One small component is creating big delays in global supply chains: the ubiquitous semiconductor or chip. These components are not only essential to our phones, laptops and other electronics, but to the production process in just about every sector of the manufacturing industry. So, what would help us produce more of these desperately needed parts? According to Birlasoft Vice President and Global Business Head of Communications, Media & Technology Nitesh Mirchandani, the answer is cloud computing.
Why the shortage? As COVID-19 unfolded, millions of consumers purchased new laptops, smartphones, game consoles and other devices as they spent more time at home. This shortfall was compounded by the existing high demand for chips brought on by the growth in smart products—everything from thermostats and appliances to robot vacuum cleaners and GPS-enabled dog tags. COVID-19 also caused a wave of semiconductor factory closures that also exacerbated the problem. The result? A shortage that industry experts say could last through 2022.
Why the cloud? Cloud computing is the on-demand delivery of resources like data storage, software, networking and other services via the internet. Users either purchase a set subscription or pay by their level of usage—both cheaper and more flexible options than maintaining an on-site IT team for all needs. Cloud computing has several advantages for semiconductor manufacturers, according to Mirchandani:
- It speeds up time to market through swifter design and development. Because they can be accessed anywhere, cloud services enable teams to connect and collaborate more easily. Development cycles become quicker as teams connect better internally and with other parts of the business, including partners and suppliers.
- It enables data-driven business decisions. Thanks to the faster processing and analysis of cloud computing, manufacturers can get instant information on things like factory performance, supply disruptions or customer demand. Likewise, workers can be alerted to a machine that needs maintenance or to potential defects in materials or products.
- It provides service continuity. Internal IT teams often have limited resources. Cloud infrastructure is managed by specialists who can ensure uninterrupted service, so in-house IT teams don’t need to continuously maintain software through updates and patches.
Why it matters: Semiconductor shortages threaten to drag down the economy just as recovery is getting underway. Businesses rely on chip-enabled technologies for creating products, managing operations and maintaining the flow of goods and services. Consumers rely on them for smarter, safer homes and connections to work or school. Unless chip manufacturers can shore up production to meet demand, the ripple effect will create added distress for many sectors of the economy.
Consumer goods manufacturer Church & Dwight found that it needed to boost performance to meet customer demand. To meet this goal, it embarked on an ambitious Lean initiative at all of its 13 production facilities.
“We look at all challenges through the lens of Lean manufacturing—it’s the only way that we can operate,” said Bruno Silva, vice president of manufacturing operations.
What’s Lean? Researchers James Womack and Daniel Jones first defined the concept of Lean manufacturing as “a way to do more with less … while coming closer to providing customers exactly what they want.” Many manufacturers see mastering Lean as an essential springboard to operational initiatives like digital manufacturing and other advanced production practices.
Setting the stage: In developing its Lean program, Church & Dwight first held a weeklong leadership summit to decide on standards and expectations. The company’s leaders came up with a Lean assessment system with 16 standards and a definition for achievement at the gold, silver and bronze levels. But the essential part was ensuring frontline employees were driving improvement from the bottom up—not the other way around.
- “This is not corporate pushing it down,” said Felipe Vilhena, director of Lean manufacturing – global operations. “We help workers overcome challenges and give them the right tools to do that. We created a mindset and expectation that improvements are part of the work.”
Putting it into practice: Initially, each worker was asked to list five potential improvements at his or her site, and then go out and make them. The company provided training and support to help with these fixes, while managers kept employees fully informed of their progress according to key indicators.
- Workers formed self-directed teams and continued to seek out improvements, which they began making more and more frequently. Thanks to the trust and autonomy that employees were given, engagement and retention measurably increased at the same time.
Receiving recognition: The company’s achievements have received recognition from its peers in the industry. One of its top-performing facilities in Green River, Wyoming, earned the company a 2021 Manufacturing Leadership Award in the Operational Excellence category from the NAM’s Manufacturing Leadership Council.
The last word: “It was important to create the right expectation and mindset,” Vilhena said. “From big to small improvements, we are seeing them happen every day.”
Shell’s future vision is being fueled by sustainable innovation, data, and meaningful digitalization that delivers clear business outcomes, explains General Manager of Digitalization Peter Westerink.
“Digitalization is not just continuous improvement. It’s a process of exponential and disruptive improvement. It’s going to mean significant change. And that requires a change in mindset and very deliberate leadership.”
Peter Westerink, General Manager, Digitalization Chemicals and Products, Shell
Inspired by the exotic seashells that trader Marcus Samuel imported from Asia during the 19th Century, the Shell brand was chosen by his sons to represent their new kerosine business in 1897. Over a century later, Royal Dutch Shell has grown into one of the world’s largest energy and chemicals companies operating across more than 70 countries and with 87,000 employees.
From the lips of Marilyn Monroe in the film ‘Some Like it Hot, to the glowing signs outside thousands of gas station forecourts across the world, Shell’s name has become synonymous with power and innovation. In the midst of today’s global transition to cleaner energy, the company is now focusing on developing new sustainable solutions, transforming its global operations, and achieving its own ambitious decarbonization targets, all with the help of digital technologies.
In our latest Dialogue with a manufacturing industry thought leader, Peter Westerink, General Manager of Digitalization for Chemicals and Products at Royal Dutch Shell, talks to Manufacturing Leadership Council Executive Editor Paul Tate about the balance between data, people, and technology along a digital journey, the rise of the citizen data scientist, the parallels between digital transformation and global energy transition, and the role of manufacturing in shaping a different kind of future.
Q: What excites you most about your role at Shell?
A: We’re in a time of tremendous change. Being at the forefront of redefining what the role of manufacturing is going to be for Shell in the energy transition is tremendously exciting. We know about the challenges, but we also see tremendous opportunities in the growth of certain areas of the business, like performance chemicals, for example. What excites me most in this role is bringing technology and people together in new ways to create transformative business results. I think the word transformative is critical here. We’ve seen a lot of continuous improvements in our industry over the years, but digitalization gives us a new opportunity, not just for incremental steps of improvement, but to make radical changes that can deliver significantly different transformative bustiness outcomes.
Q: What challenges still keep you awake at night?
A: What keeps me awake at night is, how am I, as a leader in this industry, going to be able to lead and influence some of the major decisions that are going to shape not just the industry, but also what’s going to happen in our society? I’m convinced there is a role for the manufacturing industry in the future, and I’m also convinced that that role is going to look very different. Making sure that our industry is relevant and that we meet the challenges not just of today, but also the challenges that future generations are going to face is one of the most important drivers I have.
“I believe that successful digital transformation is 60% about data, 30% about people, and 10% about technology.”
Q: What key trends that are currently driving Shell’s global markets and the way Shell defines and develops its business in the year ahead?
A: The first is the global move towards decarbonization. It’s a hot topic for every industry. In Shell we take a sectoral approach, looking at each sector that we play a role in and then developing specific strategies for those sectors. Take aviation. We know electric airplanes are still a long way away, so what can we do today to develop more sustainable aviation fuels? We did some great work on this earlier this year with synthetic kerosene that is partially produced from CO2 from the atmosphere. Look at road transport, particularly for individuals. We see a massive electrification of vehicles in Europe, in the US, and major urban hubs across the world. Shell is actively playing a role, including extensive EV charging networks and specialist EV lubricating fluids.
The second priority is to look at the assets we have and try to repurpose them to enable the energy transition. It will be the same for a lot of manufacturing companies. Shell is transforming five traditional refineries into Energy & Chemicals Parks, which will see less processing of crude oil and more recyclable and renewable feedstocks, so they can be linked into a hydrogen infrastructure, a biofuel chain value chain, and become producers of, or sinks for, electrons as we stablize grid operations for large-scale electrification.The repurposing of assets is going to be a major trend.
The third key trend is the completely different role that customers and stakeholders will play in our industry in the future. We are creating a different mindset within the company that puts the customer at the heart of what we do. We are already seeing a far more differentiated customer base which will become increasingly more demanding of the energy industry. Being able to translate those customer demands into value propositions that generate the revenues our shareholders expect is going to be a big challenge for the industry and a major trend in the coming years.
Q: What’s driving Shell’s digitalization strategy today?
