Digital Transformation: Getting past the hype of Industry 4.0

Take advantage of opportunities and create massive value for your organization with a smart deployment of people, process and tools for your manufacturing company.

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Industry 4.0 resonates in manufacturing

Th manufacturing industry as a whole has been inconsistent when it comes to adopting Industry 4.0 or digital transformation. The fundamental attitude of Industry 4.0 is well at home in the industry. Companies, especially in the manufacturing segment, have for many decades operated non-digital production machinery that connected across production lines or entire plants by means of automatic threshold warnings. Sometimes, this machinery linked to automated facilities systems to enable preventive maintenance.

Concurrently, other segments of the industry are lagging behind the innovators. Some companies, many of them in bulk or commodities manufacturing, are finally taking advantage of the automation and advanced electronics associated with Industry 3.0 and will be operating at that level for some time to come.

Deloitte finds that more than half of al enterprises lack a transformational strategy. Digital initiatives in close to 75 percent of these companies target operational, tactical goals. In addition, Deloitte notes that the accountability for technology strategies and digital initiatives most frequently lies with the IT department, not a working group of business and IT stakeholders, which does not bode well. When IT is alone responsible for business-critical efforts, for instance, ERP deployments, those projects have a tendency to fail, end without ever producing most of the hoped-for benefits, or never quite come to a conclusion.

High expectations and early breakthrough results At the same time, Industry 4.0 is finding strong interest from forward- lookin manufacturers. PwC reports that companies expect to more than double their level of digitization between now and 2020. Their main efforts will be in vertical and horizontal value-chain integration and in developing digital business models, services, and product portfolios. Collectively, over the next five years these companies will invest close to 5 percent of their annual revenue in digitization initiatives. Companies surveyed expect a dramatic revenue increase of 64 percent by digitizing their product portfolio. Overall, they expect to reduce costs by 4.2 percent per year and increase annual revenue by 3.1 percent.

manufacturers at a crossroads

Th manufacturing industry as a whole faces slowing growth. Global annual growth forecasts for manufacturing, for instance, anticipated 4 percent growth between now and 2024. Actual growth in 2016 amounted to only 2.1 percent in terms of sales. This is a remarkable contrast to 10 years ago or even more recently, when the industry’s average annual growth amounted to 8 to 10 percent. Earnings before interest, tax, depreciation, and amortization (EBITDA) in the industry is projected to decline by up to 2 percent.

For manufacturers, the slowdown in key industries they serve – including automotive, construction, and pharmaceutical – further dims easy-growth scenarios. Yet, the compound annual growth rate for manufacturing is still projected to be over 4 percent by 2024. This industry segment is large, with almost a quarter of its worldwide value of $830 billion generated in North America.

Demanding, sophisticated customers. Other industry trends in manufacturing are less easily quantified. Customers are looking for more than standardized products. They welcome responsive, collaborative vendors who appreciate their business challenges and are ready to use their resources to help resolve them in creative ways. Often, they look for innovative products that enable them to get ahead of their own competition and demonstrate innovation on their own behalf. When market conditions change for customer companies, they hope that their provider can help them thrive through change.

Complex supply chain and regulatory environments. Volatility in the complex, globalized supply chain can mean sudden increases in costs or more complex logistics, which can eat into narrow margins and interfere with production schedules and customer satisfaction. Environmental regulation and industry quality standards are becoming more stringent, requiring extensive compliance activities that greatly depend on companies’ control and transparency of their data and processes. Given that many U.S.-based manufacturers operate globally, local streamlining of regulations does not necessarily benefit them as long as compliance efforts continue to be driven by regulations in other regions.

Key opportunities of Industry 4.0 for manufacturing Under these circumstances, getting beyond the hype of Industry 4.0 and digital transformation and practically embracing the digitization approach provides manufacturers with openings in a number of key business areas.

