As we barrel forward into the digital age, technological change impacts every industry and transforms some entirely. Looking at manufacturing in particular, the rise of automation and connectivity in factories has led to what industry insiders have dubbed “Industry 4.0” or the Fourth Industrial Revolution. This momentous shift has only just begun.
This new era of manufacturing is characterized by digitization on a massive scale, and most industry leaders agree that it’s also filled with promise.
To reap the rewards of Industry 4.0, though, manufacturers will face enormous short-term challenges. This could explain why so many organizations haven’t invested proactively in disruptive technologies. Mass manufacturers have to maintain a focus on managing working capital effectively. Many are uncertain of how to predict the return on investment of modernizing plants, whether that’s in the short term or over a longer period of time.
However, those that have already embraced emerging technologies saw rewards. The World Economic Forum released a report last year showing that investments in artificial intelligence and the Internet of Things are allowing manufacturers to uncover new efficiencies tied to a range of industry metrics.
Among others, metrics that could potentially be improved include days sales outstanding, overall throughput effectiveness, and on time in full, as well as the reduction of cost of goods sold and operating expenses and the improvement of both capital efficiency and cost-effective market reach.
In most cases, this is more about optimization than invention. Most investments in emerging technologies — especially within manufacturing — are geared toward finding new efficiencies in existing systems. Digitization allows organizations to set better statistical inventory targets, continuously monitor realized service levels, and fine-tune targets dynamically. In turn, companies that have implemented it can improve their inventory management systems in a few ways:
- They can use analytics to process inventory levels.
- They can weigh competitive information to make even more strategic inventory decisions.
- They can develop dynamic sourcing decision workflows and dashboards to keep an eye on service levels.
In nearly every case, leaders prioritize risk management — and rightfully so.
A Risky Endeavor
Anyone looking to incorporate Industry 4.0 technologies should know that digital transformation doesn’t come without risk — whether that’s cybersecurity threats, expensive capital expenditures, or other issues. Leaders, then, should carefully consider the challenges it might present as well as the effects it could have on long-term sustainability.
Smart factories, in particular, should be designed with a focus on interoperability, as this makes sure inputs work toward the desired outcomes. None of the technologies that make this shift possible work in a vacuum — and friction can certainly occur at the connection points. Sometimes, this is due to a lack of trust across different internal or external groups.
The statistical track record shows that suppliers and companies usually perform as promised. But for that to happen, you need a degree of responsible freedom in information transparency and healthy data use. Manufacturers could aim to become comfortable with decentralized engineering processes and make better use of the cloud for insightful analytics. They might also have to turn to new techniques — crowdsourcing, for instance — to build useful data sets.
Then, there’s compliance. New data privacy legislation (e.g., the European Union General Data Protection Regulation) doesn’t apply to behemoth technology companies alone. Authenticity and fraud detection might not sound industrial, per se, but it’s important to consider these concepts to reap the benefits Industry 4.0 promises. After all, it’s clear that failure to weigh the importance of compliance can result in potentially devastating consequences.
Fortunately, manufacturers can handle the challenges that are sure to crop up by adhering to two guiding principles:
- Have a robust plan. Think about what defines Industry 4.0 — as a whole or in part — and compare that to where you are today. Be sure to assess your operations at a high level. After you do this, take a more granular look at your company’s culture, workflows, and decision-making processes. It’s vital to understand how entrenched some company operations can become. How might those inhibit your transformation?
- Start small but think big. It’s helpful to have deep convictions regarding why you want to implement new technologies. Besides this, you’ll also need a clear vision of where you’d like digitization to take you. Don’t try to boil the ocean, though: A recent Deloitte survey suggests that though many manufacturing executives want to use technology to unlock growth, most aren’t sure how to do so.
Lay the groundwork for transformation before you prioritize it as a business objective, and view technology implementation as a necessary long-term investment. If you focus too much on short-term benefits — say, low-hanging fruit — you might miss the bigger picture and fail to tailor transformation to your organization. Make no mistake: The next industrial revolution will be hand you don’t want to fall behind.