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Supply chain implications of Industrie 4.0

Supply chain implications of industrie 4.0
There are some views that perhaps Industrie 4.0 is a lot of hype. That following the global economic downturn it was a way of German manufacturing PR of rebranding manufacturing capability. But I think when I saw Professor Kagermann actually present at the Royal Academy of Engineers, he said something that really resonated with me. And he explained that the ICT-enabled convergence of business and technological processes will herald the next age of, he said German, but manufacturing. And for me this is absolutely critical because what it’s saying, in a sense, is that the internet will enable us to actually bring together both technology and our business processes to create new and innovative ways of doing business.
And that, for me, is the important thing about Industrie 4.0. So one of the things that slightly concerns me is that we do tend to think of Industrie 4.0 just in terms of what actually is going to happen in the factory. But actually, thinking about the Kagermann definition and the way that we redefine the way we do business, I think it’s really, really important to think about the business model and supply chain implications. Historically, we have tended to look at cost as the main driver of manufacturing. Whereas, in this new world, we’re really going to look at the consumer.
And I think we’re in the era of consumption driven supply chains where we won’t just stop at actually getting a product physically to a customer. But we’ll actually try to make sure that they use the product in the way that we thought they would, and actually see them through that consumption process. The second major change is the way that we actually look at the cost base. Historically, we’ve tended to look at manufacturing just in terms of manufacturing costs. Actually we are shifting to a viewpoint now where we actually look at the total landed cost, or total supply chain cost. Which looks not just at the manufacturing element but all the logistics, tax and excise, the real bundle of costs.
The third way it changes is we have had an approach to manufacturing that’s been dominated by a sort of economies of scale thinking. And we’re going to shift away from that. One of the essence of Industrie 4.0, or the thinking, is to actually be able to make things in a batch size of one. And I think that’s going to drive a totally different way of thinking. And actually when consumers are then making decisions about purchasing a product, they’re not just going to look at the cost, but they’re going to be much, much more aware of both the social and environmental impact of buying that product as well.
So there’s huge, huge supply chain implications, which mean that we won’t just perhaps operate, we’ve seen this shift towards globalisation and we’ll see a shift, not necessarily totally away from globalisation, we’ll still have some global forms of production. But we’ll think much more carefully about what do we produce globally? What do we produce regionally? And where do we actually get some advantage from actually manufacturing things much more locally? And this will mean that we actually need to model our global supply chains in a much more dynamic way. One of the issues with Industrie 4.0 is that people are taking this manufacturing-centric view.
I think if we want to take it forward, there’s three sorts of principles we’ve got to think of. The first is that we’re thinking about consumption driven supply chains. So that we really need to think about how are the different business models that we can create either evolutionary or revolutionary that essentially enable us to market mediate and balance demand and supply. So the second is that actually then, if you’re taking a consumption driven approach, it affects your business model. So you need to think business model. And the third is use technology as an enabler to achieving that goal as opposed to the starting point.

The ICT enabled convergence of technological and business processes will herald the new age of (German) manufacturing.

These were the wise words of Prof. Dr. Henning Kagermann, whom I was fortunate to see present on Industrie 4.0 to the Royal Academy of Engineers in February 2014. They were not documented in his presentation but have continued to motivate my work. Why they resonate with me so strongly is that they look beyond the bounds of a factory, or a technology to provide guidance on how we should look to develop new innovative ways to do business. He is encouraging us to think about new business models and supply chain implications. In essence, as the video you have just watched explains that this leads to the emergence of more consumption driven supply chain. The focus shifts from cost to customer, and ensuring products and services are used in the right way. A more customer centric viewpoint leads to a different perspective on how we view costs. It leads to the adoption of a total landed cost, or total supply chain perspective rather than a myopic view of manufacturing costs, or worse still labour costs. It also sees a shift from economies of scale, to economies of scope, as we seek to produce a batch size of 1, in a socially and environmentally responsible way, at a price comparable to mass production.

It is therefore imperative that we think of the opportunities of Industrie 4.0 from a business model perspective, whilst recognising the important role that technology plays as an enabler. These themes are discussed in more detail in the full presentation made to WMG’s Supply Chains in Practice event: Supply chain implications of industrie 4.0 (17:59).

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Supply Chains in Practice: How Things Get to You

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