Digitally powered workforce. Between 72 percent and 86 percent of employees across the age groups from below 21 to above 60 years indicate that they would prefer to work for an organization that is a digital leader or digitally enabled. That means Industry 4.0 can become an asset in building the workforce that will move an organization forward. This could be especially critical in the industry, where the median employee age of 45.310 is at the high end of the scale, compared to other sectors.

Planning the effort. manufacturers need to plan and forecast their Industry 4.0 initiatives so they clearly connect with the company’s vision and mission, provide measurable milestones and accomplishments, and make optimal use of existing skills and resources. To avoid disruptions in the flow of business, they also should perform proactive change management and ensure that all contributors understand and are on board with the company’s strategy.

Avoiding premature cut-offs. While Industry 4.0 for each company should incorporate measurable goals and success criteria, it does not necessarily have to be delimited by an end point. Examples from real-life companies show that it’s highly probable that new goals and organizational creativity will expand upon the initial digitization plans. Once your Industry 4.0 initiative has gained momentum to become part of how your company conducts business, you can keep riding that wave.

Enabling technologies for industry 4.0

It does not necessarily require a large investment or a wholesale replacement of your current technologies to get started on a Industry 4.0 project. Most manufacturers are technically sophisticated – they use advanced business management systems, have various tools for managing customer relationships, know how to track the results of their sales and marketing teams, perform business reporting, or use low-cost IoT sensors to tell them when production equipment or facilities depart from environmental or quality standards.

When you modernize and connect these technologies to create a powerful foundation for Industry 4.0, you can more easily implement the process improvements, cost efficiencies, and customer-focused innovations that realize the unique value of your business. You can add data collection and business insight capabilities as required in a highly controlled manner, taking advantage of today’s modular software suites that don’t require you to acquire or deploy capabilities you don’t need.

Recent versions of ERP and other business management solutions also make it possible to deploy discrete workloads one at a time. Formerly large and lengthy implementations can instead turn into prioritized, controlled projects with their own goals and success criteria. The efforts and costs required can be more easily justified and managed when they are spread out and closely tied to tangible outcomes.

There is no Industry 4.0 product; instead, you make more effective, connected, and strategic use of the kinds of digital assets – data, applications, and technologies – you may already be familiar with. In the right, modern technology environment, many solutions become more easily interoperable, so you can integrate and configure instead of performing expensive, complex customizations. In addition, it makes sense to review the potential of several important technologies or IT mega trends that can help you bring greater velocity and reach to Industry 4.0 in your organization without adding administrative challenges to your IT organization.

Scalability and economy of the cloud 

Affordable and elastic. The cloud offers the elasticity and scalability to support your transformative strategy with a wealth of computing and networking resources. It does not require a large investment, either. You can subscribe to software systems and data center infrastructures for a predictable, recurring cost. You can add additional storage, data processing capabilities, or transactional support at short notice, paying for what you use.

Well resourced. The leading cloud providers make large investments in R&D and data center technology to keep their customers’ data and applications secure and operating through unforeseen events. Large partner networks supporting the most widely adopted cloud platforms help you implement the most efficient cloud architecture and link systems in the cloud to your on-premise resources.

ERP lifts off. Cloud-based business operations and customer relationship management solutions, such as Microsoft Dynamics 365, evolve the capabilities of on-premise systems in a cloud environment. The cloud infrastructure increases the performance and reliability of business systems and promotes new functionality that takes greater advantage of the cloud. Instead of simply offering standard, traditional ERP capabilities, familiar from Microsoft Dynamics AX and other solutions in the Dynamics family, Dynamics 365 also includes sophisticated CRM features.

More strategic IT. Companies in the middle of an Industry 4.0 initiative or a comparable strategic undertaking often strain their IT departments with changed requirements or new technologies. When you let your standardized solutions reside in the cloud, where administrative tasks are handled by the service provider, you can keep your internal IT team free for the high-value tasks that make full use of their skills. For example, many companies keep custom development and business process management (BPM) onsite during strategic transitions, where it can also be helpful for business leadership to huddle in person with IT managers.

