Are you getting the most value out of your digitalization project?
If you are only digitalizing information for the sake of gaining clarity from uncovered areas in your production process, or you figured out that what you are doing seems quite similar to what you did when Industry 3.0 was trendy, you might miss out on the benefits from Industry 4.0¹. Read on to find out why!
Digitalization in the context of Industry 4.0 is much more than just going paperless. Industry 4.0 is more about utilizing your digital information resources across your entire value chain, and less about digitalizing information that remains in isolation. According to the German Ministry for Economic Affairs and Energy, there is a lack of yielding concrete benefits from Industry 4.0 or Digitalization projects². Are you getting the most value out of your digitalization project?
Industry 4.0 starts with digitalization
Digitalization is the prerequisite step that allows you to reuse your information elsewhere in the organization. It is the process of converting information into data. Typically, this information is produced by something physical, something tangible, something that is real. By itself, digitalization has not much value to the organization, although you might have already invested in connectivity and computerization to acquire this information.
But you’re not investing in data for its great potential, right?
You see, as long as data is not used by anyone or anything in your organization, that data is not working for you. To make data work, it should be used first in the organization before it can become valuable.
Most digitalization projects I see on LinkedIn, go along with some kind of use-case project. To my surprise, I would say that reports like OEE or other KPIs, are probably the most frequent use-cases I see (has nothing changed in the past 20 years?). The second most frequent use-cases I see are probably all sorts of special sensors to further sense the production process. Then, I finally see the first Industry 4.0 applications, often to enhance maintenance processes.
So, what distinguishes Industry 4.0 applications from other digitalization initiatives?
With the first two use-cases, your information remains in isolation, exclusive to a small part of the organization, storing very specific information to be analyzed by its user, and absolutely not ‘actionable’.
Of course, these two use-cases are a nice starter for any manufacturing organization to get familiar with data usage. Also, you will get some kind of technical infrastructure in place as a future stepping stone to get information processing ongoing and distribute the information across the organization. No money wasted, but you should treat data as a cost: consider the total investment vs the number of active users of this data, and then this becomes expense data. So, where is the real value of any Industry 4.0 application?
There is a relationship between the value of data and the use of data. The more data is used by the business, the more valuable that data is considered for the organization. But before data can be considered and used by the organization, it first must be perceived as valuable by the same organization. That is where Industry 4.0 comes in.
The Industry 4.0 value proposition
Industry 4.0 is about strategically using data in the organization, and its complementary technology that improves the information processing of collecting, storing, analyzing, and responding to data. We respond to data because we know that the origin of this data is something physical, something real. In this way, responding to data is responding to events that occur in the real world. This already greatly improves the perception of data (although and beyond the scope of this story: from a data quality perspective, it appears that this perception is still not enough for intended users – I will get back on this topic in a future story).
For example, a stock-taking process is organized in such a way that the one responsible for counting inventory must replenish stock before it is depleted. Each time stock is taken, the responsible one gets notified and will check if the stock is sufficient or decide to replenish stock. In this case, it is the change in stock that causes the event to occur. If we don’t respond on time when stock gets too low, potential starvation of the production process is induced as a risk coming true.
As seen in figure 1, the total response time to counter-measure any event takes time. The passing of this time (called action distance) devalues the situation, that Hackathorn⁷ describes as follows:
’’[..] action distance is the measure of effort required to understand information and to affect action based on that information. By reducing action distance, the information becomes more ‘actionable’.’’
Hence, the effect of taking action taken too late is known as well: the longer the counter-measure takes, the less predictable the desired outcome becomes. For example, how many manufacturing companies even take more stock to mitigate this situation? I have seen huge piles of “extra” stock. Not only creates more time to counter-measure events more risks, but it also creates more costs to cover those risks.
Although the above example is very vivid for an inventory process, these principles can be applied to any operational process in manufacturing, even in other industries. The goal of Industry 4.0 is to provide the organization the capability to better respond to any events⁴. The term event is an umbrella term that relates to any business decision that requires decision-making for a wide range of events: short- and long-term, occurring inside or outside the organization.
With the incorporation of Industry 4.0, the time between the event and the time of the countermeasure that takes effect is greatly reduced to preserve the value of the event. Another example, the new PlayStation 5 is hard to get due to low stock and high demand. Without help, you are simply always too late because the demand is too high. People who deploy shopping robots⁸ are more likely to get their PlayStation 5 because the robot can check on inventory every minute, and immediately buys one when it becomes available.
The preservation of the value of the event with the use of Industry 4.0 can be seen in Figure 2 below. Not only is valuable time reduced to respond to events, but also the financial need of incurring costs of risks can now be lowered.
From an information standpoint, Industry 4.0 is about improving the information process throughout the organization. At first (point A in Fig. 2), it starts with the acquisition of data by capturing the relevant information from which meaningful events can be harvested. From here the data can be delivered anywhere in the organization as meaningful information (point B in Fig. 2), to allow users to improve their quality of life on the shop floor by automating certain activity analysis (point C in Fig. 2) and responses to deal with the event (point D in Fig. 2).
