Working with a consortium of multinational manufacturers, the Institute for Manufacturing (IfM) at University of Cambridge in the U.K. is developing an assessment framework to help decision makers identify the Manufacturing 4.0 technologies with the maximum competitive potential. By Dr. Jag Srai and Dr. Paul Christodoulou
The rapid emergence of transformative technologies is changing the industrial landscape. This digital revolution offers abundant opportunities for organizations who can identify and capitalize on the opportunities it presents. But the right path forward is not clearly signposted, may be untrodden by others, and is fraught with risk.
Organizational decision-makers face a decision dilemma. On the one hand, the range of technology options can seem so overwhelming that it results in paralysis. On the other hand, there can be a perceived urgency to implement change across several operating areas of the business at once in a rush to avoid being left behind by fast-moving competitors.
So how can decision-makers get to grips with where their priorities should lie, and set a strategic direction focused on delivering improved customer experience?
Incremental or Radical Transformation?
Priorities for digitalization are unique to each company, depending on their sector, strategic objectives, and existing capabilities. In the Institute for Manufacturing’s (IfM) recent research into the transformation programmes being implemented by manufacturing firms, two distinct types of digitalization project emerge: incremental and radical.
For most organisations, the initial forays into digitalization are typically cautious, small-scale and low risk. These may involve the implementation of relatively localized applications, maybe in one geographic location, or in one limited operational area. Perhaps they will follow in the footsteps of external partners or competitors who have implemented similar applications with evidence of improvement.
These projects are valuable in helping to identify attractive opportunities. They also enable a test-bed approach, trying something out without too hefty an investment or too great an uncertainty, and helping them to identify and iron out any issues. These then form foundational ‘use cases’ that can be used to demonstrate return on investment.
For senior executives, these are the most obvious development projects to back. They allow companies to demonstrate their ability to deliver successful projects and to be more confident from the outset that the results will be good. Projects with initially limited scope can then be extended across sites or operating areas. Incremental progress is made towards digitalization, risk is managed, and the business case is strengthened.
But what about taking a more radical approach? And why would seeking out more difficult projects, with associated higher risk and uncertainty, be an appealing path?
Difficult, radical projects are more experimental, usually requiring higher investment and carrying higher risk of things going wrong. But as a result, they also provide greater opportunities to strike out ahead of the competition. This type of implementation is where pioneering companies like Amazon and Uber thrive. And when they get it right, the results can be much bigger than if they had stuck within the safer boundaries of easier, incremental development. Radical digitalization projects offer the potential to create a sustained competitive gap by doing something that is difficult for competitors to replicate.
Matching Technologies with Business Needs
So what evidence is there about the projects already being undertaken? For the past three years the Centre for International Manufacturing in Cambridge has been working with a consortium of multinational companies to look at the digital transformation of their supply chains. To help guide these firms in thinking about the range of digitalization options available to them, a series of ten Digital Scenarios was developed spanning the end-to-end supply chain. This provides a starting point for considering the technologies that could be implemented and the associated business benefits.
Since developing the framework, the IfM team has also analysed technology interventions by partnering with each of the consortium members as they undertake an assessment of their current digital maturity within each of the ten Digital Scenarios (see Fig. 1). These assessments have enabled the identification of particular digital applications being developed in each scenario, and an articulation of the specific business benefits of those applications.
“Radical digitalization projects offer the potential to create a sustained competitive gap by doing something that is difficult for competitors to replicate.”
The ten scenarios can be split into four broad areas: inbound, internal, outbound, and end-to-end. Crucially, in each area, the focus must be on implementing technologies to deliver on clearly defined business needs and benefits.
Inbound: At the inbound end of the supply chain (Scenario 1), technologies such as e-auctions, supplier innovation portals, blockchain procure-to-pay, auto-replenishment and predictive disruption analytics are enabling closer collaboration with suppliers and improved management of procurement. These can reduce inventory, improve traceability, avoid shortages and disruption, and result in more competitive supply costs.
Internal: Internally within factories (Scenarios 2-5 across the top), technologies supporting digital factory design (Scenario 2) include 2D and 3D modelling, process modelling and simulation, and Virtual Reality (VR) dynamic production simulation. Improved real-time factory scheduling (Scenario 3) is achieved through technologies including ERP master schedules, sensor-based data capture, and data visibility through mobile devices. In terms of flexible factory automation (Scenario 4), collaborative robotics, automated material handling, and efficiency improvements to batch manufacture are evident. And in digital production processes (Scenario 5), the deployment of additive manufacturing is continuing to grow, as well as technologies including advanced process analytics, and continuous processing. The benefits across these scenarios include improved factory productivity, shorter lead times, reduced inventory, and improved flexibility of product range or volume.
Outbound: There are multiple digital routes to enable improved connection with customers. These include web-based order management, implemented through digital applications such as customer-shared scheduling, CRM systems, remote monitoring, and predictive demand analytics. These are designed to deliver benefits including improved customer engagement, the ability to personalize offers, and offer quicker response times, resulting in improved customer satisfaction and retention.
Examples of digital applications and business benefits for Scenario 6 are listed in the table below.
End-to-end: Scenarios 7-10 span the end-to-end supply chain. Multiple technologies are being implemented across these scenarios, including extended ERP, watchtower alert systems, end-to-end quality traceability, and customer complaint systems. Digital portfolio management and data analytics are among the key technologies being deployed for product lifecycle management (Scenario 10).
End-to-end, these technologies, along with many others, are helping to deliver business benefits including improved personalization, enhanced quality assurance, more efficient new product development, reduced recalls, and ultimately, improved customer trust and retention.
