The digital revolution brings new opportunities but also added challenges in a borderless world  By Eskander Yavar

The concept of connected manufacturing is an outgrowth of Industry 4.0– — the Fourth Industrial Revolution — driven by technological advances that enable the digital and physical worlds to engage and interact. In its most literal interpretation, connected manufacturing means leveraging these advances to integrate disparate data, systems and processes.

The problem with this view is twofold: 1) it omits the impact of Industry 4.0 on the external operating environment; and 2) it assumes connectivity is something novel, rather than the continuation of an ongoing trend. It’s arguably affordable access to the Internet, and subsequently, the adoption of social media, that has set the world on its current course: one of irrevocable connectivity and complexity. The eradication of the physical barriers between people, places and things has happened gradually over the last 20 years, eroded over time by each new wave of technological innovation.

It’s a trend that shows no signs of reversing—in fact, all indications point to the opposite. Connectivity is both a contributor to and consequence of accelerating change and complexity. It’s a self-fulfilling prophecy: The number of interactions between events and entities has created new feedback loops, amplified the intricacies of existing feedback loops, and forged new links between previously unrelated domains, giving rise to new interdependencies and emergent trends. At the same time, technology is increasing the speed at which these interactions occur: More is happening, faster.

What does this mean for the manufacturing industry? Competition is global, but so is the opportunity to win new customers. Disruption can come from anywhere, but the Industry 4.0 opportunity is unprecedented. Access to data is currency — and a massive business liability. It’s a new world order of increasing connectivity, complexity and risk.

We look at manufacturers’ connected worlds from three critical lenses: the economy, the factory and the customer.

Connected Economy 

Even with the recent resurgence of protectionism, there is no escaping globalization. With the advent of e-commerce, any business can sell to customers overseas, and manufacturing is no exception. In 2018, U.S. manufacturers exported close to $1.4 trillion in goods, according to data from the U.S. Census Bureau, close to an all-time high, despite a strong dollar and significant trade headwinds. That’s roughly double the amount exported in the year 2000. The number of small and mid-sized manufacturers exporting goods internationally has also tripled over the same timeframe.

It is, of course, a two-way street: In 2018, U.S. manufacturers imported more than they exported, purchasing $2.18 trillion in foreign goods. Most manufacturers rely on global supply networks to some degree to maximize profits and reduce waste.

 

 

Physical products can also become a platform for service delivery, vastly expanding aftermarket opportunities.

The business of manufacturing is thus inherently global, subject to economic headwinds and tailwinds domestically and abroad. Technology has only served to enhance the existing level of economic integration and led to the formation of new manufacturing ecosystems that extend across industries and geographical borders.

What are the consequences of manufacturing in a borderless world?

Competitors are global. In the connected global economy, the universe of potential competitors expands exponentially. Not only must U.S. manufacturers compete with foreign businesses — particularly those that boast a more attractive price point — they must compete with disruptive industry outsiders like Amazon and Tesla that are getting into the manufacturing and logistics game.

Supply and demand trends are global. The health of the manufacturing industry — and the U.S. economy at large — is inextricably linked to the broader global economy. For example, China, once reliable for year-over-year double digit economic growth, is experiencing a slowdown. China is the third-largest market for U.S. exports, so if demand eases in tandem with the economic slowdown, U.S. manufacturers will feel the brunt.

Trade and taxation are global. Manufacturers that operate globally must understand their total tax liability: the sum of all taxes owed at a given point in time, factoring in income, indirect, property, payroll, excise and other taxes, as well as customs and duties, and then the credits, incentives and deductions at the international, federal, state and local levels. For example, an operational strategy that minimizes income tax and maximizes operational cost efficiency may create significant duty or tariff exposure, more than offsetting income tax success when trade dynamics change around the world.

Regulation and policy are global. With the U.S.-China trade war, Brexit still unresolved, new issues emerging in the form of the crippling protests in Hong Kong, trade tensions between Japan and South Korea, and of course, the 2020 U.S. presidential election, the world finds itself dealing with more uncertainty, not less. Manufacturers must contend with this global uncertainty and navigate an increasingly fraught regulatory landscape, from U.S. law governing business overseas, such as the Foreign Corrupt Practices Act and trade sanctions from the Office of Foreign Asset Controls, to rules with extraterritorial reach, such as the General Data Protection Regulation or directives set forth in treaties, to local laws and customs.

Connected Factory 

The connected factory is at the heart of Industry 4.0, reimagining production processes and the way manufacturers create and deliver value. Digitization of the factory floor is just the beginning of this journey; the connected factory lays the necessary foundation for the cognitive technologies that will enable autonomous decision-making and self-optimization across the broader supplier ecosystem. Eventually, every aspect of the production process, from procurement to inventory management to manufacturing and distribution, should be data-driven, with automation and analytics embedded throughout.

