Global economic disruptions include supply chain bottlenecks, trade restrictions and rising prices for raw materials, all of which give manufacturers a big headache. Producers are also under increasing pressure to readjust their manufacturing footprint and reduce consumption to meet sustainability targets. Most manufacturers are still stuck with a geographic footprint set down in the 1980s, driven by ongoing labor arbitrage around the globe. Large factories are still predominant in low-cost regions like Asia, Eastern Europe, and South America. Accelerating trends toward automation, upskilling and high demand for customized products, combined with increasing regulatory requirements for sustainable manufacturing, are pressuring companies to rebalance this equation. To increase efficiency and respond to threats and trends, many producers have implemented Industry 4.0 technologies.
But quo vadis? Where are these trends going?
The Industry 4.0 vision – smart, networked factories, closer to customers
Industry 4.0 technologies offer no less than the ability to redesign the global manufacturing footprint, to position factories closer to markets, reduce logistical nightmares and increase the visibility of suppliers and customers.
The digital transformation offered by Industry 4.0 technology has four central goals:
1. Customization, insight-driven manufacturing and lot sizes of one
With customers increasingly demanding highly personalized products, mass customization has become a competitive playground. Western manufacturers need to differentiate their offering (via customization) from cheaper offshore competition to retain their markets. Industry 4.0 includes a wide range of technology innovations like 5G, artificial intelligence (AI), machine learning (ML), PLM and digital twins, MES, IoT platforms, and additive manufacturing (3D printing). These can support the agility, flexibility, and efficiency to offer customers such highly personalized products and services, thereby enhancing their brand experience, increasing loyalty, satisfaction, and ultimately, profitability.
Infor customers in manufacturing have switched from series production to highly customized operations in segments as diverse as the fabrication of individual sports rifles for biathlon athletes, medical science equipment, commercial laser pointing products, the fenestration industry (producers of windows and doors) and industrial cranes. Product individualization based on unique combinations of modular components and very late customer change requests have become essential ways to improve the customer experience. The vision is that consumers can switch their product configuration on the fly.
With an increasing shift of focus toward software-driven experience-based services, there will be pre-purchase changes for specific experiences. Today, some cars already come with three driving modes: sports, comfort and eco. In the future, cars may be chosen for events instead of a car’s lifetime – a camper van just for the summer holidays, an SUV for the winter holidays, a limousine for the business trip. All these will be equipped with event-based options, possibly an extra seat row for the children and special cooling options for the summer holidays, heated steering wheel and a snow-drive option for the winter holidays, and additional horsepower for a long-distance business trip.
2. Incremental innovation and transformation to product-as-a-service
Product lifecycles are becoming shorter as customer attachment to one-size-fits-all physical products decreases. Companies no longer compete exclusively on product features, instead offering value-added services, and manufacturers are adapting their operations to optimize business efficiency. In automotive, software-enabled service platforms are a new ground for differentiation, replacing hardware-related factors such as engine power and precision-engineered door handles. Success in this realm requires more knowledge about customers, software-based services and the ability to innovate and respond quickly to changing customer preferences.
3. Digital innovation reducing market distance
To reduce delays and transportation costs, leading manufacturers build smart factories closer to the customer. Redesigning the manufacturing footprint is especially imperative for the manufacturing industry, with its notoriously complex, fragile, and logistically challenging global operations and supply chain. New business models and technologies help reduce the distance to the end consumer. With digitalization, automation and robots, factories need fewer workers but more skilled ones. Thus, locations in Western countries become attractive despite higher labor costs.
With the digital revolution unfolding, there will be more ways to overcome global footprint constraints, such as these two concepts.
First, a widespread network of high-tech automated micro-factories. The micro-factory was invented in 1990 by the Mechanical Engineering Laboratory of Japan, referring to cell-based manufacturing in a multitude of small and highly automated plants, to deliver customizable designs locally. But it has not yet become widespread. Today, we observe much interest, but few operational implementations of micro-factories. Despite the appeal of quick deployment, higher flexibility, lower capital investment, and reduced environmental impact, the implementation of micro-factories is limited to start-ups and new business models. Even the discussion about micro-factories has quieted down. The assembly line still plays a major role, and the efficiency of a modern automated volume production site with just-in-sequence operations are hard to beat with a more distributed approach to production. Gartner® places Mobile Factories just before reaching the tipping point of “Peak of Inflated Expectations” on the just released Hype Cycle™ for Advanced Technologies for Manufacturers, 2023 and classifies them as: “5-10 years to mainstream adoption.”1
So, the micro-factory concept could become a strong factor to increase the value of customization and higher flexibility, fueled by zero distance and innovation in computing, robotics and AI. But it is not yet a top priority for operational executives.
Second, a relocation to high-cost countries for access to resources and customers. In contrast to the slow development of micro-factories, a counter-trend of companies setting up rather large factories in Western countries is burgeoning. First, there is a plethora of gigafactories. Introduced by Elon Musk, the term refers to giant plants to produce power units generating gigawatts of power via EV batteries. Gigafactories are set up in places like Canada, Austria, the United States, and Norway, by companies including Volkswagen, Northvolt, Miba and Frey. In addition, Infineon and Intel launched large factories in Austria and Germany to produce their core microchips, while Rheinmetall created a factory for producing electronic components for the F-35 fighter plane. This trend is driven by access to excellent logistics and highly qualified resources rather than by cheap labor.