A: Digitalization is not a new idea at Shell. We pride ourselves on being a high-tech company and we’ve always looked out for opportunities to leverage digital solutions. But the pace of change has picked up tremendously in the last decade. We’re now at a stage where the hype is over, and we’re in a period of heavy lifting. We have become very deliberate and purposeful in the way that we approach digitalization. In the initial phase, lots of people pursued lots of different ideas; we sometimes called it the “let a thousand flowers bloom” strategy. But we’ve recognized that is not the way we’re going to win in this industry and not the best way to leverage our scale. So, bringing structure, a clear vision, and perhaps more of a top-down approach to our digital strategy has helped us to become far more focused on a line of sight between a technical capability, that results in a business capability, that then brings a significant business outcome. That being said, we see huge potential in making AI accessible to employees who may not come from a traditional data science background. We provide the frameworks and tools so bespoke solutions can be created to solve local problems. Digitalization has enabled $2 bn of process improvements, cost reductions, production increases, and increased customer margins across Shell’s businesses in 2020 alone, doubling from 2019.
Q: How do you balance the various aspects of digital transformation as part of this strategy?
A: I believe that successful digital transformation is determined 60% by data, 30% by people, and 10% by technology. Very often in an organization of technically oriented staff we’re enamored by new technology. But really, data is the fuel that makes the digital engine run. What’s important is that our business leaders start to think differently about the data behind their business challenges before they get into anything else. One of the things that has influenced my thinking is Thomas Redman’s book, The Field Guide to Data Quality. He states very clearly that organizations that have an improved data governance will sustain and report enormous benefits. They will improve their customer satisfaction. They will create empowered employees. They’ll save enormous amounts of money. And they’ll make more confident decisions faster and better align their departments. Data is at the heart of many of those challenges. So, it’s good to start your focus there.
“Data is the fuel that makes the digital engine run.”
I also think the way we operationalize our data, the way we bring insights to the teams and decision-makers, the way we work with data in our work processes, and create new data-centric business models, is going to be the other major value lever. Bringing people along in how you apply data is essential. Organizations that are going to be most successful are the ones who can get their data and their people right. I think the technology is only a marginal differentiator in a successful scale-up digital transformation.
Q: Let’s start with the data dimension. How are you coping with today’s vast explosion of data at Shell?
A: At Shell, we have aggregated more than 1.7 trillion rows of data in our asset data lake. With such staggering data volumes, cloud storage is absolutely essential. It’s crucial that you team up with the right companies to help you do that and keep data storage at an affordable cost.
Beyond storage, how do you process all that data? We’ve significantly invested in building up internal capability. We have a skill pool of over 350 people in our mathematics, computational, and data science department. We have over 4,000 software engineers.
But we also have nearly a thousand citizen data scientists all working on developing applications on the back of this data. We’ll continue to see volumes data grow. So, having good data standards and good data governance is critical for the data that we generate in-house. But a large part, in fact the majority is generated outside, in the public domain. There, I think it’s about developing the right tools that allow you to process unstructured data in a way that it becomes meaningful to your business.
Q: How important is that citizen data scientist program for Shell?
A: In our early days, we built small teams we called digital pods, which would comprise of three people – a data scientist who has the skills to write algorithms that will unveil correlations that exist within the data; data engineers who are able to unlock data and navigate through different cloud storage spaces; and domain experts, or subject matter experts, who really understand how to translate the insights from data into meaningful business outcomes.
We now see many more people in the company who have been trained in using digital tools, so we developed our citizen data scientist program. We have a community of nearly a thousand citizen data scientists today and that community is growing rapidly as a lot of people are seeing this as a way to up-skill and re-skill and to remain relevant in our changing industry. In our Chemicals and Products business alone, within a year, we have trained more than a thousand citizen developers who have developed more than 75 live bespoke applications. These efforts have already realised more than $35 million in cost reductions, improved reliability and efficiency benefits. And there are at least 200 more applications in the pipeline.
“The future requires leaders who are far more able to listen to what is happening around them, listen to what stakeholders want, what shareholders want, what customers want, what societies and governments want, and be able to respond much, much faster.”
The people who are skilled in these three areas of using data are really the workers of the future. If you look at young people and the way they’re being trained at universities today, you can already see that they will come in with skills that far outpace many of us when it comes to these three key data domains in the future.
A: In broader terms, how have you been able to manage the people aspect of Shell’s digital journey?
A: One part is where digitalization offers excitement and opportunity because digitalization can be seen by some people as a threat to their jobs. One of the key things that we realized in Shell is that success doesn’t come from outside the organization. If we’re going to be successful it has to come from within. So, we have to invest in our internal capability and that means investing in people, training, and giving people opportunities and different kinds of challenges.
It’s also very important to create a digital narrative for the company and for our employees – a description of what the future state looks like so people can recognize their own role in the process. Inevitably, they also have to recognize that the world is going to be different from the way they’ve been operating before. Digitalization is not just continuous improvement. It’s a process of exponential and disruptive improvement. It’s going to mean significant change. And that requires a change in mindset and very deliberate leadership.
The key for me is to address that openly, to have a meaningful engagement with the organization. Digitalization offers more opportunities for centralization, for remote operation, maybe even autonomous operations in time. So, having that open dialogue with the organization I think is critical. When you have that dialogue, there’s a lot less fear within the organization than maybe leaders had anticipated, and you’ll start to find new ideas coming right from the shop floor. So, we believe that success will come from within the company and by being able to successfully change the business model and the mindset and the skills of the people within it.
Q: Which digital technologies do you think will make the most impact on the company in the future?
A: I see a lot of activity in four key areas. There’s definitely an area around predictive analytics building on AI machine learning and on the collection and storage of data, because having more data, and easy access to it, will allow you to do better analytics. We`re currently monitoring over 8,200 pieces of equipment using AI. There’s also a lot of focus on the connected worker, making sure that we enable people in the frontline better with real-time insights to streamline processes. That is a key area. A lot of effort is also going into digital twining, which is seen as a very transformative way forward towards remote or autonomous operations, and to creating full transparency in everything that’s happening in a manufacturing asset, not just for real-time insights but to be able to simulate what could happen and explore different scenarios to better play into market opportunities. That’s an area of massive development to keep an eye on as well. I think one of the other technologies that folks get very excited about is blockchain. Towards the second half of this decade that is going to cause a massive shift, not just in the manufacturing industry but, if it scales as a technology, it’s going to essentially remove trusted third parties – accountants, auditors, all the companies that are providing verification services, including even banking. So, it’s going to have a tremendous impact on the future, and not just on the manufacturing industry.
Q: How do you measure the success and the impact of all those technology initiatives?
A: For me, digitalization is not about deploying technologies or technical capabilities. It has to lead to a change in business capability that brings a business outcome. Sometimes that can take a little while and sometimes, it can be a bit of a nebulous question. What’s the demonstrable value of email, for example, versus regular snail mail? Is it the savings from stamps, ink, and paper? Surely there is more value, but it becomes hard to assess that objectively. You can quickly get caught up in a complex calculation process that gets challenged by different people.
Even if it’s difficult to calculate the value, we need to address this head on and we may have to look for proxies to expose that value or to make it visible. That’s for two reasons. One is that we are running a business, so we have to compete with other initiatives for time, resources, and budgets. Being able to demonstrate value is important. Secondly, the success of any digital project comes from business ownership. If the business looks at this as simply a potential upside opportunity or an IT project that is happening on the periphery of their activities, you’re not in the space of transformative change. You’re at best in the space of continuous improvement.
“Making money in the future and running a successful business is going to be far more complex. It’s going to require partnerships, not single companies.”
So, the value question is absolutely essential to driving an effective digitalization strategy. We use an approach which we call “ultimate potential”, looking at the potential of that part of the business and how do digital tactics play into that. There’s a process around it, including evaluation. We have a dialogue with the business leaders and then make a value assumption. If predictive maintenance is meant to bring X amount of value, for example, then let’s measure how much of our equipment is being monitored by AI, take a baseline, and measure the improvement in reliability that we see from it.
So, there are different ways and techniques we can use to try to address the question, But I will say, at some point, you need an element of belief, particularly for the bigger initiatives like digital twins, which are the virtual representation of physical assets integrated with their dynamic behavior. It requires leadership to believe in it. Having a number of smaller wins that really show how the business is changing will help to inspire that belief within senior management that some of the bigger projects are certainly worth the bet.
Q: How important will digital transformation be to creating more sustainable operations and meeting net zero decarbonization targets over the next few years? What level of priority do you think manufacturing leadership teams should now be giving to sustainability?
A: I see a lot of parallels between digital transformation and some of the decarbonization and energy transition challenges we have. One is driven by competitive forces and digitalization allows us to generate different business models. But decarbonization is a more complex forcefield. It includes building and maintaining a societal license to operate that mirrors changing customer demand. Both of these trends will have a massive impact in how we move forward. Although we may know the outcomes we seek, we don’t necessarily know the paths to get there right now. For both of them there isn’t a silver bullet. There’s more of a silver bucket of solutions that we need to act on to make our way into that new future.
