The key to manufacturing recovery and Industry 4.0 adoption: The advice of Henry Ford
In my first article I discussed the future of Industry 4.0 in the post Covid-19 paradigm. I put forward that Industry 4.0 is even more relevant now, but in a new role that will enable manufacturers to survive, recover and redesign their businesses. I also asserted that the key to successfully achieving these goals was not technology but collaboration and emphasised the need to break down traditional silos. In this second article, I will discuss these topics in more detail and explain why I believe they are critical to success.
The Advice of Henry Ford
There is a quote attributed to Henry Ford that I believe holds the key to the future success of manufacturing. It can be used to change our thinking during the current crisis and provides the basis for successful recovery, digital transformation and the adoption of Industry 4.0. Even more interestingly, it also has the potential to unlock significant value from an organisation’s legacy investments. These are bold statements, therefore, before I reveal which quote I am referring to, I need to provide the context and rationale behind such a claim. To understand where we are today, we first need to look back to see where we came from.
Over the past 30 to 40 years, global manufacturers have followed four major trends in parallel that have been aimed at improving their manufacturing performance:
1. Strategy
In its simplest form, manufacturing strategy is essentially what to make, how to make it and where to make it. Strategy is influenced by a huge range of internal and external factors. Pre-2020, the typical examples I used to illustrate strategic influences were sustainability, the circular economy, Brexit, changing consumer behaviour, disruptive business models, trade wars, emerging markets, workforce skills, labour, energy and material costs.
Strategic factors drive mergers, acquisitions and divestments, new market entry, new product development and capital investment in manufacturing facilities. The objective is to gain a competitive advantage from manufacturing operations in whatever form that takes for the organisation in question such as increased market share, cost reduction, product quality, shorter time to market and product innovation. A look at any global manufacturer’s history will provide an example of this trend. Clearly, the current crisis will have the biggest impact on manufacturing strategy we have ever witnessed.
2. Operational Excellence
The second major trend has been the introduction of Operational Excellence programs. Most major manufacturers have their own internally branded methodology but the core principles can be traced back to the fundamentals of Taylor, Ford, Shingo, Toyota Production System, LEAN, Six Sigma and Theory of Constraints. Examples of these tools and techniques can be seen in action during a walk around most production facilities.
3. Information Technology (IT)
The third major trend aimed at improving manufacturing performance has been the investments made in information technology. In this definition I am referring to the solutions that typically fall into the domain of the CIO and the IT department. ERP, CRM and SCM applications, IT infrastructure, networks and platform standards to name just a few. These enterprise level IT systems have a huge impact on manufacturing performance because they are the solutions that run the supply chain outside of the make activities. They capture demand, plan production, procure raw material, manage WIP, store finished product and transport it.
4. Operational Technology (OT)
The fourth major trend has been the investments made in Operational Technology. Operational Technologies are the solutions that perform the make activities inside the four walls of the factory and this is normally the domain of the Engineering department. OT includes instrumentation, measurement & control, automation, PLC’s, HMI, SCADA, DCS, historians, APC, batch control, MES, LIMS and OEM equipment. These investments were centred around capacity increases, quality improvements, process optimisation, labour savings and waste reduction.
The results - falling short of expectations
Most organisations can see clear improvements in manufacturing performance that are directly attributable to each of the four investment areas. Manufacturing has made huge strides during this time period and is clearly far more efficient and effective than it was. However, the overwhelming feedback is that none of the four investment areas have fully delivered on their potential. The manufacturers didn’t quite achieve the level of manufacturing performance improvement they expected and their current KPI’s still show that there is room for improvement. Why is this the case? In a word - silos. Not just internal departmental silos in the manufacturer’s own organisation but silos in the external ecosystem of suppliers.
Internal dynamics
Let’s begin by looking at the internal dynamics inside a typical manufacturer:
Strategy: The strategic manufacturing goals and objectives are cascaded down from CXO level to Plant Directors and manufacturing teams.
Operational Excellence: The operational excellence program provides the principles, tools, and methodologies for manufacturing to utilise in the pursuit of performance improvement. The business looks internally to the IT and engineering functions for solutions that will provide both the information and processes needed to support manufacturing’s objectives.
IT: As mentioned previously, IT provides many of the core Level 4 solutions in the classic ISA95 model. On a typical manufacturing site, it is IT solutions that provide the production planning, warehousing, logistics and financial reporting systems. The choice of technology, vendor and implementation partner together with the budget normally rest with IT.
OT: OT is the domain of engineering. Process, chemical, mechanical, electrical, and automation engineers to name just a few. These are the people that design and build new production facilities. Whether that is a car production line, soft drinks, chemicals or pharmaceuticals. As with IT, the choice of technology vendor, implementation partner and budget normally rest with engineering.
