What will your business look like in the next five years? It's a question that's worth thinking about not because of growth targets and shareholder expectations but because of the likelihood that few business sectors will look anything like they do right now.
Imagining how your company will be run in five years isn't so much a frightening exercise to conjure up some haunting vision of an uncertain future but a real need to appreciate the pace of change or, as Intel aptly describes it, the Vortex of Change. Undoubtedly, many businesses will experience technology’s ongoing capacity to accelerate the rate of change as disruptive, but many more will become involved in a process of transformation that will enable efficiency, reliability, and inspired avenues of diversification.
Certainly, manufacturing stands out as a sector that will be undergoing one of the most remarkable reinventions. Here, change comes in the form of Industry 4.0, the term used to describe a wide range of digital technologies and innovations that will not only enhance production lines with artificial intelligence – using data from sensors applied to both new and traditional machinery to monitor efficiency and quality control – but will also allow personnel to work safely, effectively and with greater precision using a range of industrial wearables.
“Never do more of the same, instead close the innovation and agility gap”
This is more than just programming robotic arms for faster welding, production line analytics or linking handheld scanners to a database but a new frontier referred to as Smart or Connected Manufacturing. Never before has the realm of Information Technology (IT) been so bound with the manufacturing world of Operational Technology (OT). Consequently, there are new problems to be solved as well as new opportunities to be harnessed. Smart Manufacturing is where sensors, networks, AI, analytics, and machinery meet, to not only build better products but to expand capabilities into completely new areas.
Closing the Innovation and Agility Gap
If you’re a traditional manufacturer, a likely thought will be: ‘This sounds expensive. Let’s stick with the current set-up and buy into Smart Manufacturing later. It’ll be cheaper because everybody will be doing it, right?’ But as a strategy, it fails to recognise that digital disruption favours the brave and that second chances are in short supply unless you innovate.
By the end of 2017, 70 per cent of Global 2000 CEOs will have Digital Transformation at the centre of their corporate strategies and, come 2018, 40 per cent of businesses in the top 20 in every industry will be disrupted by digitally transformed competitors, according to analysts IDC*. For manufacturers, the disruption isn’t about retooling to improve margins and competitiveness, the issues are complicated by a changing landscape in every marketplace. Manufacturing is being squeezed on two fronts: traditional competition and new disruptive businesses. For example, premium German car makers have always differentiated themselves in terms of product quality and quality of service. Recently, their traditional competition has attained similar service levels, with South East Asia producing very good cars, often at half the price of German equivalents. For the consumer, it’s a lot of money to pay, just for brand loyalty.
If the parity squeeze on the one side wasn’t enough, all car makers are vulnerable to the likes of Uber’s* ideal business model, which is an end to ubiquitous car ownership. For car manufacturers, that’s a squeeze that could really hurt, but what are the choices? Why not play the disruptors at their own game? It has potential, as Jim Henrys, Director of Business Solutions at Intel, explains: “The car makers are trying to play catch up, saying: ‘We’ll do ride sharing too’. What they need to do is leap ahead. The ability to manufacture an autonomous car means they could put fleets of those on the road at a much lower cost than an Uber can. Uber’s primary value is matching drivers with riders, and other people can do that.”
As the Vortex of Change dictates, never do more of the same, instead close the innovation and agility gap. For car manufacturers, a plan to develop autonomous cars and gear up to provide new services in the process, certainly has merits. It supports business disruption while preserving the traditional manufacturing base. However, it needs to be a production line that is agile enough to respond to a progressive marketplace. We’ll examine how that manifests itself in more detail in Part Two of this manufacturing feature.
Like ripples in a pond, disruptive innovation present in one sector will have an impact on supporting trades. It can present new challenges but, with the right vision, some companies are not only much better prepared than others but end up being disruptors in their own right. Take the global delivery service UPS*. To accelerate delivery times it stocks high turnover spare parts for manufacturers and charges for warehousing. Looking ahead, it surmised that this business could be adversely affected by the groundswell of additive manufacturing, the industrial form of 3D printing. If its current customers started producing spare parts on demand, its warehousing business would suffer.
So, in May 2016, the company announced that it was launching an on-demand manufacturing network in 60 locations across North America. Accessible online, the service enables manufacturing companies of all sizes to produce prototypes, initiate small production runs, or reduce inventory for low demand parts. And, of course, the delivery is seamlessly managed through UPS’s global distribution and logistics network.