That requires leaders to be quick on their feet, able to experiment with different technologies, but also able to forge partnerships because no company on their own is going to be successful in driving a digital transformation or thriving in the energy transition. In both cases, it’s a team sport. Finding and selecting the right partners for both challenges is critical. It also requires leaders who are far more able to listen to what is happening around them, listening to what customers, government, and wider society want and need, and be able to respond much, much faster. I think that’s where the two trends come together in terms of defining the changes that our industry will go through in the next 10 years.
Q: What do you think the biggest challenges and opportunities for the manufacturing industry along the way?
A: The key themes for the manufacturing industry over the next few years will be around introducing and building more sustainable models around circularity. That requires a value chain approach creating a closed loop on circular feedstocks. To do that in a profitable way, and in a way that delivers on decarbonization goals, will be key challenges.
If you look at the commodity side of the industry, we will also see the rise of platform trading. The companies that are going to be successful will be those that are able to integrate across the value chain to keep their costs low and better respond to customer needs.
If you look at performance products, which is the more differentiated part of our business at Shell, I see an expansion of manufacturing into more of a services environment as well. Not just only providing products, but by listening to customers and working with them on the innovation of new products. If the customer demands more transparency around the carbon footprint or the recycled content of a product, how can you offer a service that will help your customer decarbonize with those products? How could you offer a service around value chain transparency?
So, it’s a combination of new sustainable approaches to product innovation and more focus on service innovation for the manufacturing industry. Digital is going to be a key element of those transitions.
Q: What kinds of skills do you think the next generation of manufacturing leaders will need in that new era?
A: Leaders of the future are going to have very different skill sets. They will have to be far more adaptable to change because the world around us is changing so rapidly and the stakeholder landscape is much more varied. In the past, manufacturing leaders had to work with the asset base, and marketing, and sales businesses. But nowadays, leaders in the manufacturing industry have to be tuned into customers, regulators, employees, and all of them have rapidly changing demands and requirements.
“We are the future-makers, and we will be able to shape what it is that we, as an industry, are going to become in the next decade.”
The second aspect is commerciality. Making money in the future and running a successful business is going to be far more complex. It’s going to require partnerships, not single companies. They will need the ability to setup contracts in a multilateral way that result in win/win solutions for multiple parties simultaneously in a world that is likely to be far more regulated. That is going to require different insights into how you run a business.
Thirdly, and perhaps most importantly, I think future leaders have to be inspiring and purposeful. The employees of the future are going to look at their time in the labor market far differently than we did 10 or 20 years ago. Jobs for life won’t exist. People will be far more comfortable switching between companies, or even working as independents for a company. They will want to associate themselves with a company that they feel is relevant. Those changes in the labor market will require a very different response from the leaders in the future.
Q: Finally, if you had to focus on one thing as a watchword or catchphrase for the future of manufacturing, what would that be?
A: Meaningful future makers. For me, that reflects the sense of purpose that we have, the relevance we will bring, but also the fact that we shouldn’t just focus on what we have today. We are the future-makers, and we will be able to shape what it is that we, as an industry, are going to become in the next decade. M
FACT FILE: Royal Dutch Shell
HQ: The Hague, Netherlands
Industry Sector: Energy & Chemicals
Revenues: $180.54 Billion (2020)
Net Income: $4.8 Billion (2020)
Employees: 87,000 Employees
Presence: 70+ Countries
Production Sites: 13 Refineries + 7
Chemicals Facilities (Q1 2021)
EXECUTIVE PROFILE: Peter Westerink
Title: General Manager, Digitalization Chemicals and Products, Shell
Education: Masters’ degree, chemical engineering, University of Groningen, Netherlands
Languages: Dutch, English, Spanish
Previous Roles Include:
Production Excellence Lead, Integrated Gas Division, Shell
Production Unit Manager, Pearl GTL Qatar, Shell
Start-up Business Advisor, Pearl GTL Qatar, Shell
Technology Services Manager, Shell
Process Design Engineer, Shell International Chemicals
Manufacturers are trying harder to accelerate the adoption of M4.0 technologies, but a set of persistent challenges could slow them down.
The impact of the COVID-19 pandemic is continuing to reverberate across the industrial landscape.
In a series of survey-based reports MLC has issued since June of 2020, manufacturers have clearly indicated that they were accelerating their embrace of Manufacturing 4.0 as a direct result of the pandemic, and the consequent need for greater flexibility and agility.
In MLC’s new survey on Transformative Technologies, one of the Council’s Critical Issues facing manufacturing in its journey to the digital model of doing business, manufacturers indicate they are now pushing harder on the technology accelerator.
In the new survey, 51% of respondents say they will accelerate their spending on information and operational technologies as a result of COVID-19, up from 43.7% saying so in last fall’s Transformative Technologies poll. While more this year said spending is unchanged from last year, significantly fewer – only 6.1% this year, compared to 30.3% last year – said spending will decline (Chart 1).
One area of particular emphasis in their spending plans is technologies than can enable remote working and remote monitoring of operations. In the new survey, the percentage of respondents saying they would significantly expand their adoption of such technologies jumped to 37.9%, from 29.4% last year (Chart 5). Moreover, just over one third of manufacturers expect that remote-enabling technologies will amount to a “game-changer” in production over the next five years.
Manufacturers expect remote working and monitoring technologies to be a “game-changer in the next five years.
Taken together, manufacturers’ technology spending intentions reinforce the idea, first suggested by MLC in June of last year, that the industry has reached an inflection point in the adoption of M4.0 as a result of the pandemic. Back then, in a more general poll, 53% of manufacturers indicated they would be stepping up their adoption of digital and automation technologies in response to the pandemic.
AI, ML and IoT Lead the Pack
In the new survey, MLC asked manufacturers about their investment intentions over the next two years in 14 different IT technologies, including AI, ERP systems, and supply chain management systems as well as newer technologies such as blockchain and quantum computing.
Once again, this year AI is at the top of respondents’ IT technology lists, with 21.6% saying they intend to invest in the technology in the next 12 to 24 months and an additional 25.5% indicating that AI is under consideration in their companies. Closely following AI is digital twin modeling and simulation software and supply chain management software (Chart 2).
But there is a significant difference between the profile of AI and supply chain management (SCM) software in respondent companies. Only about one-third of survey takers currently have AI systems working in their companies. Supply chain software, however, has a much greater current penetration, with more than 61% of respondent companies saying they already use SCM systems. Interest this year in SCM may reflect the supply chain disruptions and difficulties many companies are experiencing as a result of the pandemic. But a similar scenario seems to be playing out regarding manufacturing execution systems, a production technology that has been around for decades and already enjoys a high penetration rate among respondents.
Perhaps predicably, blockchain and quantum computing could be best described as emerging technologies. They both have low current adoption levels and single-digit investment intentions associated with them. But when respondents were asked whether these technologies were under consideration, a step that may indicate evaluation but not necessarily a solid purchase intention, blockchain scored the highest result, 35.4%, of all 14 IT technologies surveyed.
AI continues to capture the imagination of manufacturers far beyond what other technologies seem capable of doing.
In the communications and networking realm, Internet of Things technologies and 5G communications networks scored the highest investment intentions over the next two years, coming in at 18% and 16.6%, respectively. IoT showed considerable muscle, given that 59% claim they have already invested in the technologies. IoT is also one of those technologies that a majority of respondents think will be a game-changer over the next five years. And 5G, with only about 27% currently invested, scored the highest “under consideration” number, at 35.6% (Chart 3).
Machine learning was the standout among production technologies surveyed, closely followed by predictive maintenance technologies and plant floor simulation and modeling software (Chart 4).
AI: In a Class by Itself
Of all of the 30 technologies surveyed, AI continues to capture the imagination of manufacturers far beyond what other technologies seem to be capable of doing.
Today, just under 16% say AI will be a game-changer in production environments, up slightly from the 11% saying so in last year’s Transformative Technologies survey. But over the next five years, 54% expect that AI will reach that lofty status (Chart 8).
But right now, progress in implementing and using AI in factory environments appears to be moving slowly, with very little change in the survey numbers between this year and last year when respondents were asked where they stand with single-project implementations and in their work in devising roadmaps.
The one flicker this year occurred with regards to manufacturers’ efforts to scale AI projects across their factory footprints. This year, 7.5% of survey takers indicated that they were implementing AI in all of their factories, up from 3.6% last year. The numbers are small today, but worth watching to see if they develop into a sustained trend.
In terms of AI application areas, AI applied to process improvements and in supply chain management registered the largest change since last year (Chart 7).
