‘Industry 4.0’ Demands Supply Chain Innovation

manufacturing Hoda Bogdan/Adobe Stock

The latest wave of the industrial revolution, known as “industry 4.0,” is demanding manufacturers make major changes to business functions, including supply chain operations. The impact advanced technologies and data analysis is having on the industry is huge, and companies are needing to change how they operate to remain competitive.

Industry 4.0 and the innovative technologies shaping this revolution were a major focus this week at the SAP Manufacturing Industries Forum 2016 in Lombard, Illinois. Richard Kelly, partner at McKinsey & Company, said during a presentation at the event that industry 4.0 had officially reached its tipping point across the globe.

“This is much more than hype,” Kelly told the audience Tuesday.

According to Kelly, there are three main drivers of industry 4.0 today:

  1. The exponential increase in computing power. This means businesses have more power to gain additional insight.
  2. The sheer volume of data now available. Additionally, sensors continue decrease in price, are becoming more resilient and are able to be deployed in harsher environments. This means companies are using more sensors and collecting more data that can help drive business operations and decisions.  
  3. Connectedness. More people are connected on an individual, personal technology level than ever before. And, it’s expected there will be 25 billion machines connected by 2020. Manufacturers can now look at their smartphone and see how their plants are operating.

Dramatic Changes

While there are barriers to adopting the advanced technologies available today, companies must overcome them to remain competitive in the industry. According to Hans Thalbauer, general manager of extended supply chain at SAP, companies need to “dramatically change” their supply chain as well as their manufacturing and research and development processes to respond to the demands of the market. Customers not only want products faster, they want their products customized to suit their specific needs, he said, and companies are having to change the way they operate to meet these demands.

One example Thalbauer used was Coca-Cola’s Freestyle machines, which allow consumers to customize the soda drink they want with more than 150 flavors to chose from. It’s this end-consumer economy and personalization that are driving changes to the supply chain.

“If you think about it, the whole supply chain needs to run differently, the product is different,” he told Spend Matters.

Technology available today is allowing companies to introduce new products like this to the market.

Technology makes so much progress that these types of processes are possible,” Thalbauer said. “And then there are companies that are very, very innovative and manage to disrupt whole industries.”

Launching a Technology Project

As certain manufacturing companies innovate, others will forced to remain competitive. But implementing new, advanced technologies that change how a manufacturing company operates presents some challenges. DJ Paoni, managing director of the Midwest region at SAP, said the advanced technology solutions available today are a “must to have right now,” but another must is getting C-level executives to understand their value.

“Getting c-level buy-in is imperative for an organization to go through a massive change like this and adopt new technologies,” Paoni told Spend Matters.

The most successful technology solution adoption implementation projects are those that focus less on top line revenue growth and more on remaining competitive in the marketplace, according to Paoni. Leading companies are determining what changes they need to make to stay competitive, as well as assessing the consequences of not doing so.

“This is what is gathering the attention of a lot of executives,” he said. Executives are asking, “if I don't implement this, if I don't change my process, if I don't make my products easier to use, if I don't create that 360-degree view for my own customer, someone else is going to take my customer.”

Rick Imber, SAP’s head of extended supply chain for North America, agrees we have reached a tipping point with “industry 4.0,” but there are also many organizations that have yet to adopt the advanced technologies reshaping supply chains and other business functions. However, he believes even these late adopters understand there is a need to innovate and remain competitive.

Companies understand “it’s not if, but when can I make this happen,” Imber said. “Because I know it will have a dramatic impact on my business.”

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