In my thirty years of experience, IT and engineering have not collaborated particularly well. In many cases they appear to be in competition as they champion different solutions to solve the same business problem. At times there also appears to be a lack of understanding of their respective domains. This is understandable as the roles within each domain have their own full-time education and career paths. The example I often use to illustrate this point is their respective interpretations of the term real-time. Real-time in the world of IT is a transaction. Something has moved from A to B and has a different value (e.g. WIP). In the world of engineering, real-time is usually millisecond scans on a process to ensure it is in control.
The net result is that these internal frictions and challenges often leave manufacturing operations without the solutions they need to hit their goals and overall results tend to plateau below expectations.
External dynamics
Let us now look at the dynamics of the external ecosystem of suppliers.
Strategy: The dominant players advising on strategy in the C-Suite are the pure consulting firms such McKinsey, BCG, Bain, AT Kearney and Bearing Point. In addition, there are the advisory arms of the big four and the consulting arms of the large system integration companies.
IT: In the traditional IT ecosystem you will find the major enterprise software application vendors, their integration partners and a wide range of hardware and platform providers.
OT: In the OT ecosystem we find a very different set hardware and software vendors. The implementation partners differ and OT is also where we find the OEM’s.
Operational Excellence
The Operational Excellence ecosystem is largely populated by consultancies who provide professional services that specialise in teaching and implementing Operational Excellence techniques and programs. In many respects, the external ecosystem of suppliers is a mirror image of the silos found inside manufacturing. Again, my experience leads me to believe that there are very few manufacturers who have fully broken down both the internal and external silos and optimised their investments in these four areas. The point to emphasise here however is that what we are still discussing is Industry 3.0. In recent years, the picture has become more complicated by the advent of a fifth global trend - Industry 4.0.
The emergence of Industry 4.0
The past decade has seen the emergence of a range of disruptive technologies such as AR/VR, AI/ML, IoT, 3D printing and several others. When grouped together and applied in a manufacturing context we have the basis of Industry 4.0. The Industry 4.0 market however is emerging and immature. The Industry 4.0 white space is being entered by most of the established strategic consultancies as well as the traditional IT and OT ecosystem players. This area has seen the emergence of the hyperscalers together with a large number of start-ups. Acquisitions, mergers and failures are a regular occurrence and this will continue to be the case until the market consolidates.
This is an exciting area to be involved in and I genuinely believe that the potential value Industry 4.0 offers manufacturers is enormous. My prediction however is that on our current path, investments in Industry 4.0 will also fall short of expectations. There will be investments that again underdeliver against both their potential and promise.
Why do I think that?
Silos - nothing has fundamentally changed as the pre-Industry 4.0 internal and external silos are still largely intact. The players are still grouped into their traditional domains and following their established business models. We now have the added complication of Industry 4.0 which is blurring the lines and in many ways making things more difficult for manufacturers. An audit of a typical manufacturing facility today will illustrate the large number of players who currently have an influence on manufacturing performance. The facts are that each supplier has significant value to bring to the equation. Clearly there are some areas of overlap but once the competitive process is completed, there is no reason not to co-operate as that is in both the manufacturers and supplier’s best interests. Achieving this goal is challenging but not impossible.
The future
Most articles currently being published during the crisis recognise that a major rethink of global manufacturing supply chains will be required in what is being termed the new normal. It is my contention that radical change and the new normal should not just apply to manufacturers. It should go much further and apply to the entire ecosystem of suppliers. We must break down the competency silos and the competitive arms-length way of working. How can we expect manufacturing to successfully execute a paradigm shift while the ecosystem of suppliers remains fundamentally unchanged? The successful recovery we all need can only be delivered through a major change of approach in the supplier ecosystem. It should be an approach based on collaboration and co-opetition.
In this article I have discussed the internal external dynamics and advocated a major change of approach. So what was the quote from Henry Ford that encapsulates the entire message I am trying to convey to manufacturers and suppliers alike? “If you always do what you’ve always done, You’ll always get what you always got” This crisis will require us all to do things differently in the future and we have to perform better than we did before. Identifying the problem was the easy bit, the more difficult part is making it happen. That is what comes next.
John Robinson is currently responsible for development of SAP’s Industry 4.0 go to market strategy in EMEA North. Prior to joining SAP in June 2019, John’s career included senior roles at EY, Atos and Schneider Electric. John’s client experience includes most of the worlds largest manufacturers across all sectors and provides him with a unique insight into the challenges of digital transformation in manufacturing. In this time of uncertainty, SAP are opening access to technologies that can help employees, companies, communities, and governments continue to move forward.