Competitive Pressures Increase
The pandemic-induced urgency to proceed more aggressively with M4.0 and accelerate investments in M4.0 technologies has seemed to turn up the heat competitively but also seems to be driving companies to get more disciplined about M4.0.
The percentage of companies saying that they perceive they are substantially ahead of their competitors with the adoption of M4.0 technologies dropped to 5.5%, from 11.6% last year. Those feeling they are somewhat ahead stayed flat at about 27% as did those saying they think they are about even with competitors. Those indicating that they are slightly behind competitors grew to 21.8%, from 13.5% last year (Chart 11).
The rush to accelerate M4.0 technology adoption may have resulted in some manufacturers feeling less competitive.
Perhaps motivated by these feelings, the percentage of those companies saying their companies have adopted a formal M4.0 roadmap jumped to 33.4%, from 21.3% last year. This finding was echoed among those indicating that their M4.0 approach has been largely reactive. Only 11.6% said they are in reactive mode today, compared with nearly 20% last year.
A Set of Persistent Challenges
When asked to rate a set of 12 challenges associated with adopting and using M4.0 technologies, survey takers sounded a familiar refrain.
Migrating from or integrating with legacy systems topped the list of challenges once again, with 51.6% of respondents assigning a “high” level of challenge to the issue. Ensuring security, measuring ROI, and change management garnered the next three highest results (Chart 12).
These challenges have occupied a high level of concern for a handful of years, according to MLC surveys, and are likely to remain so going forward because they are so basic to the migration to the digital model of manufacturing. But the key takeaway from the set of challenges is that all play a role to one degree or another, requiring manufacturers to address them all in order to make a successful journey. The trick, as many are no doubt discovering, is how to orchestrate change across so many dimensions, particularly as keeping abreast of new technologies continues to tax most organizations.
Accelerating adoption of transformative technologies to deal with the issues of our time and create new competitive advantages is an important and necessary strategy in the drive to M4.0. But manufacturers could end up tapping their brakes unless they get the orchestration piece right. M
Part 1: TECHNOLOGY INVESTMENT AND PLANS
1. COVID-Induced Tech Spending Acceleration Intensifies
Q: What effect has the COVID-19 pandemic had on your company’s investment posture for information and
2 AI, Simulation Software Lead Planned Investments
Q: Please indicate your company’s investment posture for the following IT-related technologies.
3 Internet of Things. 5G Top Networking Plans
Q: Please indicate your company’s investment posture for the following communications and networking technologies.
4 Machine Learning, Predictive Maintenance in High Demand
Q: Please indicate your company’s investment posture for the following production technologies.
5 Emphasis on Virtual Technologies Grows
Q: To what extent has the pandemic accelerated the adoption of technologies that can enable virtual working and remote monitoring of operations?
Part 2: ADOPTION OF AI AND MACHINE LEARNING
6 Is AI Starting to Scale Across Factory Footprints?
Q: Where does your company stand today in adopting AI in plants and factories?
7 Process Improvement, Supply Chain Advance in AI Applications
Q: What are the key application areas for AI and Machine Learning technologies in your plants and factories?
8 For the First Time, A Majority Sees AI as ‘Game-Changer’ in 5 Years
Q: What is your current assessment of the potential of
artificial intelligence and machine learning, both today and in five years’ time?
Part 3: TECHNOLOGY ASSESSMENT& IMPLEMENTATION PROCESS
9 More Adopt Roadmaps for M4.0
Q: Which statement best describes your company’s current approach to adopting a M4.0 technology roadmap or strategy?
10 Cost Reduction, OpEx Continue to Dominate M4.0 Rationales
Q: What are the most important reasons your company invests in transformative M4.0 technologies (Select top 3 reasons)
11 M4.0 Competitive Pressures Growing
Q: Where do you think your company stands in relation to its primary competitors’ adoption of transformative M4.0 technologies?
12 Once Again, Legacy Systems Cited as Highest M4.0 Hurdle
Q: Using the scale below, how would you assess the following challenges related to adopting and using transformative M4.0 technologies? (Scale: low=low level of challenge; medium=medium level of challenge; high=high level of challenge).
13 Slight Progress Reported in Managing Data
Q: How prepared is your company to organize, evaluate, and make decisions on the volumes of data that are or will be generated from greater connectivity of devices and equipment?
Survey development was led by David R. Brousell, with input from the MLC editorial team and the MLC’s Board of Governors.
Wherever your company is on its Smart Manufacturing journey, one stubborn issue remains: reducing human error. Whether it’s insufficient operating practices and procedural follow-through, equipment operation failures, or inconsistencies in shifts due to capability issues, the human component is a key feature of any reliability strategy for forward-thinking manufacturers.
In a virtual factory tour held September 8, MLC members got an inside look at how BASF Chemical Intermediates is implementing Voovio Technologies US Inc.’s Enhanced Reality training software simulation system to move both new hire and refresher training into the digital age.
BASF Chemical Intermediates, a division of German multinational chemical manufacturer BASF, manufactures approximately 600 products — including butanediol and its derivatives, amines, organic acids, polyalchohols, life science intermediates, solvents and OASE gas treatment solutions — which are sold to chemicals and plastics, agriculture, energy and resources, consumer goods, and nutrition and health customers around the globe. With six Verbund sites and 241 additional production sites in more than 90 countries, BASF’s products provide the building blocks for everything from shoes and clothing to construction, medicine, and fertilizers used in agriculture.
As it continues to move along its digitization journey, BASF is using data and digital technologies — including digital simulation training — to create additional value for its customers by increasing the efficiency and effectiveness of its manufacturing processes. BASF Chemical Intermediates partnered with Voovio to design customized digital training simulators to ensure its front-line operations and maintenance personnel are engaged, fully trained, and able to deploy the digital tools the company needs on its journal to increased operational excellence.
MLC members on the tour learned about the three main components of the Voovio simulation system: the digital Plant replica, digital procedure simulators where trainees can learn and practice procedures, and the field execution tool, which assists operators in the field as they execute the procedures they’ve learned.
The digital plant replica is built using real photographs — not animations — to create an immersive, realistic, interactive, and navigable environment that can be accessed by individuals on a computer, and shared virtually using standard video conferencing tools. Trainees can see everything in the environment and select components such as valves, pumps, and control panels to get a detailed view of each component, which are tagged and ID’d, and behave as they would in the physical environment to replicate the real functionality of the equipment. They can digitally “grab” and manipulate the components with a mouse or finger as they search for them, or from a searchable index. The simulators also offer enhanced views where the operator can overlay process flows and click on any piece involved in that workflow to see how it fits into the process. This unambiguous representation of the actual plan is useful for onboarding new operators and refreshing the knowledge of current workers.
The system also includes guided, learn, refresh and test modules that provide the replica, the procedure, and an action checklist so operators can focus on one action at a time in the procedure’s sequence. The guided module is like a virtual subject matter expert (SME) that enables technicians to learn and practice various procedures by doing them virtually. Once the operator has completed one step successfully, they get instant feedback. The system also includes knowledge snippets, which could be in any multimedia format, that include text, videos, job plans, plant drawings, and other bits of critical knowledge that may not be a formal part of the step but are accumulated bits of tribal wisdom new operations or maintenance technicians can access to learn from those who came before. The test module uses the same basic setup but provides immediate feedback to confirm whether the operator completed the step correctly. The system generates a test performance report and detailed activity log and also captures testing analytics for each trainee.
The field execution tool enables operators to take the training out of the computer screen and onto the shop floor. Using a tablet or approved digital device, employees can do a test run on the fly to ensure they know what to do before they do it.
BASF’s goal for implementing the simulation system was to update its operator training model to be faster, more interactive, self-directed, and be more systematic about capturing and transferring organizational knowledge from experienced operators to newer employees. The VOOVIO system is designed to reduce the time spent on-boarding with SMEs during traditional orientation, job shadowing, field demonstrations and written tests, while increasing competency, learning, and productivity.
In addition to reducing the time its SMEs spent training others by half and greatly accelerating the learning process, BASF has used the simulations to reduce unplanned events and startup delays, improve equipment reliability, reduce downtime, increase safety, and maximize profitability.
Manufacturing needs to adopt a different, more flexible, and resilient approach to creating global supply chains and managing disruption, believes Madison Industries’ Filtration Group CPO Tim Voortman.
Q: What is your role and focus at the company?
A: As the CPO of Filtration Group, my focus is on sourcing and procurement activities across our global decentralized operations. I work to connect the dots between our business units and key suppliers and develop strategies to improve cost, reduce risk, and create supply chain options within our key categories of spend.