While it is certainly important to learn from the experiences of other businesses in this time of disruption, it is nevertheless vital that each firm recognises its uniqueness and the need to chart its own route rather than simply following in the wake of others. This is the real nub of the issue. Making appropriate decisions and identifying the firm’s unique priorities is a complex matter. But it is only by doing so that creating a sustained competitive advantage is possible.
Assessments of digital maturity within the consortium have identified two important patterns. The first is that each company has its own combination of areas in which it is focusing its effort. These are determined by its own business strategy and understanding where it can make the biggest improvements. As shown in Figure 2, Firm A’s combination of priorities, shown in green, is distinct from Firm B’s priorities, shown in blue. (see Fig. 2)
Secondly, hot spots have emerged where companies within a sector are clustered around certain priority areas. For example, a business-to-consumer producer of household products is likely to have a different focus from a manufacturer of industrial machinery, or a pharmaceuticals manufacturer. But even where sector clusters emerge, nevertheless, each company will have different priorities depending on its current digital maturity and its unique business objectives.
Digital Backbone & the Value of Data
Both radical and incremental digitalization projects will be stronger if underpinned with firm foundations, constructed from well-developed digital platforms that can span and connect multiple business areas and share data between locations and across supply chain partners. The real value lies in the data itself, of course, so how can that data be meaningfully exploited?
Here the concept of the digital backbone, or digital thread, is valuable, referring to common data structures and architectures connecting different business areas. Investing in one shared data infrastructure which supports numerous applications is a much more efficient and cost-effective approach than treating each application development separately with separate data structures. If a company develops a robust data architecture once, it can then be extended across the different applications.
This approach is much more time and cost efficient, as well as offering multiple potential business benefits for sharing and leveraging the data across a number of applications, considerably increasing the value that can be derived from the data. Moreover, the digital backbone itself becomes the interconnectedness, facilitating different systems across the business to be built on a common, connected foundation. It also provides for some degree of future planning, so that future applications will not necessarily require a new data architecture to be built.
Continuing research is working towards improved identification of where these interconnections may lie. This will help companies to think strategically about what applications a digital backbone needs to support within each unique company context. A gamification app drawing on the real industrial experiences and challenges of consortium members is also under development to identify such connections across digitalization application projects. This mobile app is designed to elicit knowledge from expert practitioners by reviewing pairs of digital application projects in terms of interdependences and the nature of the relationship between applications. The resulting pair-wise comparisons provide a view of how closely different sub-elements of the scenarios are connected, ultimately identifying opportunities to capitalise on these connections through informed planning of the digital backbone.
The most creative disruptors are capitalizing on the power of these connections and looking for ways to enable radical digital transformation. Navigating successfully through the myriad of transformative technologies is challenging. To avoid paralysis through never ending pilots, companies should seek key connections that can combine incremental improvement with bolder strategic plays that support competitive advantage.
Looking forward, the next phase of research is focused on understanding some of the barriers to implementing more radical supply chain transformations that might underpin sustainable competitive advantage. These barriers include prerequisite supply chain capabilities, the increasing need for digital skills and assets, and upstream/downstream connectivity. As the consortium expands, it will provide an increasingly valuable vehicle for testing these concepts to help support manufacturers as they purse their mission-critical digital transformation programs in the years ahead. M
IKEA’s Route to Digital Transformation
Per Berggren, Industrial Strategy Manager at IKEA Industry, which been working as part of the IfM’s Digital Supply Chains Consortium, shares his perspectives on the Swedish company’s own technological transformation journey.
“We are running an extensive digitalization programme at IKEA to introduce Industry 4.0 capabilities. Our journey has led us from exploration of technology options, through development, into piloting, and now into roll out across our 40 manufacturing plants.
Digitalization for us is about helping our customers, making it easier for them to buy from us, and making the interactions between shop floor and customers as smooth as possible. Our promise to our customers is to be a low-price manufacturer and retailer with creative products which improve everyday lives. As a business we serve mass consumer markets, and we want to grow our reach. Digitalization can certainly help us to do both of these better.
The first and foremost objective of our digitalization programme is to improve the customer experience, reduce cost and friction, reach more people, and keep our prices low.
Secondly, digitalization brings more stable processes, which in turn bring improved quality service capability. These improvements in our day-to-day operations enable us to run more efficiently and maintain our low-cost promise.
Thirdly, digitalization enables us to ‘meet’ customers in new ways – making sure we become more accessible and more relevant to their needs. We can explore different ways of distributing goods too, which in turn can open up new markets and new product offerings.
Fourthly, we have been considering digitalization strategies across our supply chain, where we can improve the flow of goods between supply chain partners as well as greater integration of systems, again ultimately to keep prices low and supply reliable for our customers.
The real opportunity is about integration across the end-to-end supply chain, not manufacturing in isolation. We originally conceived our digitalization programme as ‘Factory of the Future’, but realised we were restricting ourselves by thinking inside the factory walls. It’s important for any firm to think more broadly, and particularly a consumer-facing retailer like IKEA. To create the most value from the potential of digital technologies we need to look across the supply chain at integrated solutions. This is a monster undertaking, but we have prioritized steps towards achieving it!
Looking at digitalization only in terms of operational improvements will provide limited advantage for a short period, maybe two to five years, mainly because a lot of companies are still struggling with introducing digital technologies. But to achieve a sustained advantage for a longer-term period, companies need to make more fundamental changes and re-engineer their business models.”