Insight Industry 4.0: It s The Future, But We ve Been There Before

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1 We make it happen. Better. Insight Industry 4.0: It s The Future, But We ve Been There Before Digital Transformation

2 In our view, Industry 4.0 today is like the internet in the early nineties. It s just beginning to take off and it s difficult to imagine exactly how it s all going to develop. Early advocates of the web s transformative power may have got the overall direction right, but none of them knew exactly how it would evolve, so much of the rhetoric at the time felt blown out of proportion. We believe that we re now at the same point with Industry 4.0. Remember, in the early nineties, there already were computers, networks and programing languages that offered seemingly endless possibilities. The tipping point came when they suddenly began to coalesce - and that point has now been reached with Industry 4.0. The Industrial Internet of Things, Big Data analytics, Artificial Intelligence and new production techniques such as Additive Manufacturing are not really new, and the reasons for implementing them are not that different from what you are currently trying to achieve. Delivering a first-class customer service, with shorter lead-times, reduced cost, a greater number of product variants and mass customization, is today s challenge. Industry 4.0 provides tomorrow s solution. It will deliver a step change in performance by connecting these rapidly developing capabilities in new and transformative ways. The big question is: How do you connect them to create real value for your business? Where To Start And Where To Go Next Although the general direction of Industry 4.0 is clear, the journey each company will have to take to get there is not. At this moment in time, you can t know precisely what role these capabilities will play in your business, so for now it s a question of evolution, not revolution. We believe there are four fundamental themes you should immediately focus on: Skills & Roles, Big Data Analytics, Information Technology and Industrial Technology. These themes can be developed independently, but only when you combine them will you maximize their full potential and begin to realize the transformative effect of Industry : Skills & Roles A new workforce profile is emerging. Most capabilities today help people to perform better in their current roles, whether that is enhanced simulation tools for engineers, improved tactical decision making for middle managers or new forms of selfquality management for operators. As the application of big data becomes more widespread however, new capabilities such as that of the data scientist will be required as a new core skill. Eventually there will be a fundamental shift in the workforce profile, with greater automation at all levels and a workforce that is capable of thriving in this more technology enabled environment. As you begin your Industry 4.0 journey you should focus on the leaders of your organization. This is very much aligned to Lean leadership principles. You don t just need thinkers or doers, you need thinkers who can also do. This means developing a Change Leadership who can thrive in a creative, innovative environment, applying critical thinking to new challenges and seeing how they connect with the business model, but who can also implement change rapidly and sustain it in the business. This is particularly true in operations, where leaders are now in a dynamic environment and need new competencies and new ways of working. It s no longer about managing just for flexibility, it s about embracing future disruptions and driving rapid change. 2: Big Data Analytics You re going to be collecting more and more data and new types of data, but in our experience benefitting from big data analytics requires two things: quality data processes that ensure your systems provide usable data, and data that is truly accurate. We often see that although a specific system might appear to be giving you the right data, in reality there can be quite a difference between the operation monitored and the information gathered, so you need self-auditing systems that enable you to constantly check the quality of your data. Industry 4.0 Capability Roadmap A sequence of concurrent, interconnected activities Greater OpEx focus Skills & Roles Change Leadership Engineers for Virtual Environment Data Scientists Upskilled Middle Management New Workforce Profile Big Data Analytics Master Date Management Proof of Concept Use Cases Wide Scale Application Artificial Intelligence Decision Support Machine Learning Information Technology Common Systems Cloud Computing Big Data Analytics Platform Connected Machines & Systems Edge Computing Industrial Technology Lean Manufacturing Addictive Manufacturing Sensors & Actuators Autonomous Decentralized Systems Autonomous Factory Greater OpEx focus The current focus for many organizations Incremental improvement Step change improvement 02