Q: What do you see as the most pressing issue facing the manufacturing industry today?
A: From where I sit, addressing volatility in supply markets is key to bringing our mission to more places. The frequency and severity of black swan and unanticipated world events are on the rise, and the force majeure, supply/demand imbalances, and transportation capacity constraints resulting from these events are a result of cost effective but brittle supply chains that were built for a more predictable world. We need to adopt a different, more flexible and resilient approach to creating global supply chains and managing disruption.
Q: What is the most important corporate initiative you are involved in?
A: In January we embarked on an 80/20 journey across the entire organization. Our leaders are reducing complexity in operations, creating focus on key segments and industries, and building great teams and talent that allow us to create more value for our customers.
Q: What will be the most important leadership qualities that manufacturing leaders will need to possess in the future?
A: The ability to respond, adapt, and thrive in a world of almost constant change, to build and inspire great teams in an uncertain and highly competitive talent environment, and to drive an execution mindset are all capabilities that will be key for leadership both today and in the future.
Q: What do you see as the greatest opportunities for manufacturers over the next five years?
A: Attracting, developing, and retaining talent is at the top of our list. To win in today’s war for talent you have to clearly articulate your vision, mission, and culture. At Filtration Group, it’s our mission of making the world safer, healthier, and more productive that attracts people to our organization and energizes all of our associates. People gravitate to our culture that rewards action, entrepreneurial spirit, and trust. It’s what unites us across the organization, empowers our people, and drives our success.
Q: What is your favourite activity outside work, or the last book you read?
A: I love almost anything written by Robert Kaplan. His insights into politics, history, and geography fascinate me. Kaplan’s ‘The Revenge of Geography’ is perhaps my favorite (but not most recently read) book and is an interesting take on the history of the world’s hot spots and what it can teach us about potential future conflict. M
EXECUTIVE PROFILE: Tim Voortman
Title: Chief Procurement Officer,
Company: Madison Industries
HQ: Chicago, IL
People: 10,000 Employees
Revenues: (Privately Held)
Industry: Diversified Construction
By taking a strategic and integrated approach to the adoption of multiple 4.0 technologies, manufacturing companies can create a powerful digital thread across their supply chains that allows them to share critical information across all parts of their business, including suppliers and customers.
The past 18 months have been tumultuous, characterized by unexpected disruption, uncertainty, and risk. This is especially true of global supply chains. The pandemic has created a slew of supply chain issues and exposed pre-existing flaws. Most notably, the global crisis has widened the gulf between manufacturers who embraced Industry 4.0 prior to the pandemic and those who have either just begun to implement an Industry 4.0 strategy or remain skeptical of its benefits. The latter group has seen an even greater uptick in issues related to demand planning, transportation and logistics, financial resiliency, product complexity, and organizational structure.
Although the outlook of the pandemic’s effects on the global economy is improving, analysts project that companies will be navigating this challenging landscape into the first quarter of 2022.
A growing number of companies are preparing for the road ahead by digitizing elements of their supply chain. In fact, BDO’s 2021 Industry 4.0 Survey1 finds that increasing operational efficiencies across the supply chain is manufacturers’ top digital priority this year. To achieve this, manufacturers are harnessing the power of Industry 4.0 solutions like enterprise resource planning (ERP), artificial intelligence (AI), machine learning (ML), simulation technology, Internet of things (IoT) devices and distributed ledger technology (DLT) like blockchain.
Increasing adoption of Industry 4.0 solutions not only helps companies overcome present supply chain-related hurdles, but it also empowers them to contribute to, and benefit from, the digital thread, an initiative that taps into collective intelligence and solutions which transcend the limited view of a single person, function, or entity.
To better understand the many benefits that Industry 4.0 technologies can provide, it is useful to examine how these digital supply chain tools have evolved from their traditional applications to offer targeted solutions aimed at gaining better visibility, mitigating risks, and planning for multiple scenarios to increase resilience and support business continuity.
Spurring Supply Chain Optimization
The following solutions are hardly new technologies for supply chains, but they are growing more widespread as companies seek to improve visibility into their suppliers’ suppliers and their customers’ customers. Manufacturers are expanding the push and pull of data across multiple tiers, which requires a level of sophistication only offered by the Industry 4.0 digital solution set. This information is then coupled with operational data to create a comprehensive digital thread of supply chain information.
Benefits related to enhanced visibility into departmental functions and data are a common theme throughout the following list of tools. The variety of Industry 4.0 applications, and the way these solutions interact with one another, allows manufacturers to digitize elements of the supply chain at a pace and cost that works for their unique industry sector and operation.
“Increasing adoption of Industry 4.0 solutions … empowers companies to contribute to, and benefit from, the digital thread, an initiative that taps into collective intelligence and solutions which transcend the limited view of a single person, function, or entity.”
Of course, manufacturers should also consider how supply chain operations will continue evolving over the coming years. As the examples below illustrate, recent advances are focused on enabling a more intelligent, proactive, and resilient approach to supply chain management. Manufacturers that stick with a more traditional approach run the risk of falling behind their peers.
ERP as a Key Enabler
ERP software grants supply chain managers a 360° view of activities across functions. They can then apply these insights to integrate processes and streamline operations, enabling them to better allocate resources, improve service, and reduce costs.
ERP holds the potential to streamline all phases of the supply chain from procurement to production to shipment and beyond, ultimately becoming the system of record and one source of truth. Manual tasks, such as communicating with vendors and suppliers and documenting those communications, can be automated easily using ERP.
A supply chain management ERP system can automatically plan workflow when orders are received and perform effective job scheduling. Supervisors receive real-time updates on progress and resources that help them plan delivery dates. ERP keeps production consistent with demand for timely replenishment and lean inventory.
Although other technologies are needed to achieve it, ERP is a key enabler of the digital thread. When fully realized, the digital thread can provide benefits for stakeholders across the entire supply chain by improving efficiencies, mitigating disruption, and even helping companies meet sustainability goals.
Unlocking the Power of AI
Increasingly, manufacturers are unlocking value with the power of AI through multiple applications, ranging from enhanced responsiveness to automation to analytics and beyond.
According to BDO’s Industry 4.0 survey, improving the customer experience is manufacturers’ second most-cited overall digital priority, and 20% say customer service is their primary competitive differentiator. The pandemic made it necessary for manufacturers to be able to interact with all their customers digitally, and as a result, more manufacturers are implementing conversational AI capabilities, also known as chatbots, linked to real-time supply chain information. Chatbots and similar tools enable manufacturers to service customers’ needs 24/7, without intervention from an employee.
“Full visibility into the production process allows managers to see in real time if the supply chain aligns with their day-to-day needs and experiment with adjustments in the virtual world.”
But AI isn’t all talk. It can also reduce the risk of human error related to repetitive manual processes, and it can lead to impactful insights for business operations. AI sifts through large amounts of disparate information to identify patterns that can be easily overlooked using legacy methods. For example, AI can correctly forecast a product’s decline and end-of-life on a sales channel. It can also foresee the growth of a new product’s market. Thanks to AI, supply chains are no longer driven by simple reactive intelligence. They can be guided by predictive, flexible, and ongoing learning systems that enable better decisions for continuous improvement.
One real-world example of the power of AI in supply chains is in the warehouse space. An AI-enabled warehouse management system proved to be more innovative in the pick, pack, and ship process for online orders. The company’s warehouse featured a 3D grid structure and a central system that received information on orders and then sent a message to robots via 4G, prompting them to pick the requested products. The AI-controlled and coordinated a fleet of robots through an air traffic control system for seamless collection and delivery to assigned packing stations for order assembly. This smart solution allowed the company to process significantly more orders per week with a higher level of accuracy than their non-AI-powered systems previously allowed.
In the next decade, we could reach a stage where supply chains are almost entirely managed by AI tools with a dynamic, adaptive approach to logistics, pricing, maintenance, and more, thereby freeing up workforce resources for more high-value tasks.
Harnessing Machine Learning
While AI facilitates the smart execution of tasks by machines and computers, machine learning (ML) is designed for those machines to learn and adapt over time. ML has a wide range of supply chain applications, including inventory management, warehouse management, logistics, transportation planning, location tracking, delivery estimates, production improvements, and fraud detection.
With minimal human intervention, ML software explores data to identify patterns and create a model. As the model evolves, the system grows smarter (hence the learning aspect) and operates according to actual outcomes. Outcome probability becomes more precise, resulting in more strategic use of resources and less time allocated to manage risk.
Computer vision (CV) is one ML application designed to enhance several aspects of inventory management. Manufacturers rely on CV to count and classify items upon arrival. CV helps detect any visible damage to packages and categorizes what it sees accordingly to automatically paint a real-time picture of inventory.