World-class security. From redundant, physical data centers to safeguarding every individual transaction record as it is created, leading cloud providers have invested heavily in disaster recovery and the protection of the intellectual property, applications, and data of their clients. Established industry standards and protocols ensure powerful cloud security that evolves to stay ahead of threats and malicious operators without interfering with the usability and performance of your systems in the cloud. For any organizations but a handful of the world’s largest enterprises, business continuity assurance and information protection in the cloud vastly surpasses what they could accomplish with their own resources and budgets.

Anywhere, anytime access to data and apps

The cloud and enterprise mobility have been reinforcing each other’s capabilities, spurring the development of efficient, highly usable apps. Mobility requires the cloud to be fully effective in a business context while it helps companies realize greater value from their systems and data in the cloud.

Mobile tablets, smartphones, laptops, portable machine terminals, and other devices provide users with access to business systems, productivity software, and other applications and information in the cloud, independent of time or location.

Subscribing to advanced analytics

Insight tools come with cloud platforms. The leading cloud platforms, including Azure, provide an arsenal of solutions that can extend cloudbased business systems for companies’ specific intelligence needs, often by means of standard integrations and in turnkey fashion, without any implementation delay. Microsoft Dynamics 365 comes with analytical and business intelligence tools newly created for and in the cloud, such as a functionality called business recommendations, which guides users to the likely most relevant data. Power BI lets you visualize and report on any data from your business operations, using templates and intuitive interfaces that make sense to business users familiar with the company without requiring involvement from IT.

Enterprise-level analytics. When your data processing and analytical requirements increase in volume and complexity, you can work with such tools as Azure Data Lake Analytics, where you can run advanced analytical assignments and pay for them as they happen, and HDInsight, which provides a robust software framework for managing, analyzing, and reporting on large masses of data on the Azure cloud. On Azure, you can also find cloud software that simplifies collection, storage, and analysis of data from the IoT.

Getting your Industry 4.0 initiative underway

As a manufacturer, you can use these versatile, scalable technologies as the foundation for managing your Industry 4.0 strategy and enabling all teams, in any of your locations, to contribute to it. Because they are cloud-based and economical, you can achieve desirable outcomes at a reasonable cost, taking advantage of enterprise- level computing power, storage, and security without acquiring all the resources. If yours is a smaller company, you can effectively stake your competitive ground. You don’t need to be a large organization to create more rewarding customer relationships or digitally transform your portfolio of products and services.

Proving the concept: digital asset management

When you begin your Industry 4.0 initiative, it makes sense to first perform a low-risk project that demonstrates the value of digitization and where measurable results by acting on clear opportunities are highly likely. For many companies, that proof-of-concept may be internally focused on the company’s processes and resources.

Assets in your strategy. Like other production companies, manufacturers make strategic investments in machinery, control equipment, and facilities. They apply lean thinking and other approaches to keep the business value of these assets focused on customers, and use metrics such as Overall Equipment Effectiveness (OEE)13 to ensure that uptime, throughput performance, and output quality are in line with customer commitments and the company’s objectives.

Traditional machine-data gathering. OEE assessments and other production information are usually gathered through observation or sensors installed on machines and production lines, or in facilities. Machine histories make it possible to schedule maintenance to avoid unplanned downtimes, or to alert operators to check production quality at certain times to make sure quality falls within the right specs. In many companies, these tasks still involve dependencies on knowledgeable experts or tracking in spreadsheets.

The live-data difference. When, instead of passive, historical data you collect and review real-time data from your industrial assets, you can accomplish more with them. IoT-connected sensors on your machines can tell you about vibrations, frictions, temperatures, and other conditions that could result in a breakdown or slower production. You can then with high reliability schedule predictive maintenance before a failure happens, but not so early that it’s actually wasteful. Automatic alerts in response to certain thresholds could alert your production and maintenance managers on their mobile devices and ensure that they jump into action.

