down owing to the chip shortage.
Other industries made up the slack, including food and consumer goods manufacturers, where robot demand jumped 92 per cent last year.
The long-delayed robot invasion of Canada is evident in what companies are telling analysts about their automation plans.
The drive to automate is obviously far from a trend limited to this country. According to an analysis of earnings-call transcripts using the financial-intelligence platform Sentieo, the number of calls where “automation” and “labour shortages” have been mentioned has spiked worldwide.
In Canada, recent quarters have seen more than a dozen calls where those topics came up, compared with an average of three per quarter prior to 2021. (See sidebar.)
In some cases, companies say they’d already embarked on a path to greater automation, but the pandemic and ensuing labour shortage forced them to greatly accelerate their plans. During a recent call with analysts, Eric La Flèche, CEO of grocer Metro Inc., highlighted the chain’s push to roll out self-checkout tills and automation initiatives in its warehouses, noting “we were facing labour issues that are not going away.”
In a statement, Stephanie Bonk, a spokesperson for Metro, said the grocer launched its “modernization journey” in 2017 and that under the $800-million initiative, it has opened two automated distribution centres over the past two years, with another slated to open in 2024. Meanwhile, 350 of its stores now have self-service checkouts, while 17 stores feature “scan, bag and go” technology allowing customers to scan their own products as they add them to their cart. “We have accelerated projects and rollout where we could, knowing we were facing labour issues,” she said.
For Waste Connections, a Texas-based garbage and recycling disposal company that trades on the Toronto Stock Exchange and has operations across Canada, the labour shortage has led to hefty pay hikes and accelerated its adoption of technology, particularly in its recycling centres.
At the best of times, it can be difficult to hold onto workers given the tasks involved. “You have four to six people on a conveyor belt trying to pull items that are damaging to the rest of the system, like large plastic, stretch wrap, bicycles, engine blocks, bear carcasses – anything you can imagine comes into a recycling facility that can be either dangerous to the people or damaging to the equipment,” says Dan Kurtz, the company’s director of recycling.
Among the technologies Waste Connections is adopting are large-scale optical sorters, which scan junk as it goes by and use jets of air to separate items. The company is also turning to multiarmed robots guided by vision systems and outfitted with suction cups to pick out unwanted items. While the average person might manage 30 so-called “picks” a minute, robots can handle 100, while optical systems sort up to 1,000 a minute.
In late 2020, Waste Connections ordered 25 of the robots and is set to expand to 45 by mid-2022. “They don’t get tired, they don’t get sick and not show up, they don’t get distracted, and you don’t have restrictions on how long they can go before taking a break,” Mr. Kurtz says. “And they can be installed in a weekend.”
Productivity-boosting automation doesn’t have to mean actual robots, of course. Executives at several companies talked about adopting digital solutions aimed at making back-office systems such as hiring and staff management more efficient.
Meanwhile, during the third-quarter 2021 conference call for tissue maker KP Tissue Inc. (the publicly traded partner of Mississauga-based Kruger Products LP), CEO Dino Bianco touted the company’s $25-million investment last June in an artificial-intelligence project at its plant in Sherbrooke, Que., that will create a real-time digital twin of its entire supply chain to help it identify bottlenecks. (The federal and provincial governments each kicked in $6.7-million to the project.)
“We haven’t carried out a complete assessment of these potential benefits yet, but they will increase our productivity and offset inflationary pressures for the future,” Mr. Bianco told analysts.
Still, not all companies see automation as a fix for the current labour crunch. During an analyst call in November to discuss the latest results for Loblaw Cos. Ltd., analysts challenged then-chairman and now CEO Galen Weston on why the retailer was planning to build new manual-pick fulfilment centres for online orders, rather than investing in automated order filling.
“Manual facilities are much quicker to build, so that’s where we’re focused,” Mr. Weston said, adding the company may eventually switch to automated systems in microfulfillment centres. But the technology, he said, isn’t “ready for prime time. ...So you’re not going to see us announce a wave of robot facilities going out in the next number of months.”
Nor is automation an easy option for small businesses that are already carrying an average of $170,000 in COVID-related debt, according to the Canadian Federation of Independent Business, even if most of the ones that do embrace technology find success. Last fall, the CFIB surveyed members that weren’t fully staffed about measures they’d taken to resolve labour issues. Roughly one-third said they had invested in automation; of those, 81 per cent found it useful in fixing staffing problems.