Companies are also using ML to combine structured data with unstructured data pulled from news feeds and social media. ML technology scours sources to identify events or even indicators of events that might disrupt the supply chain and demand forecasting. If the timing is right, these insights can inform managers’ decisions so they can adjust operations, such as using an alternate supplier, managing a customer’s expectations, or adjusting planned inventory levels. As ML capabilities improve, the range of applications will continue to expand.
Increasing Visibility with Simulation
Simulations of routine processes and operations can show supply chain managers where the most significant structural bottlenecks exist and how much additional capacity is needed. Full visibility into the production process allows managers to see in real time if the supply chain aligns with their day-to-day needs and experiment with adjustments in the virtual world. Simulations limit time spent on the testing phase and can reduce wasted resources. For these reasons, it is commonly used in the automotive sector.
For example, consider a car manufacturer that offers multiple options for body type, trim, paint color, and detailing. There could be hundreds or even thousands of possible combinations just for the same model. With a build-to-forecast production schedule that has long lead times and locates cars across a network of hundreds of dealerships, delivering the right car to the right customer at the right time can pose a significant challenge. However, a simulation can demonstrate that using a single distribution center would drastically reduce delivery times compared to relying on decentralized inventory from dealer stocks, which would improve customer satisfaction and increase sales.
“Manufacturers that previously
dismissed blockchain technology, initially developed to support bitcoin transactions, as a fad are now reconsidering.”
Simulation technology can also help proactively assess and define the impact of everyday supply chain risks and, more importantly, bolster a company’s response to unforeseen events, which has become the norm in today’s world. At a time when agility and resilience are top of mind, simulation technology answers the question: “What if?” Manufacturers are using simulation technology to model the impact of events such as border and port closures, labor shortages, production line downtime, raw material deficits, natural disasters, and similar scenarios. This data can then inform incident response and business continuity plans.
Simulation technology can also be used with augmented reality (AR) and virtual reality (VR). In the future, manufacturers might rely more heavily on a combination of these three tools to demonstrate products in entirely new ways. For instance, manufacturers could not only showcase what a product could look like in a factory via AR/VR, but they could employ a simulation to show specifically how a new part or process would work and impact operations.
Real-Time Insights from IoT
Communication is key to an efficient supply chain, and any delay harms efficiency. This is true for communication between members of different departments and for communication between different supply chain technologies. IoT devices and sensors can provide many advantages.
Prior to COVID-19, just-in-time supply chains were a popular inventory management system, as they minimize loss and deliver goods as they’re needed. But the pandemic exposed the vulnerabilities of this approach, since many manufacturers couldn’t respond quickly to abrupt changes in available supply.
IoT technology can help manufacturers transition away from just-in-time supply chains without incurring the expense of overstocking. IoT can lead to a range of benefits, such as increasing the efficiency of warehouse processes, streamlining inventory management, and even improving employee safety. For example, real-time location trackers allow on-site employees to easily locate goods. Drones are another IoT tool that help warehouses track products in a safe manner. The wide range of inventory layout in a huge warehouse is difficult for staff to scan through, especially when items are stored on the topmost shelf. Drones can quickly and easily navigate the entire warehouse to scan for these items, minimizing the risk of slip-and-fall accidents.
IoT devices outfitted with GPS and environmental-tracking capabilities enable supply chain managers to authenticate not only the location of goods but their speed of movement and storage conditions. One of the most widely used IoT supply chain solutions gathers data on the temperature inside vehicles, measuring pressure, humidity, and other factors that could compromise a product’s integrity. If conditions are less than ideal, it triggers an automatic condition adjustment. As the number of IoT-connected devices used in manufacturing grows substantially each year, the benefits and efficiencies will only continue to increase.
Manufacturers that previously dismissed blockchain technology, initially developed to support bitcoin transactions, as a fad are now reconsidering. In fact, distributed ledger technology has been around for many years, and leveraging blockchain can dramatically improve the security, accuracy, and processing of enterprise information.
Blockchain has been widely adopted by manufacturers looking to meet rising regulatory, investor, and consumer demands for provenance information. Prior to joining a partnership or adding a new supplier, companies conduct thorough due diligence to ensure their prospective partner or vendor won’t expose them to unnecessary risks. They need to ensure the products received meet required standards, which include origin tracking that has become an increasingly strong focus for the agriculture, food, and lumber industries.
It is also important to protect against vendor cybersecurity risks to ensure proper data protection. Blockchain allows for compliance rules to be hard-coded into the infrastructure that handles transactions and enables easy monitoring and verification of these transactions. Whereas legacy processes store transaction records in siloed databases, blockchain records each transaction in an immutable ledger shared between multiple institutions.
“Recent events have challenged traditional thinking around inventory management and cost management. Priorities have shifted to resilience, agility, and exceeding customer expectations. Digital supply chain solutions play a prominent and evolving role in this transition.
Blockchain also supports the use of other supply chain technologies and offers greater transparency for financial, maintenance, and delivery information. As all non-digital supply chains rely heavily upon third-party logistics providers for raw materials, sub-assemblies, and delivery of finished products to customers, the use of blockchain is accelerating to provide greater visibility and reliability for real-time tracking of materials over land, air, and sea. This visibility provides critical input to make the best decisions possible.
Smart contracts are another growing use for blockchain. For example, IoT sensors can indicate when a machine needs routine maintenance and then a service request can be automatically generated along with a smart contract for the necessary work. Once completed, the payment and maintenance history can be verified and added to the blockchain record.
The Digital Thread: Moving the Needle
The digital thread is a communication framework achieved through a confluence of technologies and information sharing across all parts of a business, inclusive of suppliers and customers. As the adoption of Industry 4.0 solutions expands, companies that lag behind with innovation can be at a significant disadvantage. Though some companies may delay upgrading elements of their supply chain for many reasons, inclusive of cost, complexity, and organization readiness, those upgrades will only become more expensive over time, and every day represents a missed opportunity. Technology evolves at a rapid pace, particularly with solutions developed for a complex sector such as supply chain management, so it’s critical to take a strategic and proactive approach to adoption.
It’s important for supply chain managers to pause and reflect on how much the world and global supply chains have changed over the past 18 months. Recent events have challenged traditional thinking around inventory management and cost management. Priorities have shifted to resilience, agility, and exceeding customer expectations. Digital supply chain solutions play a prominent and evolving role in this transition.
Adopting just one of the Industry 4.0 tools outlined above has the potential to optimize numerous elements of the supply chain, and implementing multiple tools in a strategic, integrated manner can be even more impactful for the enterprise and, ultimately, to the customer experience. Companies exploring the spectrum of available technology should do so through the lens of solving the challenges at hand and creating visibility across the extended supply chain, inclusive of customers and suppliers. It’s also prudent to have a long-term view and consider how embracing innovative supply chain management today can deliver widespread benefits for the years to come. M
Understanding the sophisticated requirements of operational systems and how they differ from IT systems will enable manufacturers to devise more effective cybersecurity strategies.
Manufacturing companies racing to innovate by using transformative technologies recognize that today’s digital initiatives will be an essential source of their competitiveness in the next decade or even longer.
Well-implemented Manufacturing 4.0 (M4.0) technologies open opportunities to create new business models and to more capably achieve speed, agility, quality, and resilience across the business. However, if these technologies also open an organization to increased cybersecurity attacks, the impact of cyber risks could drastically limit these newfound benefits.
This is why the true measure for success for manufacturers will be how well an organization can achieve secure transformation to M4.0. To make that happen, executives must take steps now to fold operational technology (OT) cybersecurity directly into their innovation blueprints.
Having Exploratory Conversations
Of course, that’s easier said than done. Even before a manufacturing business starts to architect its secure M4.0 strategy, security champions at the firm must be ready to understand some key differences in how they secure OT systems versus what they typically do to protect IT business systems. OT technologies are different. Their uptime requirements are vastly more rigorous, and their role in powering a manufacturer’s core business function makes them trickier to defend than an everyday email server.
If a cybersecurity executive doesn’t recognize these differences, the typical exploratory conversation between them and an OT production lead tends to follow a very predictable and frustrating path. To illustrate the point, consider the following fictitious conversation of a security professional floating the idea of instituting some IT cyber best practices in OT production environments:
“I need to bring our OT systems in line with the cybersecurity practices we use in IT,” the security professional says. “Here are our patching and network security controls policies and practices. I’d like to start using these ASAP.”