OEE can pay. Even if you limit your focus to improving OEE alone, you can achieve outstanding results by analyzing IoT machine data. When it comes to OEE, 85 percent is considered world-class, and many manufacturers operate, year after year, at levels of around 45 percent or even lower. Even the more conservative OEE assessments indicate potentially spectacular results; for instance, a 25 percent improvement in OEE can improve your bottom line by 10 percent or better. That means makers might needlessly lose money if they do not act on opportunity to improve their OEE values.

Better planning of machines and production lines. Combining real-time condition-monitoring data with historical data, you can plan the workloads of your machines and production lines for best effectiveness and to minimize the disruption from setup adjustments and recalibrations with you need to change to make different products. If certain machines evidence patterns of performance or wear and tear in your environment, you can give your vendors access to a set of your condition-monitoring data in a collaborative workspace in the cloud and work with them to improve the design of your machinery.

Introducing production efficiencies. Output quality data would make similar interventions possible, so you can avoid wasting materials or production capacity by manufacturing products that don’t meet your customers’ specifications or fall outside of compliance requirements. In your ERP system, you can use the analysis of your real-time machine data to enable better decisions regarding the procurement of materials, the scheduling of shipments to your facilities, and the planning and acquisition of additional machinery.

Ensuring a healthy environment. If, in your warehouse and logistics processes, you need to maintain operations within certain parameters for particulates, fumes, temperatures, and other environmental values to keep workers safe or to maintain optimal product quality, connected sensors on your equipment and specialty vehicles and in your buildings can provide the evidence to verify these conditions or make prompt action possible.

Connected asset intelligence. As you manage your machine data and analyses in the cloud – where storage will scale along no matter how much information accumulates – you can use them to enable evidence-based, sound decisions that can help the business become more efficient, agile, and competitive. You can also connect IoT data findings from machinery to the finance management in your ERP system, where you can analyze the real costs of maintenance, breakdowns, and replacements, along with the returns from improving OEE or other performance metrics.

Launching valuable products and services through digital means 

Once your proof-of-concept validates the potential rewards of Industry 4.0, you could tackle more ambitious goals. One of the buzz words in discussions of Industry 4.0 is “digitizing products.” What could this mean for a manufacturer? Why would you do it?

Getting closer to customers. The answers to these questions would depend on where you see opportunities to deliver more value to customers and to what extent you want to create closer, more lasting customer relationships. In your cloud-based Microsoft Dynamics 365 environment, you already have much of the customer histories and other data to tell you about the interests and needs of customer businesses.

Discovering new engagement opportunities. Your customer-facing employees as well as your planners and execs can see how customers responded to promotions, marketing campaigns, or the introduction of new products. The customer records can indicate which companies may be ready for a closer collaboration or a more strategic relationship with your organization. Your analytical tools will help you assess the business conditions and trends that impact your customers, so you can think about engaging with them to devise an optimal response to these events.

Focus on value, not objects. For some manufacturers, Industry 4.0 invites a new focus of how they provide their unique value to customers. Business customers may be far less interested in the deliverable product provided than in what it enables them to accomplish, which may be showing value to their customers in turn. One avenue open to manufacturers, then, is servitization – they offer their customers a contract that commits them to delivering the benefits of the product.

When the traditional deliverable is an intermediary product that is a component of the end product their customer distributes to consumers, the value is realized when this intermediary is available at the schedule and quality, and in the quantity, that helps the customer’s business grow and compete. If, for instance, the traditional product is an industrial cleaning, the ultimate customer value may be in the cleanliness of their production lines or facilities according to clearly defined targets. If the product becomes part of a recipe that undergoes a production process and results in a final output, there will be other value criteria to be met. Connecting the service to its goal may also remove the dependency on certain key ingredients and raw materials that a manufacturer can source and replace flexibly as makes best sense for the business, as long as customers’ needs are met.

