March 28, 2020 Looking Forward in Troubled Times

Volume 23 | Issue 1

A digital transformation could help manufacturers move quickly when the coronavirus crisis lifts.

Click here to read the complete illustrated article as originally published or continue below to read the text article.

The environment in which manufacturers are operating is changing faster and further than ever before. The unfolding coronavirus pandemic is disrupting supply chains on a global scale, and labor shortages and shifting guidelines and restrictions are halting production lines. As leaders focus on ensuring the health and safety of their teams, they are also solving short-term problems as they evolve on a daily— and even hourly—basis.

Eventually the crisis in its current form will end, and manufacturers will be called upon to ramp up production and respond quickly to new demands from customers. When that time comes, a digital transformation can build new levels of flexibility and resilience into manufacturers’ value chains, and offer an opportunity for those that act quickly to capture the potential rewards of the Fourth Industrial Revolution (4IR)—expected to be $3.7 trillion by 2025.

As in past crises, some companies will succeed in using the current discontinuities to accelerate the reimagination and restructuring of their supply chains, building new capabilities and establishing a new performance trajectory.

Few have succeeded in reaching the attractive ROI offered from 4IR methods. Given the disruptive impact of technology, it’s been easier for leaders to take a measured approach, testing-as-you-go with pilot deployments. But more than 70% of organizations are failing to demonstrate compelling returns, instead getting stuck in “pilot purgatory.” Given these challenges, what can be learned from those who are beating the odds of success?

Some of the leading organizations already reaping the benefits of 4IR are part of the Global Lighthouse Network, a collaborative project by McKinsey and the World Economic Forum. These 44 organizations— diverse in terms of industry, size, and location—are exceeding performance standards with digital, analytics, automation, and other innovations. They are also driving new benchmarks, and sharing the results: Lighthouses are reporting productivity increases of up to 90%, lead time reduction of up to 80%, speed to market improvements of up to 100%, and energy efficiency improvements of up to 50%.

For example, the Ford Otosan site in Kocaeli, Turkey leverages digital manufacturing and advanced automation to move beyond lean, and increased its output by 6% and employee engagement by 45% without additional capital expenditure investment. The GSK facility in Ware, UK used advanced analytics and neural networks with existing datasets, and improved line speed by 21%, and OEE by 10%.

These are just a few examples found in results of the Lighthouse research project. When reviewed closely, it becomes clear that although there are many paths to success, Lighthouses share a set of common success factors, particularly on how they realized scale and how they supported the skills of their workforce.

Scaling beyond silos

Lighthouse organizations demonstrate that scale is a key aspect of maximizing ROI. Implementing 4IR at-scale means 50+ use cases at a time, and hundreds of deployments, all unified by an operating system that breaks down silos across functions and even reaches across the entire value chain from supplier to consumer and beyond.

The benefits of the silo-breaking approach are evident when we look at examples like Chinese auto manufacturer SAIC Maxus, which used digital solutions to revolutionize production of mass-customized vehicles. Using an online ordering platform, digital twins, a digital supply chain for supplier transparency, and smart engineering to differentiates thousands of configurations to confirm the correct build, the company improved productivity by 20% and grew the top line despite market declines. Similarly, when Johnson & Johnson Vision Care in Jacksonville, Florida digitally connected its value chain, its modular platform for rapid-line reconfiguration reduced development and launch timelines by 30%, and its end-to-end supply chain visibility platform reduced inventory levels by 13%.

While Lighthouses have taken varied approaches to transformation, they have several elements in common, including:

1. An agile approach: Rather than focus on year-long pilots built for perfection, leading organizations collaborate and manage change continuously; allowing quickly designed transformations that anticipate and surpass technical limitations.
2. Business processes: Processes are optimized using new technologies, including augmenting operators work with artificial intelligence, augmented reality, collaborative robots (cobots), and virtual reality.
3. Management systems: Digital performance management creates one source of truth and eliminates waste in decision-making.
4. Modernized IT: A modern IIoT stack and data model allows cyber connection between reality (e.g. shop-floor sensors) and IT systems; this allows for the speed and agility to add use cases in a matter of weeks instead of years.