This inevitably puts the OT engineer or production lead on the defensive, particularly when there’s an explicit or even implied sense of urgency in the timeline. These OT experts justifiably have big concerns about new security controls that could threaten to disrupt sensitive operational systems. What’s more, with this approach, they don’t feel like a partner in the discussion. They pull rank as a revenue-generating asset owner and squelch the conversation right then and there.
If security champions can come to the table equipped with knowledge of the exigencies of OT environments, that conversation looks very different:
“I’d like to discuss how we can better secure and monitor OT assets as we bolster digital capabilities in our environments. But I know you’re concerned about working with IT technology or cybersecurity companies that don’t get where you’re coming from as an operational professional. I’d like to bring in some OT cybersecurity experts who have walked in your shoes to ask you how our environment looks and what we can do to improve and protect our production assets without throwing off your workflows.”
Operational technology systems are trickier to defend against cyber attacks than IT systems.
That’s a lead-in that can actually start a dialogue about why cybersecurity needs to be a part of the OT transformational roadmap and how everyone can work together to achieve that. It’s also a great opportunity to provide some information on the added value that asset visibility can bring not only to security but also day-to-day operations.
Security-minded executives need to come ready for that early conversation to make their case from an informed and authentically empathetic position.
To help them do that, let’s look first at the reasons why M4.0 transformations need to be secured at the outset and then get more specific about how OT security measures must be different than the typical IT cybersecurity approach. From there, we’ll discuss some next steps for getting started in the secure transformation journey.
The Threats to Manufacturing Technology
Transformative technologies like automation, AI-backed analytics, 5G, Industrial Internet of Things (IIoT), flexible manufacturing systems, and smart robotics all tend to have one big common denominator. That commonality is hyperconnectivity.
These advanced OT technologies are interconnected with one another, the enterprise IT network, equipment suppliers, and the broader Internet. This hyperconnectivity facilitates a greater exchange of information for analysis, faster action, and greater interoperability across digital ecosystems. The acceleration of manufacturing hyperconnectivity is already well underway. According to a 2020 IDC survey of 1,014 manufacturers, 79% of global operational assets are connected to a network, up from 60% in 2016.
From a business perspective, digital advancement and hyperconnectivity are needed to take operations to a new level in terms of scale and speed, continuity, quality, predictive maintenance, and the ability to adapt quickly to changing customer demands.
From a cybersecurity perspective, the added connectivity across OT manufacturing systems increases the attack surface of a manufacturer’s production environment. The more connections M4.0 environments have, the more places threat groups have to intrude on the entire OT ecosystem.
It’s no coincidence that as OT hyperconnectivity kicks into high gear, so have attacks against OT and industrial control systems (ICS) run by manufacturing firms. The threat groups are opportunistic, and they’re recognizing OT manufacturing systems as a prime target for profiting both financially and politically.
Transformative technologies such as AI, 5G, and the Industrial Internet of Things have one big common denominator – hyperconnectivity.
The surge in ransomware and other attacks on manufacturing and industrial environments in the last year illustrate this phenomenon. Recent reports show that manufacturing is among the most targeted industries for ransomware attacks, and that 61% of manufacturers have experienced an attack that impacted their smart factories. Three-quarters of those incidents took production offline.
Meantime, even as the threats increase, most ICS/OT systems are unprepared to watch for or respond to these attacks. Dragos research shows that 90% of organizations had extremely limited to no visibility into their OT environments, including ICS networks, assets, and the flow of information between them. Additionally, 88% of organizations exhibit poor security perimeters around ICS networks, meaning they’re at increased risk of attack through IT networks or the Internet at large.
All of this is already happening in today’s factories. Imagine how the problems will be exacerbated, and new ones will crop up as manufacturers add more OT threat vectors via future transformative technology; that is, unless organizations take action now as they plan their future M4.0 implementations.
Manufacturers have the opportunity to learn the hard lessons that cybersecurity pros have picked up over the last decade of IT innovation, which can offer a sneak peek into OT innovation trends. They’ve found that layering connectivity and features into technology platforms without planning for security from the get-go causes problems down the road. Most cybersecurity pundits today agree that the bulk of today’s cybersecurity problems stem from the fact that many systems were designed with a build-it first, then secure it mentality.
While OT cybersecurity has some key differences with IT cybersecurity, there’s a fundamental truth that holds across both disciplines: When cybersecurity is folded into the design and architecture of systems from the outset, those systems cost less and run more securely over their lifespan.
How OT Cybersecurity is Different
At the same time, executive leaders must understand that securing OT systems will require specialized techniques and strategies beyond the typical IT cybersecurity wheelhouse. Unlike IT systems, ICS/OT systems control physical processes. They span the divide between the software plane and the physical world.
Often OT and IT share similar technologies, running on similar operating systems, network connections, and digital architectures. But OT is not a direct one-to-one equivalent to its IT counterpart. Most manufacturing OT systems evolved first in an environment where they were air gapped and not connected to outside IT systems. Even as that has changed, they still operate in a world apart from IT.
Effectively managing cybersecurity risk in OT environments requires recognizing the following differentiators:
Risk profile is different: The highest risks posed by OT vulnerabilities tend to be the ones that threaten the availability or integrity of systems rather than the confidentiality of data they contain. While IT is often consumed by privacy and data breach concerns, the thing that keeps OT operators up at night is disruption or malfunction of systems that could threaten the business and people’s safety.
Strategy and approach are different: The consequences of both security incidents and downtime caused by security measures inappropriate for OT run far deeper than for IT systems. An OT attack can more directly impact production, revenue, and the company’s reputation. And it’s also not often possible to stop a continuous process in a manufacturing facility to implement security controls or patch operating systems without sufficient planning. Additionally, strict safety regulations add additional constraints in how systems can be handled.
Technology is different: OT systems use different protocols, fit-for-purpose hardware, and software with configurations unique to each organization, arcane embedded technology, and a diverse range of endpoints—many of which run unsupported versions that cannot be easily changed due to the operational risk. Legacy systems are entrenched when the lifecycle of expensive OT machinery is measured in decades rather than years.
Undertaking an assessment of your company’s current security posture is the first step on a secure transformation journey.
Required skills are different: The distinctive nature of OT systems means that operators must come to the table with a set of extremely specialized domain expertise in process management and engineering. This means security teams will need to be especially careful to work closely with the specialists to coordinate security execution.
Stakeholders are different: OT cybersecurity planning and strategy must be done in collaboration with the relevant stakeholders, particularly operations engineers and production managers responsible for keeping OT equipment running and maintaining complex ICS vendor relationships.
Many cybersecurity risk management patterns and practices are relevant across both OT and IT domains. The ideas of limiting risk exposure by reducing attack surfaces and hardening configurations around crown jewel assets, for example, hold just as true in OT environments as in IT. Nevertheless, the points outlined above demonstrate how securing OT working environments is a unique proposition.
As manufacturers orchestrate a secure transformation to M4.0, OT cyber planning and execution should be carried out with these differences kept top-of-mind.
Building a Secure Transformation
Until recently, few IT vendors or consultants were able to tailor their cybersecurity solutions to the unique demands of OT environments, and few in-house cybersecurity experts understand the impact of these limitations. Manufacturers seeking to orchestrate a secure transformation will therefore need to work to bridge the gaps in OT security expertise and visibility that likely exist within their industrial facilities. The following are some steps to get started.
Assess what you have
Before embarking on a secure transformation journey, the first step is to establish a baseline assessment of the security posture of the existing OT network and assets. This discovery process should start with business priorities. The assessment team should gather input from the board, executive stakeholders, and asset owners on the highest business priorities tied to OT processes and then survey the environment to understand all the OT assets in place and how those map to high-priority processes.
The team then identifies and ranks the OT assets involved based on business importance. From there, the assessment team should chart out the threat scenarios most likely to target or most likely to cause extreme impact to those high-priority assets. With these scenarios in mind, they can then examine existing controls and how they stack up. This process can help identify gaps and provides a prioritized way to plan out incremental improvement of the cybersecurity protecting the OT already in use on the factory floor.
Plan for what you want to build
Of course, that initial OT cybersecurity roadmap will need ongoing adjustments in the face of secure transformation. As plans for innovation progress, manufacturers can plan for the risks that new technology may introduce by getting cybersecurity stakeholders involved early in the design and architecture of new implementations.
With heavy OT stakeholder collaboration, an experienced enterprise cybersecurity team should be able to take the lead on strategic planning of a secure transformation.
Bringing a Chief Information Security Officer in early to hear about business requirements and help vet new OT vendors can provide valuable insights and circumvent costly mistakes that can put manufacturing processes at risk later down the road. Additionally, bringing in outside experts in OT cybersecurity to evaluate products and configurations can ensure that implementations are secure from day one.