The service contract in this model defines how value will be delivered, as well as the delivery schedules, quality parameters, and amounts customers can rely on. It will also cover the communications and actions that should take place when the customer’s needs change, or when unforeseen circumstances may make it difficult for the manufacturer to maintain proper service levels.

Optimizing operations for services. Internally, ths manufacturer can use its operations management systems and business intelligence capabilities to plan the financial and operational adjustments that make such a change to services instead of products manageable and profitable. Given that the company owns a wealth of customer data and histories and can apply its advanced insight and customer relationship management resources, the business-critical management systems no longer need to be confined to remain transactional systems of record. They can serve as systems of engagement to support emerging opportunities and to deepen the engagement with customers.

Competitive innovation. Today, while many relationships between manufacturers and their customers are predicated simply on reliably delivering the right products at an agreed-upon cost, digitally enabled service opportunities could be both transformative and highly competitive. For many manufacturers, digitizing products will mean adding valuable, intelligent services that can go far beyond servitized products and gain a greater share of customers’ attention and budgets. Making use of their own expertise, they can, for instance, help customers gain more value from their industrial assets or procurement activities.

Sharing transformative intelligence. Some makers of provide analytical services and consulting to enable their customers to improve OEE or other important KPIs in their operation. If the manufacturer’s output is used by the customer to produce their final products, real-time, IoT-enabled insight into the customer’s operations could make it possible to optimize their processes and practices for greater efficiency or better quality, or to devise new product formulations to take advantage of changing market trends. These service offerings could be ongoing or project-based, and they could be extended to many customers or be a more exclusive value-add just for certain key accounts.

Empowering an innovation chain. Manufacturers’ ongoing tracking and business analytics applied to procurement and supply chains could make it possible to design a service that provides the customer with cost savings if the manufacturer’s economies change, or offer a warranty to avoid shortages or production delays of critical goods. Manufacturers also serve their customers with business analytics that assist them in launching and distributing new products or in weathering competitive challenges.

Avoiding the aging-out of businesses and ensuring continued viability. In the industry, product innovation is not always what customers believe they want. However, globalized markets, generational transition, and intense competition are eroding the status quo of how companies succeed and ensure their viability. They may provide the same, excellent products for decades, but at some point markets will be saturated or competitors will catch up. At that point, they need to have a recovery strategy. If your cloud-based business analytics gives you a way to enable them to anticipate and adjust to changes that affect their business, you clearly deliver value far outside a conventional business relationship. Using the same intelligence technologies, you can forecast with great reliability the success and market share potential of new products and services that you can take to market before the competitors will.

Optimizing the digital supply chain

The examples for Industry 4.0 mentioned rely on a transparent, connected supply chain, which in itself may have a transformative aspect. The digitally enabled supply chain of Industry 4.017 relies less on discrete company units that deliver goods to each other and more on an upstream and downstream flow of intelligence that helps all of them do well by their respective customers.

Supply chain management as a competitive distinction. Modern business management systems offer sophisticated supply chain management tools. The cloud increases their reach and makes it easier to use them to develop productive business relationships based on evidence-based planning. In a global market, where it may be difficult for any but the largest manufacturers to negotiate the most advantageous terms with the most qualified trading partners, supply chain management can advance your competitive standing. Your market intelligence provides you with the insight to understand the fluctuating costs and availabilities of raw materials and identify potential vendors to engage with if your customary sources are not able to do business with you at favorable terms.

Reliable demand planning. In addition, analysis of your current and historical customer data will bring greater accuracy and awareness to demand planning. You can then schedule procurement negotiations and shipping to ensure timely deliveries without accumulating passive inventory or approaching the expiration dates of perishable materials. Comparable analytics applied to your vendors and their markets will help you avoid shortages and costly emergency or cautionary purchasing.