4. Agility to deliver business and technology requirements
An effective platform enabling swift reaction to change, adjustment of the global footprint and further efficiencies via automation requires a comprehensive digital transformation. But for many organizations, challenges to connect separate technologies, true digitalization of processes and the complexity of existing systems continue to be roadblocks to executing a digital vision.
McKinsey has outlined critical success factors, including these four:
Cloud ERP at the core of Industry 4.0
Historically, manufacturers have architected their organizations and IT portfolios with a traditional monolithic enterprise-centric and on-premises ERP. But this inside-out model, with static, scheduled interfaces to the “outside world,” is unfit for tomorrow’s intelligent factories in response to an even more dynamic, constantly changing and truly real-time business environment. Legacy ERP systems focus on structured data from ERP transactions, not unstructured data that has become business relevant (e.g., IoT, clickstream, social media). This siloed, intra-organizational and structured-data focus does not provide the agility to adapt to and get ahead of current and anticipated business conditions.
The demands of the modern economy and the forces discussed above have led to replacement of monolithic ERP with a more modular, standardized cloud-based “hub and spoke” network approach, which can adapt and scale in line with business priorities. The capabilities to integrate, manage data, secure data and applications, and identify and provide optimal user experience have become the focus of overall enterprise strategy. The modular ERP approach is built around a core, vertical-specific ERP solution as a strategic integration platform to connect to supplemental applications, potentially from multiple vendors. This core ERP becomes the foundational platform for agility and innovation at scale. Additionally, embedded and advanced capabilities enable more intelligent automation by leveraging AI- and ML-driven insights and actions to improve the manufacturing process.
Digital cloud platform impact on time-to-value
The Infor digital ERP platform is designed to shorten time-to-value and improve customer experience to ensure success and improved business outcomes.
It is an industry-specific solution with preconfigured processes built in, and incorporates learnings from the sales process into the provisioned product. This is coupled with a heavy investment in tooling and content to shorten the initial implementation effort, cost and risk, and have the catalogue of predefined industry processes to accelerate deployment. The cloud simplifies updates and eliminates the need for major upgrades and for a large technical team to implement and maintain business applications.
It is set to become the central platform for dynamically driven innovation. Every company that joins increases the industry cloud scale in sectors such as automotive, industrial manufacturing and A&D, and accelerates the need and pace for relevant industry-specific additions. In 2030, industry communities will drive standardized cloud-based functionality based on their needs for manufacturing functionality, compliance with regulation, and process optimization through deep strategic interaction to set priorities per industry. Upgrades will be deployed immediately as standard additions with transparent and global KPIs throughout their entire manufacturing footprint. Over time, there will be a rich library of relevant tested use cases for process optimization based on AI per industry, available to all participants.
And the winner is … the smart, agile factory
Success belongs to the prepared. In today’s digitally transforming and connected discrete manufacturing industry, being prepared requires a re-evaluation of traditional business processes, technology capabilities and the main traditional asset, the global manufacturing footprint. Critical across each of these dimensions is effectively connecting systems and locations in an open and standardized structure and harnessing the power of data.
Manufacturing companies started to invest in new digital technologies such as AI to improve operational efficiency in areas such as demand forecasting, fault finding in production and warehousing. But today, most organizations struggle to roll out new technologies to the global universe. Those who will seriously invest in their digital platform to build a dynamic, intelligent and connected factory network put themselves into a favorable position to deploy consistent innovation steadily, quickly and globally. This change will not happen overnight. The move toward digital workflows and transparent open standards requires the whole organization to shift. Those who commit to that journey will be able to use the digital innovation benefits immediately to their business advantage in 2030. They will gain the ability to instantly respond to market disruptions, customer requirements and regulation, and create new products and services on the fly.
In an increasingly uncertain market environment, success will reward manufacturers that most effectively align new data management skills with modern information technology platforms to render their factories truly smart and insight driven. This includes the enablement of closeness to customers and their need for experiences rather than traditional products, decision-making adapted to swift reaction to change, and real-time, dynamic, sustainable and market-relevant manufacturing.
About the Author:
Dr. Henning Dransfeld is Director Industry & Solution Strategy at Infor. He is responsible for the development and implementation of Infor’s growth strategy in the discrete manufacturing in segments including A&D and automotive manufacturing in EMEA. Dransfeld has years of experience as an industry analyst. At Information Services Group (ISG), he was responsible for manufacturing, data analytics and IoT across Europe. He also led numerous consulting projects in these and related specialties. Prior to that, Dransfeld held positions at Ovum (now Omedia), T-Systems, Forrester and Experton.
1Gartner Hype Cycle for Advanced Technologies for Manufacturers, 2023 Published 25 July 2023 – ID G00789107 By Marc Halpern, Sudip Pattanayak, Christian Hestermann, Alexander Hoeppe
GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.