Lean on external services
With heavy OT stakeholder collaboration, an experienced enterprise cybersecurity team should be able to take the lead on strategic planning of a secure transformation. But the highly specialized nature of OT cybersecurity will likely require even experienced internal teams to tap into the expertise and credibility of external partners to see them through many stages of the secure transformation journey.
OT cybersecurity service providers can play a vital role in early assessment and secure design stages. Bringing in an expert, impartial third-party to mediate early discussions between the executive, security, and OT stakeholders can help everyone more quickly get on the same page. Experienced OT cybersecurity consultants have run through the process many times and know the mistakes to avoid and elements of planning most likely to be overlooked.
Meanwhile, when it comes time to execute, OT cybersecurity service providers can also help manufacturers quickly overcome internal skills gaps, for example, in areas like monitoring or ongoing incident response.
Get the right tools
Many IT detection and monitoring tools don’t translate well to OT environments. IT detection tools frequently don’t play nicely with OT systems or are impractical when placed within an OT environment. What’s more, the detection mechanisms and actions they take are based on IT-focused threats. This can be frustrating at best and devastating to OT technology at worst. For example, Dragos experts are repeatedly called to incidents at industrial organizations where they’ve found that Windows AV destroyed ICS applications because they looked odd to heuristics engines unaccustomed to the way ICS functions operate.
This is why manufacturers will need OT-specific cybersecurity tooling that can support the management of risks that matter most in industrial settings.
Key Questions to Ask
Orchestrating a secure transformation to resilient M4.0 technologies will require long-term investment and significant buy-in all the way across a manufacturing organization. As executives prepare to plan and execute their transformative strategies, they should ask their OT and cybersecurity stakeholders some important questions:
- Do we have the in-house OT cybersecurity expertise necessary to assess our existing OT controls gaps?
- Do we have cybersecurity incident response plans and resources in place to respond when major incidents occur?
- Can our existing cybersecurity tools get enough visibility into OT environments to detect OT-specific threats?
- Do we have a process in place to evaluate new OT technology and model threats introduced by future innovation?
- Do we need ongoing external resources to track OT threats in our network?
Thinking seriously about these questions and framing them based on the advice offered above can help manufacturers get serious about securing the future of their competitive prospects in the years to come. Managing the OT cyber risks of digital transformation through these proactive steps can help position manufacturers for greater advantage in their markets—without giving up those gains to costly security incidents along the way. M
For additional insights, access Dragos’s “An Executive Primer on OT Cybersecurity”, or its more comprehensive guide, Industrial Cyber Risk Management: A Guideline for Operational Technology.
One of the major aspirations of Manufacturing 4.0 is to digitally unite a manufacturing company. The idea is that, using transformative digital technologies, all the key functions of a manufacturing company – design, production, sourcing, warehousing, service, support, etc. – can be integrated together using a seamless flow of data that provides one, accurate picture of operations.
The theory is that such a common stream, or thread, of data will create far greater efficiencies, speed of execution, and shared knowledge of operations than the current alternative – silos of disparate information, often in different and incompatible systems, that result in more mistakes, more time, more confusion, and more cost.
It is a compelling theory and one with obvious advantages. What company wouldn’t want a system that creates cross-functional integration and compatibility? What leadership team would not want what some call “one version of the truth” across the enterprise?
But the path to creating digital unification is anything but obvious or easy. Most manufacturing companies are collections of functionally-oriented, disparate systems that were put in place to serve a particular discipline or role. Moreover, experts in particular domains often don’t speak the same language or relate well to individuals in other domains; witness the now decades-old struggle to bring together IT and OT teams.
Many in the industry talk about tackling the problem by using phrases such as “breaking down the silos”, meaning companies need to tear down cultural borders and truly collaborate to realize the benefits of digitization. This is certainly necessary to achieve the benefits aspired to, but the choice of language may unnecessarily inject an obstacle on the path forward and stoke resentment and even fear in people working diligently in those so-called silos.
A better way is to first acknowledge that functional domains grew up and remain important for a reason: companies need the domain expertise to make whatever they are selling. Instead of talking about knocking down the silos, let’s describe what needs to be done as weaving the silos together. This way the proper respect is accorded to the domain and its experts, the benefits of integration are advanced, and language some might consider scary is avoided. M
In an M4.0 world, democratization not only means making data available to more people, but giving them the tools and guides to use that data effectively.
Since the 5th century BCE, democracies have flourished in some form throughout the world. Most people agree that giving people the right to govern themselves – with either the authority to select their leaders, or decide on legislation, or both – is a right and noble cause. As companies pursue their digital journeys, can the concept of democratization now also be applied to manufacturing businesses that have traditionally operated with a top-down leadership style?
Over the last few decades, and recently accelerated by the global pandemic, workers have taken an ever more active and influential role in organizations. Employees have become an important driver of corporate policy and success. Yet, it’s also become increasingly more difficult to find and retain great people. Workers today have many options as to where, and when, to work. That’s why empowering employees is now essential to improving the levels of job satisfaction that will ensure a company’s increasing profitability.
A meta-analysis published in the Harvard Business Review1 states that leaders who empower their employees are more likely to be trusted by their people compared to leaders who do not. This is not to say that empowering employees involves pushing work onto underlings that managers don’t feel like doing themselves. Leaders who empower their employees act as coaches, pushing their employees to do their best work and supporting them along the way. But just like the mechanic that is asked to work on a new vehicle without training, guides, or instructions on the vehicle’s new systems, asking employees to improve the business without first providing them the data to understand where changes need to be made, will lead to frustration, anger, and doubt.
For manufacturing businesses, democratization means not only making data available to more people but giving them the tools and guides to use the data effectively. When a frontline manager knows that unscheduled overtime has a negative impact on their department’s profitability, they may suggest ways to reduce it. When an employee is incentivized to improve productivity and can see where they and their team are with easy-to-understand metrics that update in real-time, making positive changes that are easily measurable and readily visible becomes gamified, making improving productivity both fun and lucrative.
Democratizing a data driven workforce can have many positive results. It allows companies to be much more effective at influencing employee creativity and improving corporate citizenship behavior to better align with the company’s vision and goals. It helps build a culture of trust that delivers additional benefits including better employee retention and improved employee / manager relationships. It enables managers to optimize operations by leveraging advanced people analytics to build nimble teams that are scheduled effectively to address product planning, order requirements, and equipment constraints. It also allows for more personalized training scenarios and learning plans that workers can build themselves in a Netflix-style experience to take ownership of their own career advancement, and so consumerize the employee experience (EX) to drive engagement for both established and younger workers.
According to McKinsey & Company in their report on “Building a more competitive US manufacturing sector,”2 a critical factor for advancing M4.0 is the need for manufacturers of all types to find, retain, and train more specialized manufacturing talent. Doing so, “can boost future output growth and competitiveness…and upgrading existing jobs to attract the next generation of workers, perhaps from other industrial sectors,” notes the report. This in turn can help US manufacturers, “boost the [manufacturing] sector’s annual GDP by more than 15% above baseline forecasts while adding up to 1.5 million jobs,” suggests McKinsey.
Democratization also means making powerful Human Capital Management (HCM) and Work from Home (WFH) technology available in the cloud to manufacturers of all sizes. This allows smaller manufacturers to take advantage of the same economies of scale that larger organizations have access to. While this may not help them gain access to capital markets to finance growth, smaller manufacturers can be better positioned to attract and retain top talent, gain better control of their labor cost, and remove potential barriers to growth typically experienced in the market, while making their operations nimbler at the same time. It also enables them to scale quickly to meet unique demand increases.3
One thing that hasn’t changed over the course of the pandemic is that the second largest expense, and the most valuable asset, for manufacturers is their people. To succeed in M4.0, manufacturers will need to invest in an employee experience that reflects a modern workforce, one that is empowered, engaged, and more in control of their destiny, and by extension, that of the company they work for. Today, data drives decision-making at companies across geography and sectors. For manufacturers, it’s time to put some of that power, and trust, in the hands of your people. M
1 When Empowering Employees Works, and When It Doesn’t; Harvard Business Review, March 2018: https://hbr.org/2018/03/when-empowering-employees-works-and-when-it-doesnt
2 Building a more competitive US manufacturing sector; McKinsey & Company: https://www.mckinsey.com/featured-insights/americas/building-a-more-competitive-us-manufacturing-sector
3 DeRoyal Industries shifts labor and production to supply essential protective equipment; Ceridian: https://www.ceridian.com/resources/deroyal-industries-shifts-labor-and-production-to-supply-essential-protective-equipment