Value-based collaborations. By selectively sharing cloud-based market analytics with your chosen vendors and enabling them to improve their planning, you can foster partner relationships based on shared values and mutual benefits. If you want to take the cloud collaboration further, you can extend real-time condition monitoring into a trading partner’s production operations, where you can help them assess quality standards and other critical metrics. Your supplier can then manage for better, more consistent quality and increased productivity while you enforce compliance with your required quality levels and receive advance notice of any potential issues before they impact your deliveries or production.

lity management and control. You can continue monitoring live IoT data from shipping containers and vehicles to maintain full visibility of deliveries in transit and the environmental conditions that might have an effect on the quality of the goods. If you already provide business intelligence services to your customers, you can easily close the loop between findings from customer operations and your collaborations with engaged supply chain partners to ensure the best possible quality of materials you purchase from them. Looking in the other direction, your insight and control over supply chain events can be a competitive advantage with customers who value a high level of assurance in their relationship with your company.

Creating the workforce to perform Industry 4.0 efforts and ensure their success

If yours is the sort of forward-looking company that will embark on an Industry 4.0 initiative, you need to make sure that all your employees are informed, buy into the effort, and understand their contribution to it. Because very few jobs in moders manufacturing organizations do not require people to make decisions, they will also need the resources that enable them to do so effectively and in confidence. Your well-trained, motivated workforce will be looking for the tools and information access to be effective in their roles and meet their own professional goals in addition to the company’s objectives. How well you provide them with digital enablement can make a great difference in your workforce building and long-term success.

Modern, intelligent mobility. As mentioned, the cloud and mobility bring analytical prowess, what used to be known as CRM and ERP capabilities, and myriad specialized apps to the mobile devices of your employees working during a business trip, while providing services in the field, maintaining machinery in a production facility, or anywhere else. Your people can maintain a digital, mobile lifestyle that matches or exceeds how they use technology in their private lives.

Unified, comfortable, connected environment. If you run your business on a foundation of Azure and Microsoft Dynamics 365, you can offer employees a consistent, intuitive software environment that emphasizes individual and team productivity without extensive familiarization. Office 365 apps integrate seamlessly with Dynamics 365 to simplify communications and collaborations among your teams, no matter where people are. Generally already designed for your most important business roles, solutions created by Microsoft and its partners for process manufacturers meet the majority of your business requirements out-of-the-box and without requiring customizations that make users’ lives more difficult. In many cases, configurations by users themselves help them get to the information and functionality they need through their dashboards or home screens, without searches or complex navigation.

Building a transformation culture. In the context of Industry 4.0, business management systems, analytics, and other advanced technology tools in the cloud can help you foster a companywide culture of innovation and customer commitment. When everybody from your production workers to the executive team operates on the same technology platform, it becomes easier to sync people’s efforts, broadcast successes achieved in digital transformation efforts, and keep organizational change positive.

Taking the first step

When it comes to Industry 4.0 or digital business transformation, it’s easy to be overwhelmed by the amount of jargon and hyperbole disseminated throughout the industry. A backlash against exaggerated claims and the common transformation hyperbole related to simple software and hardware solutions is underway and can only help keep companies’ efforts realistic and focused. One of Sikich’s ambitions is to enable controlled, low-risk, strategic transformation that helps you meet your goals and serve customers like nobody else can.

To accomplish this, we make our expertise and resources available to let you create a realistic roadmap for Industry 4.0 that fits the way your company works and takes advantage of its unique value potential. Sikich business and technology experts help you build a modern, foundational systems architecture and take advantage of recent innovations in the cloud, ERP, CRM, mobility, and process manufacturing technology.
Working on your behalf, we design efficient ways for you to use solutions and data to move your digitization forward. We favor updating systems over replacing them and integrating the best software tools and required capabilities instead of encouraging costly customizations, which often cause lasting IT management headaches and don’t always make users’ lives easier.

We often learn from insight into other companies’ successes and shortcomings, so we can assist you in keeping the risk of your Industry 4.0 effort low and avoid traps presented by errors in realizing digital transformation as well as your changing industry. In our engagement with you, we focus on the unique value your company can bring to your customers and the industry, away from commoditization that compromises your potential for competitive distinction and profitability.

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