Brexit: The Catalyst For Change In Digital Supply

Pascal d’Arc

We are at the beginning of the Fourth Industrial Revolution for many industries, which brings incredible opportunities and challenges. Supply chains are becoming increasingly integrated, needing to meet the requirements of high customer demands for customization, rapid delivery, product reliability, and service quality. In addition, many markets are being disrupted with new technologies, business models, connectivity, autonomy, and so on.

The technologies being exploited across all industries include innovations such as autonomous robotics or cobots (where robots assist to create combined cyber-physical systems), artificial intelligence (AI), analytics, Internet of Things (IoT), mobile and wearable devices, augmented and virtual reality (AR/VR), additive manufacturing, and blockchain. Not only have these technologies matured to the state where they can affect most areas within many enterprises, but the continued reduction in costs in sensors, data storage, and computing power means their use will be increasingly pervasive and disruptive across most sectors.

The further catalyst of Brexit and the uncertainty it brings will no doubt trigger industry to mitigate the risks in global supply networks, and there are various strategic options open to each company. Companies can use the Brexit catalyst to reinvent their business models, products and services, and the core operating model by leveraging Industry 4.0 technology. It is generally agreed that supply of goods and services will likely be more challenging post-Brexit when sourcing from the EU. This disruption may be in the form of delays due to customs processing or regulatory compliance checking and/or increased costs due to tariffs.

Mitigate and accelerate a clear path to the future

While in some scenarios Brexit may cause some economic headwinds, overall the demand for goods and services domestically and opportunities for global export of goods and services are likely to remain relatively strong. The UK market contains a high degree of skills/capabilities, education, and history for invention. While the UK cannot operate in isolation, nor should it, the UK is well placed to reinvent how it will fulfill its needs as the nation undergoes disruptive events. Meanwhile, the UK government is expected to continue to support innovation and address the challenges and opportunities at reducing the “friction” for trade in goods and services.

Much has been made, rightly, of the concern that manufacturers, particularly original equipment manufacturers (OEMs) with large exports to the EU would simply relocate manufacturing and R&D facilities. While that is indeed possible, there are also opportunities to exploit Industry 4.0 technologies, to mitigate the potential challenges post-Brexit, and also to drive opportunities for the UK.

1. Exploiting the technology to mitigate the challenge of possible Brexit impact

Where supply chains are already complex, increased visibility throughout the supply chain and closer monitoring of risk are becoming more common. These capabilities are being established in leading manufacturers, where powerful analytics combined with full visibility through supply chain tiers can give predictive availability of parts, allowing optimized scheduling and inventory control. Enhanced integration from OEMs through multiple tiers will be increasingly required to give real-time visibility throughout the chain.

Increased deployment of blockchain solutions enhances frictionless, secure transactions and smart contracts, minimizing paperwork and effort to manage compliance with increased regulations. While it’s early days for blockchain adoption outside of financial services, almost all major manufacturing organizations have ongoing work in this area.

In addition, greater flexibility in the manufacturing base enables switching of sources and uses localized additive manufacturing techniques to rapidly respond to supply issues. Many manufacturing organizations are set up to economically produce in large batch sizes, from the automotive sector, to glass manufacturing, to textiles. Across all sectors, increased demand for customization requires a more flexible and economically viable ability to produce smaller and custom items locally.

2. Accelerating opportunities for growth

Closer clustering of innovative enterprise has been shown to drive innovation and, for some companies, this will mean bringing their domestic manufacturing and supply chain back closer to their headquarters. Some manufacturers are considering re-shoring labor-intensive work but would need highly productive “smart facilities” to do so. New advanced technology clusters, such as the High Value Manufacturing Centres in the UK, have demonstrated a transformative effect for local industry and the ability to attract inward investment. For example, critical Just in Time (JIT) supply chains in the automotive sector may increase the demand for suppliers to provide local capability rather than providing products and services from mainland Europe.