“Automation is not a silver bullet for the labour problems facing businesses, but the fact remains that right now there is an opportunity for government to help them automate,” says Simon Gaudreault, vice-president of national research at CFIB.
Likewise, if automation continues to gain traction in Canada, as experts predict, there will also be a role for government in helping some of those workers who do find themselves displaced. Estimates for the share of jobs that could be at risk of displacement from robots vary widely, but history has also shown that technology-induced productivity gains breed higher wages overall and new, unforeseen employment opportunities.
“What’s important is to identify those workers who can be targeted for support without doing anything to stop technological adoption,” says Viet Vu, a senior economist with the Brookfield Institute for Innovation and Entrepreneurship in Toronto.
Amazon packages are sorted by a robotic arm during a tour of the advanced robotics facility fulfillment centre in Hamilton, Ont. NICK IWANYSHYN/Reuters
Back at Savaria in Brampton, Aneil Sookdeo, the plant’s head of operations, says automation has started to reshape the culture at the plant, with many workers keen to be trained to use new systems.
It’s a reminder of why automation, and the productivity gains it fosters, are so critical to Canada’s economic future. Even as Savaria invests in automation to help it grapple with labour shortages, that doesn’t mean it’s contemplating reducing its work force. Quite the opposite. At its Brampton plant, just one of six it has in Canada, the company has 20 job openings and has grown its global work force by 60 per cent over the past year to 2,250 – a virtuous circle of higher productivity leading to more growth and more jobs.
“Everyone here realizes we have a massive backlog of orders to support this type of automation, so people aren’t immediately jumping to ‘my job is in danger,’ ” Sookdeo says. “Instead, they see it as helping them work better. We’re lucky to have that level of backlog behind us to temper some of the feelings that might otherwise be there.”
On earnings calls over the past six months, Canadian executives have increasingly shared details of their automation initiatives, often in response to analyst questions about labour shortages and inflation. Here’s a sample of what they’ve been saying.
Eric La Flèche, CEO of grocer Metro Inc.: “We’ve rolled out over the last two years…self-checkouts, electronic shelf labels. We accelerated that roll out knowing we were facing labour issues that are not going away. Longer term, automation of our warehouses, technology in the warehouses, will alleviate pressure on labour.” (Q2 2022 earnings call)
Gregory Craig, CFO of retailer Canadian Tire Corp. Ltd. “We have a significant number of initiatives well under way. Among them, the implementation of a new transportation management system that will reduce transportation costs across the banners and the introduction of robotic automation for picking products at our distribution centres.” (Q3 2021 earnings call)
Randall MacEwen, CEO of fuel cell company Ballard Power Systems Inc.: “We’re literally, from raw materials into finished goods out, mapping those process steps and looking at pack times, at the tools and the equipment we use, introducing more robotics, more automation, reducing labour hours and reducing pack times.” (Q3 2021 earnings call)
Lino Saputo, CEO of dairy producer Saputo Inc.: “Once the new equipment is installed with more automation and more throughput and less reliance on just having bodies and people on our pack-off lines, we will be set for great, great success. (Q2 2022 earnings call)
Gord Nelson, CFO of theatre chain Cineplex Inc.: “Obviously there are concerns about being in an inflationary period, in which we’ve become very focused on costs. We turn to automation. We turn to digital products as ways of trying to make our operations more efficient.” (Q1 2022 earnings call)
Hratch Panossian, CFO, Canadian Imperial Bank of Commerce: “Looking at opportunities to invest in automation, part of when I talk about investments, there’s quite a bit in there in automating some processes within the businesses or back-end operations or functions like finance, where we do things manually. And I think that over time gives us opportunity to get more leverage out of the technology investments.” (Barclays financial services conference in September, 2021)
Chantel Popoff, COO of cannabis producer The Valens Co.: “The two main challenges that really have been brought on from the pandemic have been both staffing and supply chain related. We’ve had absenteeism across all of our sites, forcing us to utilize temp labour staff. We see this as an opportunity to build relationships with these agencies, giving us a dependable partner to support us and bridging any labour gaps while we continue to commission automated equipment for each of our sites.” (Investor day conference, February, 2022)
Source: Sentieo and S&P Capital IQ
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