As we outline in our Industry 4.0 maturity model, the key attributes of the connected factory include:

• Internet Connectivity: At the most basic level, the connected factory starts with digitizing physical assets and processes by embedding smart sensors into product components and equipment, enabling the real-time collection of production data.Cyber-Physical Systems: Connected physical assets are controlled by information systems or analytics, enabling real-time optimization and autonomous decision-making without human intervention.
• Data and Systems Integration: Data is aggregated from disparate sources and formats to provide a single source of the truth via a centralized database. Core manufacturing systems, such as Product Lifecycle Management, Enterprise Resource Planning, and Manufacturing Execution Systems, are integrated to enable the exchange of information and optimize processes.
• End-to-End Visibility: Ideally, information sharing up and down the supply chain provides an integrated view of an asset throughout the entire product lifecycle. The goal is to improve the way in which people work together to generate collective intelligence and solutions that extend beyond the limited view of a single person, function or entity.Integrated Business Planning: Financial and operational goals are synchronized with business goals to improve demand forecasting, increase agility, enhance external collaboration and ultimately maximize value for the customer.
• Rapid Design & Implementation: Digital twin technology integrates simulation with design, enabling manufacturers to build, test and analyze applications in a virtual environment before they go live.

In the connected factory, data is more accessible. Process optimization is a relentless quest. Experimentation and innovation are constant, giving rise to new business models and customer solutions. And as the scope of the connected factory expands beyond factory walls to encompass the greater digital supply network, the possibilities are endless.

 

 

Technology has only served to enhance the existing level of economic integration and led to the formation of new manufacturing ecosystems.

Connected Customer  

From the Internet to mobile phones to social media, technology-enabled connectivity has changed the very fabric of human lives — the way we communicate, who we talk to and even the way we perceive the world. Today’s connected customer is, on average, using the Internet for 6.5 hours per day, spending 3 hours on their mobile device, and more than an hour on social media. They shop online, order ridesharing services from their phones, and binge-watch TV on Netflix. And no, it’s not just the Millennials.

These evolving consumer behaviors have repercussions for all manufacturers, regardless of whether they’re B2B2C or just B2B. According to the most recent State of the Connected Customer survey from Salesforce, 82% of business buyers want the same customer experience as when they’re making a purchase for themselves. Manufacturers must be responsive to shifts in customer demand — and that extends not only to the customer experience, but to the products developed and sold.

Here is how the connected customer is changing the manufacturing mandate:

Logistics transformation: Amazon set a new standard for convenience through its Amazon Prime program, which today has more than 100 million members. Two-day shipping has become the gold standard, and Amazon recently one-upped itself, now offering standard one-day shipping for Prime members. No business can assume buyers will tolerate delayed or incorrect orders, meaning logistics and distribution, from warehousing to order fulfillment to shipping, must happen at lightning speed.

Getting closer to the end-customer: Demand flows from the end customer, but manufacturers are limited in their ability to influence that relationship. To get better insight into the end customer and offer a more personalized experience, some manufacturers are exploring direct-to-consumer models. Cutting out the middleman can also offer consumers a more attractive price point, at the same level of profit for the manufacturer.

Personalization: Henry Ford once said, “Any customer can have a car painted any color that he wants so long as it is black.” Such an approach doesn’t cut it anymore for today’s connected customer, who increasingly expects not just mass customization, but individualized customization via an engineer-to-order fulfilment model.

Product reinvention: The rise of the sharing economy, in which customers pay for access to a shared asset, has called into question both the very definition and the appeal of traditional ownership. Taking a page from the sharing economy, “product-as-a-service” reimagines value in terms of the benefits of a product rather than the product itself. In its purest form, the service replaces the product: instead of purchasing a car, the customer pays for the ride. Physical products can also become a platform for service delivery, vastly expanding the aftermarket opportunity to a whole new realm of digital services.

To stay ahead of the competition, manufacturers need to enhance the end-to-end customer journey, deepen customer relationships and embrace customer-centric innovation.

In a world where everything is connected — customers, supply chains, and even economies — everything is made in connectivity. For manufacturers, it’s a new era of complex local, regional and global change, fraught with uncertainty and risk, but also infinite possibility. It requires manufacturers to operate with a new level of agility and insight, a level that can only be reached by breaking down internal silos and collaborating across traditional organizational boundaries.

How can middle market manufacturers not just survive but thrive in a connected world? In short: They, too, must get connected.   M