Digitisation in the manufacturing industry
Manufacturing in the UK is well overdue a boost. Its contribution to the country’s GDP has progressively shrunk since Britain was the workshop of the world, and now accounts for just 10 per cent of our output, overtaken by the burgeoning service sector.
Any good news tends to focus on short-term successes, and even these are usually caused by external factors. The slump in the pound since the Brexit vote, for example, may have helped fill the order books, but more concerning are long-term structural problems such as the perennial productivity problem that sees UK workers take 25 per cent longer to create the same value as their continental counterparts.
Yet there are reasons to be very confident of a manufacturing renaissance. First, the sector still ranks highly in the international rankings, with the UK moving up to eighth in the world league of manufacturers, and is now worth £185 billion annually to the economy. Secondly, and more importantly for manufacturing’s long-term health, digital technology promises transformational improvements everywhere from the production line to logistics networks.
Of course, these technologies are available to every manufacturer across the world, which is why UK businesses must race to embrace digitisation to stay competitive. Below we outline the key digital developments that every manufacturer needs to be aware of in 2018.
Internet of Things – Connected devices are set for a global boom, and no single sector will drive this uptake more than manufacturing. According to IDC, the global market for Internet of Things (IoT) technologies will rise by 15 per cent this year, and will be worth a trillion dollars by 2020.
This year, manufacturers will account for $189 billion of IoT spending as businesses look to implement the “Fourth Industrial Revolution”. Just as steam, electronics and computing each revolutionised the way we made goods, so the IoT will introduce smart technologies that will greatly improve and streamline the manufacturing process.
Used intelligently, IoT promises to transform every area of manufacturing – from operations such as asset management and machine maintenance to planning, quality control, and field service. Perhaps the most interesting and far-reaching change, however, will be the ability to provide mass customisation, enabling manufacturers to provide tailored offerings in everything from vehicles to clothes.
To achieve this, manufacturers need to implement smart production lines and IoT-enabled supply chains to react faster to customer requirements, and so deliver these higher-margin items.
AI and machine learning – The adoption of IoT will bring manufacturers enormous volumes of data, but this can only be of use to them if they can turn the information into insight, and then apply it to their operations. Artificial intelligence (AI) and machine learning are the crucial technologies in the digitised factory, enabling a host of benefits.
We’ve already seen how connected devices will enable manufacturers to introduce much greater customisation, but doing so depends on a huge range of other factors such as insight into consumer desires and behaviour, supply chain optimisation, dynamic pricing and optimising operational efficiencies.
Machine learning and AI provide the digital brain without which almost every digital initiative is doomed to failure. Space precludes a full discussion of the benefits, but they include increasing production capacity and lowering material consumption rates through more intelligent resource use, predicting customer demand, and enabling all business departments – from factory floor to finance – to work more effectively together.
These technologies will also be crucial as organisations move towards “manufacturing-as-a-service”, a fundamental change in centuries-old business models that will see manufacturers concentrate on delivering greater lifetime value to, and revenue from the customer through ongoing services and subscriptions.
Smart factories – Like a watch, effective manufacturing relies on the smooth functioning of many independently-operating yet interconnected parts. Traditionally, businesses have relied on Manufacturing Operations Management (MOM) software, a combination of ERP and PLM functions for the factory floor.
Legacy versions of this technology suffer from the inability to manage production processes in real time. The next stage in MOM’s evolution will be much greater integration with organisational data – including from connected devices – to tie together production, resources, supply chain, maintenance and human resources into a single system.
Having this comprehensive overview of operations gives manufacturers and managers all the data they need to make informed decisions to make production and other business processes more efficient. It also enables them to be more responsive to changes in the market, consumer demands, or fluctuations in the price or availability of resources, while ensuring that every worker from the shop floor to the manager’s office has the data they need to do their job.
Digital supply chains – We have already touched on how new technology will bring improvements to the supply chain, but “manufacturing 4.0” will require a root-and-branch reform of the existing, silo-based approach.
To create the digital factory of the future, manufacturers will need to integrate their entire supply chains – not just from sourcing the raw materials to shipping the finished product, but also incorporating every stage of the product lifecycle. This requires manufacturers to bring together multiple business functions such as marketing, product development, planning, logistics, and production, and to tie together the systems and technologies on which each relies.
The goal should be to create a supply chain ecosystem where the relationships between different parts of the “machine” are affected by changes or events elsewhere in the system. This insight will not only provide manufacturers with a real-time overview of every link in the supply chain, but will enable them to model – or simulate – different scenarios, ensuring that they are fully prepared for whatever the future holds.
Roberto Busin is a Partner at Manufacturing Europe and Switzerland Country Head.
IMF: Variants Can Still Hurt Manufacturing Recovery
After a year of on-and-off manufacturing in the US, UK, and the eurozone, demand for goods surged early last week. Factories set growth records in April and May, suppliers started to recover, and US crude hit its highest price point since pre-COVID. As vaccination efforts immunise much of the US and UK populations, manufacturers are now able to fully ramp up their supply chains. In fact, GDP growth could approach double-digits by 2022.
Now, the ISM productivity measure has surpassed the 50-point mark that separates industry expansion from contraction. Since U.S. president Biden passed his US$1.9tn stimulus package and the UK purchasing managers index (PMI) increased to 65.6, both sides of the Atlantic are facing a much-welcomed manufacturing recovery.
Lingering Concerns Over COVID
Even as Spain, France, Italy, and Germany race to catch up, and mining companies pushed the FTSE 100 index of list shares to a monthly high of 7,129, some say that UK and US markets still suffer from a lack of confidence in raw material supplies. Yes, the Dow Jones has made up its 19,173-point crash of March 2020, and MSCI’s global stock index is at an all-time high.
Yet manufacturers around the world realise that these wins will be short-lived until pandemic supply chain bottlenecks are solved. If we keep the status quo, consumers will pay the price. In April, inflation in Germany reached 2.4%, and across the EU’s 19 member countries, overall prices have increased at an unusual pace. Some ask: Is this true recovery?
IMF: Current Boom Could Falter
Even as Elon Musk tweeted about chip shortages forcing Tesla to raise its prices, UK mining demand skyrocketed; housing markets lifted; and the pound sterling gained value. The International Monetary Fund (IMF), however, cautioned that manufacturing recovery won’t last long if COVID mutates into forms our vaccinations can’t touch. Kristalina Georgieva, Washington’s IMF director, noted that fewer than 1% of African citizens have been vaccinated: “Worldwide access to vaccines offers the best hope for stopping the coronavirus pandemic, saving lives, and securing a broad-based economic recovery”.
Across the globe, manufacturing companies are keeping a watchful eye on new developments in the spread of COVID. Though US FDA officials don’t think we’ll have to “start at square one” with new vaccines, the March 2021 World Economic Outlook states that “high uncertainty” surrounds the projected 6% global growth. Continued manufacturing success will in large part depend on “the path of the pandemic, the effectiveness of policy support, and the evolution of financial conditions”.
Mathias Cormann, secretary-general of the Organisation for Economic Co-Operation and Development (OECD) concurred—without global immunisation, the estimated economic boom expected by 2025 could go kaput. “We need to...pursue an all-out effort to reach the entire world population”, Australia’s finance minister added. US$50bn to end COVID across the world, they imply, is a small investment to restart our economies.