Point of View

Prioritize operations management to drive Industry 4.0 implementations

March 12, 2020

HFS recently published the HFS Top 10 Industry 4.0 services report, in which we analyzed 21 leading global service providers in the Industry 4.0 service space. We found interesting use cases and production deployment case studies across the manufacturing value chain. As a part of our research for the report, we interacted with several industry leaders from different verticals to understand their expectations and challenges along their Industry 4.0 journey. Since Industry 4.0 leverages several emerging technologies such as cloud computing, IoT, robotics, and 3-D printing to realize the digital manufacturing dream, manufacturing organizations are facing difficulties integrating these digital technologies into the traditional manufacturing landscape. In this PoV, we explore the manufacturers’ challenges in this space and prescribe actions that manufacturers should keep in mind for Industry 4.0 deployments.

 

Manufacturers want to improve operational efficiency through digital manufacturing

 

We asked the manufacturing leadership community to identify the target segment of the manufacturing value chain for Industry 4.0 implementation. More than 40% of the respondents indicated operations as their target segment, as described in Exhibit 1.

 

 

Exhibit 1: Operations is the target value chain segment for the manufacturers

 

 

Source: HFS Research, 2019

 

 

As manufacturers across the globe are facing pressure to decrease costs, increasing their operational efficiency is becoming of paramount importance. Operational efficiency includes the supply chain (both inbound and outbound) and production activities in the manufacturing landscape. The overall focus remains streamlining, cost efficiency, and visibility, among other aspects of operations management.

 

The operations function typically includes production planning, inventory management, transportation management, order processing, and aftermarket services, involving several stakeholders and increasing the complexity of managing the activities. Also, some activities, such as aftersales support, are directly related to customer relationship management. The primary key performance indicators (KPIs) (such as inventory turnover and quality management) of operational efficiency are often internal for manufacturers. But focusing too much internally for operational efficiency without tying up customer expectations and customer value can be challenging in the long term. Thus, for long-term competitive advantage, manufacturers must combine operational efficiency with the customer value proposition. So, manufacturers are targeting improvements in operational efficiency in the short term, and their long-term goal is to also improve customer experience.

 

Streamlining the operating model is the biggest challenge for manufacturers

 

We asked the manufacturing leadership community to identify their top five challenges related to Industry 4.0 implementation, and nearly 60% of the respondents indicated the lack of connectivity and visibility as their biggest challenge, as described in Exhibit 2.

 

 

Exhibit 2: Enabling operations management through technology creates the most challenges for manufacturers

  

  

 

Source: HFS Research 2019

 

 

Collaboration among people, processes, and technology is necessary for end-to-end visibility across operations management processes. IoT is the enabler for the connectivity of industrial components (machinery, robots, people, etc.). As IoT implementation includes a broad set of stakeholders, there is often trouble in synchronizing as a result of internet outages, manual and technical errors, and other system and infrastructure issues.

 

Even if the data connectivity improves, the challenge resides in integration—How do IoT devices talk to the gateway and cloud? What data format do they generate? The complexity increases when integrating different types of machinery components (particularly for brownfield implementations) and receiving the data flow in real-time. Following the right combination of standards and protocols before proceeding with an IoT implementation will help.

 

Another main challenge that manufacturers are facing is high software development costs, which include platform, application development, and cloud infrastructure costs. The variations in the business landscape mean that manufacturers need custom-built solutions for most use-cases, increasing the overall development cost and timeline.

 

Other challenges that manufacturers face are deploying new business models, data management, and adapting new business models.

 

Focus on four areas to get the maximum out of Industry 4.0 deployments

 

To overcome the overall implementation challenges, manufacturers can focus on four areas, described in Exhibit 3.

 

Exhibit 3: Technology-centricity is the key to overcoming most of the challenges

 

 

 

Source: HFS Research

 

 

The Bottom Line: Follow a technology-enabled, business-first approach to drive Industry 4.0 implementations.

 

Industry 4.0 introduces a new level of complexity, but the business opportunities are also promising, motivating manufacturers to overcome the challenges. Adapting these new technologies can be daunting. To ease the transition, manufacturers must clearly prioritize their business needs, act accordingly, and avoid complications by ruling out technology features and business systems that are not required. Manufacturers’ business leaders, not the technology leaders, should drive this initiative.

 

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