For example, the one responsible for the stock-taking process is an operator on the shop floor. Industry 4.0 can improve his workflow as follows:
- By delivering the information straight to the operating room where he mostly remains, he saves time to frequently check on the inventory status on the shop floor.
- It is unlikely that the operator knows the delivery times of new inventory beforehand. To mitigate this, some stock level targets based on current delivery promises should be incorporated. When the operator sees these thresholds are exceeded, the operator can decide to call in new stock on time.
- A further improvement is to integrate this inventory data directly into an information system. The information system can now do a simple check on stock level and threshold and decide to inform the operator to approve the replenishment of stock.
- The use of an information system can be further optimized by incorporating Artificial Intelligence. By monitoring the flow of stock, the time it takes to replenish stock, material prices, etc. will lead to patterns emerging. These patterns can be used to predict when new stock is required at the lowest cost and notify the operator for approval to replenish stock.
- Even this approval can be optimized, by just notifying the operator that soon stock will be replenished for him. His only interaction is that he can decide to cancel this replenishment for whatever reason.
The above examples show the increased incorporation of Industry 4.0 technology into the stock-taking process. It shows where the real potential value is with Industry 4.0 and what you still can do to get the most value out of your digitalized information.
Managing the scope of Industry 4.0
The examples covered both vertical and horizontal process integration into an existing process that provides the organization the ability to accelerate decision-making and rapid adaption to respond to events from primarily within the organization (in this example the change in inventory) and secondary outside the organization (the change in inventory price).
One step further is the end-to-end process integration that copes with events coming from outside the organization. For instance, acquiring events coming from customers or suppliers with the use of cloud and/or blockchain technology. End-to-end process integration is considered as the final innovation frontier where Industry 4.0 can be incorporated.
But how do you introduce Industry 4.0 to those processes?
Observing the organization as a collection of processes is a particularly useful way to get the most value out of Industry 4.0 as you can exploit this view to change processes. In fact, this paper from Davenport and Short titled The New Industrial Engineering: Information Technology and Business Process Redesign was published in 1990 and resembles a striking similarity on how nowadays Industry 4.0 value offerings can be introduced to the manufacturing industry. It is especially striking when you consider Industry 4.0 as a collection of technologies.
Lastly, this view of processes is not new to the manufacturing industry although it is mostly used to analyze the production process (PFD anyone?)³ while also other types of processes occur around the production process (e.g. check that stock).
Topics not yet touched
Many topics are not yet touched, especially if you consider Industry 4.0 as an organizational capability.
Keep in mind that all these different types of integration from different kinds of events require different kinds of technologies and organizational capabilities. I will cover those in a future story.
Lastly, Industry 4.0 changes the decision-making process within organizations, therefore it affects the functional areas within the organization as well. How will you introduce this to your organization? Is there a culture that embraces change? How do you have to introduce innovations to your organization?
Conclusion
If you still have the feeling that all of this feels quite familiar from the times that Industry 3.0 was trendy and you are convinced you are actually utilizing your digital information resources across your entire value chain, you might be right!
Because you probably Manage Your Information as a Product⁹!
The big difference between Industry 3.0 and Industry 4.0 is not the further automation of the production process, it is the automation of the information processing process. Information surrounds the production process for good reasons, without it there is a very inefficient production process (e.g. replenish that stock).
In that regard, Wang et al. were visionaries in 1998⁹ when they saw how manufacturers showed love for their product and figured out that organizations should treat their information the same way. Their advice is that organizations must understand their stakeholder's needs, appoint someone to oversee the production of high-quality information, and recognize that information is not just a by-product.
See you next time!
About me
On Medium I write about Industry 4.0 and its organizational implications. If you like this, please clap and follow me to get more stories like these.
In real life, I’m a curious, committed, and caring person to help industrial organizations.
I’m a creative and enthusiastic Industry 4.0 Consultant and Project Manager who gladly wants to contribute to team success, with attention to detail, deployment of excellent organization skills.
Need help with how your organization can deploy Industry 4.0? Feel free to contact me on LinkedIn.
References:
- Auer, J. (2018). Industrie 4.0 — Digitalisierung mildert demografische Lasten. Deutsche Bank Research, Deutschland-Monitor, p8.
- Wischmann, S., Wangler, L., & Botthof, A. (2015). Industrie 4.0. Volks- und betriebswirtschaftliche Faktoren für den Standort Deutschland. Eine Studie im Rahmen der Begleitforschung zum Technologieprogramm. Bundesministerium Für Wirtschaft Und Energie, p37.
- Davenport, T. H., & Short, J. E. (1990). The new industrial engineering: Information technology and business process redesign.
- Schuh, G., Anderl, R., Dumitrescu, R., & Krüger, A. (n.d.). Industrie 4.0 Maturity Index.
- Goldratt, E. M., & Cox, J. (1992). The goal: A process of ongoing improvement. Routledge.
- Kritzinger, W. (2018). Digital Twin in manufacturing: A categorical literature review and classification. IFAC PapersOnLine.
- Hackathorn, R. (2003). Minimizing Action Distance.
- Yes, this is how we got two PS5’s in our families.
- Wang, R. Y., Lee, Y. W., Pipino, L. L., & Strong, D. M. (1998). Manage your information as a product. MIT Sloan Management Review, 39(4).