As an initiative, it keeps UPS in the driving seat and although some parts manufacturers might have some initial misgivings, there are advantages too. Manufacturers can manage their inventories better and logistics can be focused on volume sales, rather than ad hoc requests for individual items. Henrys observes: “You’re often disrupted by a company you’ve never heard of or never expected. I bet manufacturers weren’t looking over their shoulder at what UPS was doing.” Quite so.
By planning ahead of oncoming disruption, a new business emerges that bolsters an existing one, closing the innovation and agility gap, as David Abney UPS Chairman and CEO, highlights: “We’ve created a 3D printing factory right at our all-points hub in Louisville, Kentucky, allowing us to take an order in the early evening and actually, in most parts of North America, deliver the part the very next day. And in this age of empowered consumers, that is becoming very, very important. It allows manufacturers to sell and then produce, and not vice-versa, giving them a competitive advantage.”
So now UPS has a department full of additive manufacturing specialists, which is probably just as much a surprise to its regular staff, as it is to everyone else. Still, if the researchers at Wohlers Associates* are correct in their prediction that 3D printing will be a $21 billion dollar market by 2020, then this looks like a very smart move. And what makes it even more effective is that, as an ‘unseen disruptor’ – with its strategic partnerships using SAP* extended supply chain software and its investment in the Fast Radius On Demand Production Platform* – UPS has no legacy production lines to reinvigorate. It’s a new kid on the block offering Product as a Service (PaaS).
Manufacturing Transformation and Responsibility
The principle of the Triple Bottom Line, which is discussed in detail here, examines the impact of business activity in three specific areas: social, economic, and environmental. When considering transformation in manufacturing, this concept makes quite an impression. For instance, what are the social aspects of working alongside cooperative robots (cobots)? No doubt there are safety implications but also the question of how jobs will be affected.
In its report The Robotics Revolution, The Boston Consulting Group* spots a controversial trend: “Today, the cost of a ‘generic’ robotics system—which has a high degree of flexibility and thus can take on many different types of work—is around $28 per hour. By 2020, this cost is projected to fall to less than $20 per hour, which would be below the average human worker’s wage.”
What needs to be kept in mind are the types of jobs robots will be doing, as they are perfect for repetitive or strenuous tasks. Rather than losing jobs, a likely outcome is that workers will become involved in higher value activities ideally suited to the human mind’s unique capacity for astute decision making and ideation. The future of work could prove to be life-enhancing.
As sustainability becomes increasingly entrenched in manufacturing, environmental factors come into play. Described as the Circular Economy, the familiar product cycle of Produce, Use, and Dispose gives way to one that has reclamation and re-use inherent in the design and production process. This move to Product as a Service, where the product is taken by the customer who pays for the time or usage of it for a specified contract period, represents an important business model shift. A strong example of this particular trend is the tyre manufacturer Michelin*, which has developed sensors to fit into its truck tyres that monitor their condition. Offered as a service, Michelin is able to recall tyres at the right time so they can be re-treaded, reconditioned and then refitted. The same tyre can be sold two or three times and has environmental benefits that support the Circular Economy, as the raw material cost of this process is 50 per cent of that required for a new tyre. And once again we see that it doesn’t matter if you’re building and running fleets of driverless vehicles, manufacturing parts to order or producing smart tyres, Industry 4.0 is driving a massive shift in emphasis towards Product as a Service.
As one of the largest consumers of water and energy, a by-product of manufacturing industry is its environmental impact. This is an area where Smart Manufacturing is able to make significant improvements in production line efficiency and in reduced waste through better quality control monitoring. By using IoT sensors to monitor factory equipment, data is fed into predictive algorithms that can identify components that are drifting from working tolerances, before they fail. Having this insight allows preventative maintenance to take place with less disruption than maintenance schedules, that could not only halt a production line, but lead to unnecessary and wasteful routine component replacements.