3 Analytics Can Recognize What People Can t In the late 1990s Billy Beane, the general manager of the Oakland A s baseball team radically changed the team s recruitment methods. Instead of simply relying on the gut instincts of his scouts, he and his deputy Paul DePodesta, a Harvard economics graduate, examined the performance data of every potential new recruit. These numbers were readily available and the two men applied simple analytics to identify valuable players that scouts had rejected and could therefore be signed cheaply. The results transformed the club s performance and despite having one of the lowest payrolls, the team made the playoffs four years in a row. Their success was dramatized in the movie Moneyball and others began copying their method. Before long, teams had extracted all the information they could from the game s traditional statistics and needed much more detailed data to produce even more accurate predictions. They now have that with Statcast, a system that can track and analyze everything that happens in a game, including how rapidly the ball spins and around what axis. Everything is going to be embedded with sensors and new data sources such as videos and other unstructured data can now be stored and analyzed almost as effectively as classic structured data. So how are you going to prepare for these new data driven opportunities? First, you must accelerate your master data management initiatives to provide you with the solid base of good data. With that you can start to explore the application of big data analytics, considering specific cases which can drive value for your business and tackle your operational challenges. Once proven, these use cases can be rolled out to realize their full value. The algorithms you have developed can be embedded into your machines and systems, providing assisted decision making using artificial intelligence to assess large amounts of data, and ultimately, systems and machines that learn and make (at least some) decisions for you. When correctly applied big data analytics can give you a competitive advantage, no matter what field you re in. For example, if 15 years ago you d said that every major league team would have a data scientist as part of their management, someone who analyzed spreadsheets and models, it would have seemed crazy. Now every team has one and it s going to be the same for manufacturing. You re going to need new skills in your engineers and management team. You ll need those data scientists to analyze the huge amounts of data you ll generate, and in ways you probably can t even imagine today, so you need to start building those skills and evolving those capabilities now. In the next 10 years, we believe that computers will move beyond their current role as our assistants and become our advisors. Eric Schmidt Google Executive Chairman, May : Information Technology Most manufacturers have spent heavily on ERP, consuming significant amounts of time from many of their people, yet when the systems have been installed things haven t always worked out as intended. Most clients simply regard ERP as a basic business cost. You have to have it, because you have no choice, you need it to run your complex business. The interesting thing now is that those organizations that have invested heavily in creating common systems and applications have a head start in gaining real value from Industry 4.0. The Industrial Internet of Things is connecting everything, everywhere. When you add in the Big Data capability, all that investment in time, money and effort will really start to pay off. 4: Industrial Technology Industry 4.0 is the logical evolution of Lean and will help you realize its full potential. Most manufacturing companies already implement Lean principles, but the majority still have plenty of value they can realize. Lean Manufacturing in Industry 4.0 will enable degrees of flexibility and visibility across the value chain that simply aren t possible today. For example, single-piece flow will be feasible for a greater number of manufacturing environments, with dynamic routing and workflow management. Big data and analytics will provide real-time analysis and mitigation of deviations and causes of waste. Additive manufacturing will make new ideas and mass customization more and more viable. Predictive production and preemptive maintenance will smooth everyone s path. The autonomous manufacturing plant is coming and you will need to ensure that Lean concepts and thinking are firmly embedded in your business first to be able to build towards it. 03

4 Don t Try To Advance On All Fronts Industry 4.0 will require investment in time and money, but there are ways to move forward without dramatically increasing your OPEX or CAPEX budgets in the near term. The priority must be deciding where to spend, not necessarily spending more. At the same time however, you need to be able to take first mover advantage in those areas that are critical to your competitiveness. This doesn t mean you need to spend huge amounts of R&D on the total concept. The goal is to deliver maximum ROI, so you should focus on the areas where the majority of your technology investment is already in place. Focusing on what s important to you and implementing it first is a far better option than trying to advance on all fronts. Set the priorities of your 4.0 roadmap so that they are aligned to your operational priorities, your customer needs and your competitive advantage, not to technological readiness. Just because the technology exists doesn t mean you should use it. That s why we firmly believe the road map should be driven by the COO. It has to be focused on delivering what the business really needs, not implementing change simply because the technology exists it s the business needs that pull, not the technology that pushes. Understanding what you can leverage from previous investments is also key. If you ve bought any industrial equipment over the last few years you probably already have vast numbers of data collecting sensors that you might not even be using. You may have invested in RFID (Radio Frequence Identification) and most probably ERP, but are you absolutely clear about what s in situ that you can start to leverage? Before you start thinking about what you should be doing, you should start thinking about what you have. Companies that generate the most short to mid-term value from Industry 4.0 will focus on clearly defining the problems and opportunities these new capabilities will be required to resolve. Tackle this challenge in bite size chunks, with clear use cases. Big data analytics will help, but the most important thing is to work out what question you re trying to answer with the data. What hypotheses are you trying to determine? What s the usage around them to make the business case? Co-innovating with suppliers is also key. You should be investing in long term relationships so you can co-innovate and share the cost and the risk-reward. The reward being a long term contractual agreement with the supplier. The COO should be ensuring that procurement has a long term engagement strategy in place for those critical Industry 4.0 suppliers that you re really going to work closely with on your journey. What s changing now and will change even more in the future is the ability to buy services, rather than products. In the past manufacturers bought all their own equipment and manu factured everything. Now you can buy a supplier who will install the equipment for you. They own it and service it and you pay for the products it produces. It takes you from a huge CAPEX investment to a smaller OPEX investment. Your Industry 4.0 strategy must be driven by the COO. Customer and business needs must point the way, not technology. 04

