Smart Production Solutions Helped the Chinese Cotton Industry Significantly Improve Production Output over the Past Year, but at What Cost?

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By Benjamin Chan | 2Q 2024 | IN-7342

This ABI Insight examines the reasons and causes of great returns generated by introducing Industry 4.0 technologies in the Chinese cotton industry in 2023. It provides a deeper analysis into the amount of invested expenditure required to achieve high returns and a roadmap of priorities for enterprises looking to replicate their successes.

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China's Cotton Production Surges


In May 2024, the South China Morning Post reported that  Xinjiang’s textile exports reached 108 billion yuan (US$14.8 billion) in 2023, representing a 74% jump for yarn and other materials, with a similar increase of 30% for clothing manufacturing. Its vast leap in productivity is largely credited to implementing Artificial Intelligence (AI) and 5G into the production mills in the middle of the year, which was reported to slash energy use, while significantly improving quality through insights-based monitoring.

While Xinjiang’s factories have already been producing cotton through an automated machine process at every step, they functioned separately and independently with reliance on human supervision and execution during the process. Introducing 5G on the factory floor delivered high-speed, low-latency connections to all of its factories’ machinery and sensor nodes, connecting them via a central monitoring system that uses AI to efficiently manage energy through Machine Learning (ML) and predictive maintenance.

The Commitment to 5G Private Network Deployments


Xinjiang’s boost in productivity and efficiency will be a key use case in evaluating and measuring the potential impact of digitalization and digital transformation in a traditional production line. The integrative aspects of 5G private networks, AI capabilities, and data synthesis that can drive efficiency and drastically improve the productive output potential of a factory through retrofitted technology solutions will be a key consideration for industries that cannot afford downtime for installation.

However, the rapid and drastic increase in productivity reported in Xinjiang may be met with skepticism, as plant managers and enterprises outside of the country have little information on the cost breakdown, leading to the significant improvements on factory floors in a short period. The Total Cost of Ownership (TCO) in deploying 5G private networks requires a significant commitment to Capital Expenditure (CAPEX) needed in the spectrum acquisition process of a partnership deal with a Mobile Network Operator (MNO), as well as the installation of its physical infrastructure and virtual cybersecurity framework before deployment. Its Operational Expenditure (OPEX) considerations in maintenance, monitoring, and upgrading will also add up in the overall TCO cost calculations. Even with low latency 5G private networks unlocking myriad solutions, the significant considerations about CAPEX and OPEX costs of its deployment, along with energy-intensive AI operations, and Internet of Things (IoT) sensors to utilize its connectivity pose significant barriers to entry for the technology’s adoption rate. Plant managers, whose main priority lies in profit margins, may not find the short-term returns sufficient to justify drastic upgrades to factory floors, explaining why private networks have not seen growth at exponential rates over the past few years.

Notwithstanding the above, as 5G technology continues to mature, its applicability across multiple verticals, including but not limited to manufacturing, agriculture, and logistics, is expected to contribute to surging demand for 5G-enabled private networks, especially when 5G equipment costs decrease. ABI Research projects strong growth in private 5G cellular network deployments both worldwide and in Asia-Pacific, estimating an average Compound Annual Growth Rate (CAGR) growth of 84.6% and 75.9% between 2022 and 2028 worldwide and in Asia-Pacific, respectively. Private 4G and 5G network deployments will function as a key catalyst in unlocking efficiency-based functions through various IoT connection nodes and deployments.

Gearing up for Private Network and New Technology Deployments


As industries continue to ramp up digitalization and automation uptake, the demand for deploying solutions necessary to support these functions will inevitably increase. This means that vendors like Communication Service Providers (CSPs), solution implementers, and technology vendors need to prioritize several factors that will be important in the decision-making process of plant managers. By identifying key concerns and potential pain points in both indoor and outdoor settings of factory floors or outdoor sites, vendors should balance their implementation strategy with short-term and long-term CAPEX and OPEX considerations, which would translate into pitching the potential of Operational Cost Savings (OCS) and increased output.

The success of digital implementation in the production process suggests the following key considerations that solution providers should explore to leverage their effective gain and entry into smart production adoption:

  • Prioritizing the Value of Retrofitted Technology Tailored for High Production Automation: This would reduce the typically large CAPEX required for a typical production process overhaul, allowing a much smoother uptake rate in incorporating technology. Retrofitted technology would also limit minimal disruption to time-sensitive production lines like some factory floors with less-to-no room for downtime in the installation process.
  • Exploring Short-Term CAPEX-Reducing Cost Measures such as Progressive Upgrades and a Software-as-a-Service (SaaS) Model: Progressive upgrades and add-ons could potentially allow a gradual increase in digital spending and avoid a one-time strain on significantly improving smart systems in the production line, enabling better easing into adopting IoT, 5G, and AI technology within the process via a step-by-step measure. Additionally, a SaaS model could also ease potentially large CAPEX costs into long-term OPEX costs through a subscription model that benefits from the service of maintaining its smart solution, rather than one-time infrastructure costs.
  • Forming Close Collaborative Partnerships with Complementary Technologies: With an overall need for an infrastructure capable of implementing various smart production systems, solution vendors in various verticals like CSPs, system implementers, and even AI and technology vendors can look to collaborate and seek partnerships capable of offering tailored “plug-and-play” solutions for plant managers with a structured implementation roadmap.

These considerations will be an important factor to consider in the short-term strategy of vendors within the digital transformation space as the identified pain points of disruptive and expensive implementation costs would be a big factor in consideration for private companies looking to maximize production output and profits. Solution vendors that can replicate the effective implementation of Industry 4.0 solutions, as demonstrated by the Chinese cotton industry, would be in a prime position to capitalize and seize market share in their respective verticals of implementation.


Companies Mentioned