From boardrooms and shareholder meetings to conferences and collaboration circles, it seems everyone is talking about the fourth Industrial Revolution (i4.0). Manufacturing executives are increasingly challenged to evolve to remain competitive in this age of rapid technological disruption. Depending on whom you talk to, the disruption for value chains, employees and business models may be fundamental.
In this environment, it is critical for executives at manufacturing companies to separate hype from reality in order to effectively prioritize their business initiatives. They need a clear picture of the current risks and opportunities and they need to understand what their peers and competitors are doing to drive value and capture competitive advantage.
While most manufacturers are certainly investing into i4.0 capabilities and technologies, few have achieved the scale and integration required to drive enterprise value from i4.0. There are many working towards creating the “factory of the future” or going beyond to evolve to a “digital enterprise,” but none have yet to achieve consistent application of those capabilities across all of the corners of their operations. Most are still experimenting with discrete pilots or trialing point solutions. Some have yet to start developing their roadmap for integrating i4.0 into their business and operating models.
We believe that the time for small-scale i4.0 experimentation is coming to a close. Indeed, to win in tomorrow’s competitive environment, we believe that manufacturers will need to start being bolder in their vision and faster in their scaling of strategies and actions for i4.0 in a more comprehensive way. Perhaps the best place for all manufacturers to begin with is their supply chain.
Supply Chain: Enhancing i4.0 Value
After years of struggling to improve integration and coordination across the value chain, many manufacturers clearly see i4.0 as a potential solution to some of their more persistent supply chain challenges. Indeed, a fully integrated i4.0 environment could help manufacturers to remove significant friction from their increasingly complex supply chains. It could unlock improved visibility across the network and down into lower tier suppliers to better reduce risk and improve flexibility. It could enhance coordination and innovation through better access to customer and product usage data and deliver scaled yet customized product solutions. And it could deliver improved working capital flexibility by helping to lower inventory levels and sharpen forecasting. The benefits of integration can be significant.
But the real value will come when the value chain becomes a value network—where data is shared fluidly between various nodes in the chain, decisions and demand signals are shared in real-time across the network, and data sources are integrated across systems. That will allow new opportunities to be uncovered and new performance improvements to be achieved.
We recently spoke to some of the world’s leading manufacturers, suppliers and innovators as part of a KPMG-developed framework and benchmarking exercise. What we found is even the leaders of this group demonstrated room for improvement in demand-driven supply chain maturity. However, a few of those investigated are already moving to work (in deep collaboration) with their suppliers and customers to embed value chain considerations into their transformation roadmaps.
What are the leaders in i4.0 supply chains doing?
• They are focusing on integration. A few leaders are moving quickly to integrate their suppliers and customers into a demand-driven supply chain. They aim to leverage an interconnected network as the key to future competitive advantage. And they are using the cloud to connect to their suppliers and externally to gain improvements in responsiveness, quality and cost.
• They are creating the right environment. The leaders are assessing both the opportunities and the risks of greater value chain integration. They are using sensors across all nodes of their operations in order to gather data to help model and predict various supply chain scenarios. And they are improving their controls to reflect the potential for increased cyber security and data privacy risks.
• They are looking for new opportunities to drive performance. Leaders are also rethinking their traditional supply chains and networks to streamline and eliminate unnecessary processes and remove waste by working collaboratively with their suppliers.
Collaboration for Integration
We believe that significant value can be unlocked by driving integration across the extended value chain and creating a platform for the network. This can only be achieved through both technological integration—of systems, platforms and data—but also closer integration around controls, governance and cyber security. Further, full cooperation and collaboration between manufacturers, their suppliers and (possibly) their suppliers’ suppliers will drive more value from the platform, not only to improve the success of the partnership, but also to identify and monetize the value of the network. Adding the customer into the mix—in a truly interconnected network—will further improve the returns and benefits.
The question then becomes one of control. Leading-edge manufacturers are starting to adopt a “control tower” approach to managing their supply chain, bringing analytics, automation, augmented decision support, modeling and other capabilities together as a centralized function. Manufacturers can begin by focusing their attention on improving integration with a few select (top tier) suppliers. Once standards have been set, governance and controls have been defined, and protocols have been created, these tools can then be used to drive further integration deeper down into the supply chain.
Brian Heckler is the national sector leader, Industrial Manufacturing for global consulting firm KPMG LLP. Doug Gates is the global sector chair, Industrial Manufacturing and global head of Aerospace and Defense for KPMG LLP.