5 Develop The Ability To Pivot Think big, start small, scale fast. Your strategic road map needs to be dynamic and build agility into each phase. When you re trying to work out the applicability of some of the new capabilities to the business you need to get ideas and build understanding, so collect as much insight as possible, both internally and externally. The next stage is to really invest time in shaping each hypothesis. Think the topic through and work out how you re actually going to apply it. What do you need to prove or disprove to decide whether something is applicable and what value it s going to generate? The good news is there ll be no shortage of data. You also need to shake up your feasibility testing process. It now needs to be in single digit weeks rather than months, so you can reject one idea and pivot towards another. It s about adding pace to the process and doing everything in sprints. The Industry 4.0 strategy is where leaders really need to display both critical thinking and the ability to implement rapidly. In Silicon Valley they talk a lot about the ability to pivot and that s what you need to develop. You ll have all this data coming at you, you ll try new ideas and you ve got to be prepared to fast-fail and adapt as you go. The direction will always be broadly true, but you need to be able to pivot if the data signposts change. That s why many big companies are already creating a specific digital department to anticipate future changes. Innovate and Implement Concurrently Once you ve developed successful concepts you need to quickly roll them out across the business because that s where you generate real value. You can t spend all your time simply analyzing, testing and proving the concept, you need to be out there implementing it at the same time. Innovation and implementation must be interconnected cycles. Everything has to happen concurrently and become fully embedded in your business, so the changes rapidly become the new business as usual. Hitting The Bullseye We know beyond doubt that Industry 4.0 will involve plenty of experimentation and adjustment, so there s no way you can develop a perfect plan or governance that drives compliance to a perfect plan. You ve got to develop something far more iterative. It s about continuous hypothesis testing, tactical decision making and strategic alignment, taking on board new inputs and readjusting your investment portfolio on an iterative basis. Up till now, most company investment budgets have been pretty fixed, but Industry 4.0 is forcing them to become far more flexible as well. Then there s the more frequent execution loop where you constantly check how well you re implementing things, reviewing how the proof of concept is doing and making a judgment call about whether it is good enough to roll out. The important thing to remember is that nothing has to be perfect, otherwise you can spend far too long engineering something to the point where it s over-engineered, but still not implemented. There has to be a real mind shift from engineering to implementation - with the ideal mixture being both. The Tipping Point For Industry 4.0 Has Arrived Historically manufacturing has entailed a large industrial base and squeezing every last drop of efficiency from your capacity. Now it s like having a science kit where you try different experiments and different ways of working to see what really adds value. It s not just about efficiency, it s about dynamism and a different mindset. If you haven t already got them, you re going to need some disruptive capabilities in the team to shake things up and really prepare your business for the future. The Industry 4.0 tipping point has arrived and the rules of the game are changing fast. You ve got to think differently and manage differently because you re managing rapid change and many of those changes are not even fully understood yet. Iterative Strategy Governance Cycles Increased frequency for each cycle, effective tactical decision making and efficient execution are critical for success. Execution Tactical Decisions Strategy Refinement Review implementation status Review feasibility studies and proof of concepts activities Review investment plan vs actual Refine hypothesis Set next 6 months deliverables Adjust 6 month financial plan incl. investments 05

6 About the Authors Jonathan Gray, Vice President at Hitachi Consulting, is responsible for the delivery capability of the EMEA industrials practice within Hitachi Consulting. His 15+ years of management consulting experience is complimented with time spent in industry and in his early career, finance. Actively leading client engagements and consulting teams across the sector; Jonathan specializes in Operations Strategy, Leadership and Performance Management across the value chain, bringing together the latest industry thinking and the practical reality of implementation and change management. Jonathan attended University College London studying MSc Chemistry & Management Mark Hughes, Vice President at Hitachi Consulting, is responsible for partnering with leading industrial businesses to help them achieve sustainable and profitable growth. He has 25 years experience in manufacturing management and operational and strategy consulting. He has helped transform the performance of leading industrials clients by designing and implementing large scale results-focused change management programs incorporating operational strategy, organizational effectiveness, lean manufacturing and supply-chain best-practices. Mark holds a BSc in Manufacturing Systems Management and has also studied at Stanford, Harvard, and INSEAD business schools. About Hitachi Consulting Hitachi Consulting is the global management consulting and IT services business of Hitachi Ltd., a global technology leader and a catalyst of sustainable societal change. In that same spirit and building on its technology heritage Hitachi Consulting is a catalyst of positive business change, propelling companies ahead by enabling superior operational performance. Working within their existing processes and focusing on targeted functional challenges, we help our clients respond to dynamic global change with insight and agility. Our unique approach delivers measurable, sustainable business results and a better consulting experience. For more information contact: info@hitachiconsulting.com Hitachi Consulting is the global management consulting and IT services business of Hitachi Ltd., a global technology leader and a catalyst of sustainable societal change. In that same spirit - and building on its technology heritage - Hitachi Consulting is a catalyst of positive business change, propelling companies ahead by enabling superior operational performance. Working within their existing processes and focusing on targeted functional challenges, we help our clients respond to dynamic global change with insight and agility. Our unique approach delivers measurable, sustainable business results and a better consulting experience.