Critical infrastructure solutions provider Stratus* estimates that the typical cost for industrial downtime is $30-$50K per hour with each incident lasting three to four hours, occurring around 3.6 times a year, notching up average losses ranging from $324K to $720K. Reduced downtime aside, investment in Smart Manufacturing can reward a business in more fundamental ways – perhaps even averting a damaging, possibly fatal product recall. Think of the recent Samsung Galaxy Note* 7 exploding smartphone or dangerous, defective automotive components – the latter leading to bankruptcy in the recent case of airbag manufacturer, Takata*, whose faulty inflators have been installed by 19 global car makers, from Tesla* to Toyota*.
While Smart Manufacturing is not exactly a cure for a poor initial design, it does provide end-to-end process traceability and genealogy. In the event of a product failure, the conditions under which it was made can be traced, including the raw materials and the supplier. By having this level of transparency in the production process, root cause problems can be rectified quickly to minimise the cost of any recalls and improve overall quality. It’s anticipated that the average Smart Factory will generate 1PB of data every day, which will represent a gold mine of information. Besides applications in maintaining quality, production data can be used to drive operational efficiencies and lead to further product refinements that help sustain a competitive advantage.
Given all these benefits, it would be difficult for a chip maker to resist deploying Smart Manufacturing. In Intel’s own factories, data analytics is implemented to predict equipment failures and to improve yields. The outcome has been a 25 per cent yield loss improvement, a 20 per cent spare parts cost reduction and 50 per cent reduction in maintenance time. And it’s not just the finished product that gets all the attention in Smart Manufacturing; Digital Dashboards featuring key performance indicators (KPIs) can ensure status monitoring of the complete supply chain and production process, highlighting potential issues before they occur.
As a critical dependency in manufacturing, the supply chain is evolving and becoming smarter too. It’s surely a necessity given that 37 per cent of manufacturers rank supply chain failure as a significant risk to their business, but only 13 per cent have any visibility into the supply chain beyond tier 1 suppliers. In some cases, companies need to take things into their own hands as a matter of urgency. When a component supplier went out of business, and no alternative could be found, BAE Systems* turned to 3D printing to create the part itself. The result was a two-month reduction in lead time, as well as a 60 per cent cost saving.
Even when things are going well, greater supply chain visibility can introduce savings as potential delays are mitigated and inventories are better managed to avoid losses through oversupply. It doesn’t matter how efficient the factory is, if you use up raw materials to produce goods that are stockpiled due to slackening demand, then money is being wasted.
Customer demand can also be affected by ethical concerns which can influence a company’s reputation. As consumer awareness grows regarding issues of worker exploitation and environmental impact, companies that fail to observe the behaviour of their suppliers can end up criticised for appearing to support bad practice. Conversely, IoT can play a vital role in supply chain cleansing for companies eager to demonstrate best practice every step of the way.
For some Manufacturing and Operational Technology professionals, the move to digital and the corresponding requirement to address increased cyber security needs in the manufacturing environment may seem onerous. And, of course, any business must proactively manage this risk as part of a comprehensive plan to transform. Even so, winning them over to the benefits of Smart Manufacturing is only really going to be problematic if the vision for transformation has major shortcomings. While this will inevitably mean that large swathes of the workforce will be forced to step outside of their comfort zones, if it’s approached intelligently, then the transformation and the disruption that goes with it will, as intended, have positive ramifications.
The tricky part is having that vision, one that will almost certainly force the C-suite executives out of their respective comfort zones too. Whatever the decisions, clarity and leadership is essential as Andrew Moore, General Manager of the Digital Transformation Office at Intel’s Industry Sales Group, explains: “It starts with the top of the food chain having a singular view as to what they think the business looks like in a few years’ time. And if the individual at the top does that properly, it should act to bring IT and OT together so that they’re actually looking at the business in unison, instead of completely separate sides of the same coin.”
In coming to that singular view, it’s worth remembering the work and wisdom of Sir Alec Issigonis, the automobile designer behind the manufacture of the original Mini*, which first appeared in 1959. This small family car was packed with innovations from monocoque construction to transverse engine mounting and front wheel drive – features that continue to influence car production to this day. As a voice of experience, manufacturing strategists and decision makers should always keep in mind this great industrialist’s most celebrated observation: “A camel is a horse designed by committee.”
*Other names and brands may be claimed as the property of others
For More Information:
- Intel warns businesses to act now or face extinction as digital disruption hits unprecedented new levels
- What’s The Secret Formula to Business Success in the Digital Era?
- Vortex of Change: Is your business dialled in to the 5G revolution?