Digitizing the value chain
Challenges
remain for “Industry 4.0,” but the buzz is growing.
Digital manufacturing and design are drawing attention from innovators and investors alike.
Sometimes referred to as “Industry 4.0” (especially in Europe) or as the
“Industrial Internet” (General Electric’s term), these labels reflect a basket
of new digitally-enabled technologies that include advances in production
equipment (including 3-D printing, robotics, and adaptive CNC mills), smart finished products (such as connected cars and others using the
Internet of Things), and data tools and analytics across the value chain.
These technologies are changing how
things are designed, made, and serviced around the globe. In combination, they
can create value by connecting individuals and machines in a new “digital
thread” across the value chain—making it possible to generate, securely
organize, and draw insights from vast new oceans of data. They hold the
potential for disruptive change, analogous to the rise of consumer e-commerce.
In 2010, when some two billion people connected online, the Internet
contributed approximately $1.7 trillion to global GDP. What’s in store when 50 billion smart machines—deployed across factory floors,
through supply chains, and in consumers’ hands—can connect with one another?
Competitors and policymakers are
pooling their efforts to make that happen. In the past year, for example, more
than 200 organizations from industry, government, and academia joined in
supporting the Digital Manufacturing and Design Innovation Institute (DMDII) to
advance digital integration in the manufacturing economy. Participants have
committed more than $200 million to support the DMDII, and the US federal
government is contributing an additional $70 million. Companies such as
Caterpillar, GE, and P&G are among the industry partners. But even as the
holy grail of a digitized value chain draws closer, industry leaders are
expressing some prominent, common concerns.
McKinsey had an opportunity to poll
executives at companies participating in the DMDII. While 80 percent of the respondents consider digital manufacturing and design
to be a critical driver of competitiveness, only 13 percent rate their
organizations’ digital capability as “high” (exhibit). And even among those
leaders, many believe that their firms and their industries currently lack
necessary standards, data-sharing, and cybersecurity capabilities.
Across industries, executives at
several manufacturers identified a need for dramatic improvements in certain
software applications. Reporting dissatisfaction with some vendors’ products in
areas such as computer-aided design (CAD), enterprise resource planning (ERP),
and manufacturing execution systems (MES), these executives cited examples of
applications they found too hard to learn, too slow to evolve and adapt, and
sometimes too expensive for small businesses. Some systems are also closed—they
don’t communicate with each other or allow others to build upon them. Achieving
the transformative potential from digital manufacturing, by contrast, requires
information systems that are open, interoperable, and user-friendly.
Successful implementation of
digital-manufacturing solutions entails fluid digital communication across the
value chain—this continuous flow of data is the digital thread. In response, a
number of legacy software vendors, to their credit, are striving to capture a
share of this new market. But it’s an open question whether they can move fast
enough. The evolution of the consumer Internet does offer some insight for its
more nascent industrial counterpart. Today’s consumer-based apps and
cloud-based software, for example, are updatable, affordable for the masses,
and intuitive to use. Manufacturing leaders yearn for design and manufacturing
software solutions and for an app-store ecosystem that can reach the same bar.
Enabling individuals and machines to
communicate seamlessly would of course make production more cost efficient. But
perhaps more compellingly, digitizing the value chain facilitates innovation
and can directly improve the top line. For example, the aggregation and
analysis of data across a product’s life cycle can increase the uptime of
production machinery, reduce time to market, and make it possible to understand
the product’s consumers. They also make product innovation less about “tribal
knowledge” and gut feeling and more of an exercise in analyzing, testing, and
responding to hard data and robust simulations.
To that end, the leaders we surveyed
were particularly bullish about the impact of digital technologies on product
development and design. When they were asked to rank the specific value-chain
areas that would benefit most from digitization, one of the highest was the
“design–make” link—including the ability to compare “as designed” intent with
“as made” data from factories or to predict the quality of new products by
using real-time simulations that leverage actual factory data.
Digital manufacturing is already
proving its potential to create value at points beyond the design phase.
Coca-Cola applied a flexible packaging process in its “Share a Coke” campaign,
in which firms collaborated throughout the supply chain and helped increase the
company’s soft-drink volumes across world markets. Daimler has rolled out
“Mercedes me,” which, among other features, tracks the usage and wear of key
automotive parts to help service automobiles more effectively. It’s important
that the opportunities from digital manufacturing are not just for big
corporations. Micro-manufacturers, for example, are using Etsy’s wholesale
program as a digital distribution platform to scale themselves up to
multimillion-dollar enterprises.
With compelling opportunities across
the digital thread, venture-capital firms and other investors will continue to
take notice. GE Ventures, for one, opened a Chicago office in 2014, drawn in
large part by opportunities to apply digital manufacturing in America’s
industrial heartland. Manufacturing remains, after all, a massive driver of the
global economy, representing approximately 16 percent of global GDP. With those stakes, even marginal improvements will unlock significant wealth.
byJohn Nanry, Subu Narayanan, and
Louis Rassey
http://www.mckinsey.com/Insights/Manufacturing/Digitizing_the_value_chain?cid=other-eml-alt-mkq-mck-oth-1503#sthash.4q57uINQ.dpuf
http://www.mckinsey.com/Insights/Manufacturing/Digitizing_the_value_chain?cid=other-eml-alt-mkq-mck-oth-1503
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