From a national perspective, there are opportunities to leverage world-leading capabilities in the UK and drive export potential. We have a leading position for example in aerospace, pharmaceuticals, and biosciences; technology is vital to securing and further developing these strengths. In securing these industries, we can accelerate the development of a range of Industry 4.0 capabilities, which in itself can be a source of opportunity for export or drive inward investment.

3. Disrupting the business model

Brexit may also act as an accelerator for the trend of “servitization,” where the traditional market for selling products transforms into a market for services. This is already prevalent in some areas. For example, in the aerospace industry, engine OEMs have developed a “power by the hour” model for servicing, while in oil and gas markets, some providers offer availability-based services, and in automotive, there is a trend towards leasing and ride-sharing options.

However, this model is not always deeply penetrated across the value chain. In aerospace, while the engine OEMs have successfully developed cutting-edge product health monitoring underpinned by connectivity, powerful analytics capability, and financing, many others in the value chain do not have the same access to data about their equipment usage. Blockchain may offer the potential to create an end-to-end value chain of data being shared, exploited, and monetized for the mutual benefit of all in the chain. Full lifecycle traceability that integrates multiple players in the product lifecycle – from raw material through end of life – will become increasingly important. Companies may use this data to drive improvements in products and services, whereas others may simply provide data insight and analytics services.

In the scenario post-Brexit, where the physical transfer of goods becomes costlier or is delivered more slowly, companies may move towards a more distributed manufacturing model, with flexible manufacturing closer to customers and away from more narrowly focussed centers of excellence. Some may go further and no longer manufacture, but license the manufacturing to others using additive manufacturing technologies. This is becoming more prevalent across all sectors, exploiting the potential of advanced computer-aided design (CAD) systems to create more sophisticated geometries that can be manufactured at reasonable cost while offering superior performance to more traditional designs.

4. Managing complexity

Customer demands for customized products create significant operational challenges for many organizations. The proliferation of products and their variants can drive volatility in the organization and supply chain, with fast-moving changes needed to respond to shifts in demand, including rapid reconfiguration of products and associated data flow through the value chain.

Having traditionally been organized around driving volume of less varied products through their facilities, many companies are finding that their current systems, processes, and manufacturing methods simply are not suited to the more flexible varied approach. Underpinned in some cases by aging systems, change either cannot be adopted at the rate required by the customer or it comes at significant cost internally and across the supply chain.

In order to manage this complexity and increased variety in product mix, a more responsive, fully integrated set of executive systems will be needed across many industries. Design systems will need to be closely integrated with ERP and manufacturing execution systems to manage change and will need to integrate with service data to drive product performance and improvement. Planning systems will need to be cognizant of significant amounts of external data to drive true optimum performance across the value chain. So not only will organizations need to have better systems for finance, engineering, manufacturing, services, purchasing, and so on, they will need to integrate these systems and allow for critical data flows to be considerably accelerated. Once these flows are better established, significant value can be harvested.

Accelerate and thrive

While we have significant uncertainty in the manufacturing sector as we approach Brexit, there are opportunities as well as challenges. Combined with the increasing disruption across sectors, organizations can accelerate their investment and use of technologies to strengthen their digital core to create an integrated set of enterprise systems; play a part in creating wider ecosystems which remove friction in transactions and give visibility throughout the supply chain; and deploy powerful analytics to properly assess risk and optimize planning to deliver correct performance and minimum cost and risk.

In this disruptive time, those who move fastest and smartest stand to gain significant advantages.

Written in collaboration with Chris Courtney, senior manager at Deloitte and Jan-Hendrix Stricker, head of Value Engineering EMEA North at SAP Ariba.

Pascal d’Arc

About Pascal d’Arc

Pascal is a senior director in SAP Ariba’s Centre of Excellence bringing innovative solutions to help customers find new areas of competitive advantage under the vision of #BusinesswithPurpose.