For example, a local entrepreneurial team at Unilever Dubai leveraged several of these elements as they sought to improve cost competitiveness with their 4IR efforts. Led by an ex-process engineer and supported by a team of engineers and technicians who engage on 4IR projects on top of their current responsibilities, the group develops and delivers apps affecting the routines of operators across the factory. Using a dynamic structure and sprint deployments, the team also adhered to some common principles: All apps depended on the common data lake, were designed on open-source platforms, provided straightforward user interfaces, and employed mobile technologies wherever possible. With limited investment and in a short time period, their efforts achieved a cost reduction of more than 25%.

The human-centered future of production

Though technology is the driving force in this revolution, the success of the Lighthouses prove that human creativity is playing a central role. 4IR is a journey that needs people for our cognitive skills, innovation, and other very “human” qualities – things that simply have no AI equivalents. And, while industrial executives are already struggling on talent—only 32% of leaders feel prepared for technology’s potential impact on roles and skills – successful approaches from the Lighthouses stand out:

• Thoughtfully deploying automation and related technologies—Rather than replacing operators, Lighthouse sites use technology to take over repetitive, manual tasks, freeing workers’ time for more complex assignments. For example, at household-products manufacturer Arçelik AŞ in Ulmi, Romania, the automation of low-value tasks improved operational costs by 11%. Supervisors spend less time collecting data and more time on the shop floor, coaching new operators, and instructing operators on product introductions.
• Empowering frontline workers to innovate— Successful organizations put technology and data into the hands of their workers, train them on how to use it, and then ask them to use the technology to solve problems. At Schneider Electric, “digital week’ uses a facilitated hackathon to generate new ideas. With more than 50 people involved, the organization is building the muscle for employee innovation and new ideas.
• Applying adult learning principles to build capabilities—Lighthouses focus on both technical and soft skills, tailoring their reskilling programs according to each worker’s needs. For example, Phoenix Contact developed an application to guide operators through steps and track their accomplishment, helping operators build success in their jobs. The company reports that 100% of operators who work with these machines prefer them over the traditional models.
• Making changes to the organizational structure— 71 % of Lighthouses are making adjustments to how they are organized to make 4IR transformation a priority. At Nokia in Oulu, Finland, a small expert team of 10 people support technical development and implementation of new technologies. Coming from both engineering and cross-functional backgrounds, they work in an agile way to develop 4IR innovations and deployments at scale. This site has been able to improve productivity by 30%, and now brings products to market 50% faster than before.
• Implementing new ways of working— Lighthouses are embracing agile methodologies and increased transparency, guiding decisions with real-time data and facts rather than gut instinct and precedent. For example, the Bosch facility in Wuxi, China, uses an internal communication platform that enables people to interact using chat and video applications. Smartphone applications share data, production notifications and other types of communication, allowing front-line supervisors to spend more time in face-to-face problem-solving with their teams.

Focusing on just skills or scale—or indeed any of the enablers by itself—won’t be enough to thrive in the Fourth Industrial Revolution. These inputs must be harnessed together to generate the impact new technologies can offer; a combination of factors that will allow organizations to keep pace with the leaders from the Global Lighthouse Network. And as organizations begin to prepare for operating in the new environment that will result from the coronavirus pandemic, they must be ready to move quickly to capture the fast-mover advantage.

Katy George

About the Author
Katy George is a Senior Partner at McKinsey & Company, and leads the Operations Practice, which includes the firm’s services in manufacturing and supply chain. Katy’s 23 years of client service have focused on operational performance improvement, operations strategy linked to business strategy, and operating model design. Currently, Katy works with clients on advanced technology development and adoption, the future of manufacturing, and the future of work. Katy leads McKinsey’s collaboration with the World Economic Forum on “Factories of the Future,” and was recently named to the Board of Directors for MxD, the Digital Manufacturing Institute.

Subscribe to Industry Today