Industry 4.0 And The Digital Supply Chain

Mike Lackey

Part 1 of a 4-part series

Industry 4.0 is often equated with the idea of the smart factory. Manufacturers, it is said, can use intelligent technologies to automate and optimize the shop floor – thus producing more at lower costs and with less waste.

This is true as far as it goes – but companies that want to fully capitalize on the potential of Industry 4.0 are going further.

What always comes first in any business is the customer. Leading companies know that to keep today’s customers, they need to consistently deliver brand experiences that excite and inspire. Part of the brand experience is the product experience – which relates to manufacturing. But even with an exclusive focus on operations, there is so much more involved in the brand experience – such as on-time delivery, responsiveness to demand, and new business models that make life easier.

The digital supply chain – from design to operate

One critical aspect of any business that can help companies fully deliver on their Industry 4.0 aspirations is the digital supply chain. Spanning design, manufacturing, asset management, and logistics, the digital supply chain can be deployed to play a critical role in ensuring positive customer experiences. But to get there, leading organizations are integrating the digital supply chain across traditionally siloed business areas that include R&D, manufacturing, supply chain planning, logistics, and aftersales service and maintenance.

The goal is to connect everything digitally to perfect operational reality as much possible. Here is a quick overview:

1. Design with the customer in mind

In the design phase, organizations need this level of connection to monitor trends and innovate in the direction customers want. Increasingly, organizations want to design smarter, Industry 4.0-enabled products and assets that have built-in sensors to capture real-time data once they are in use in a live environment. It’s also important to think in terms of compliant product lifecycle management – which requires product development to be integrated into the supply chain from the beginning.

2. Plan with visibility across silos

To be more responsive and reduce the time of planning cycles, organizations need to connect across departmental silos for a unified view of real-time supply and demand that helps balance inventory and service levels. To speed planning cycles and react faster to change, planners want synchronized planning processes that break down silos and tools to quickly run simulations for better decision-making.

3. Manufacture with flexibility, speed, and efficiency

When it comes to manufacturing, sophisticated digital supply chain capabilities and greater connectedness can help organizations increase shop floor visibility, identify process bottlenecks, and manage operations with greater agility. This, in turn, facilitates smart factory capabilities where rigid production lines are transformed into flexible manufacturing cells – making it possible to shift from mass production to mass customization.

4. Deliver on time

The delivery phase is a critical aspect of the supply chain that can make or break the customer experience. With Industry 4.0 capabilities, organizations can streamline logistics and ensure better delivery experiences. Connected vehicles, for example, can optimize delivery routes based on real-time weather and traffic conditions, support real-time tracking, and monitor conditions such as the temperature in freezer compartments. Next-generation warehouse technology, meanwhile, can leverage robots and augmented reality to assist staff, increase productivity, and get the goods to customers faster.

5. Operate with new business models

Finally, many organizations are transforming the operating phase with IoT-connected assets that plug directly into the digital supply chain. This helps drive new business models where the manufacturer owns the asset and charges the customer for usage, uptime, or some other metric. With such a model, the onus is on the manufacturer to provide the most-cost efficient maintenance – which is now possible with advanced analytics that help companies monitor asset health, predict issues, and respond proactively.

Toward a supply “brain” for the intelligent enterprise

The notion of a supply “chain” stems from military ideas of how supply moves from one point to the next in a sequential order where each point is interlinked. As such, the “chain” metaphor is apt. But such a supply chain is also rigid – which makes the metaphor not so apt for an economy where flexibility and responsiveness are key.

Instead, the digital supply chain that is integrated from design to operate as described acts more like a network – or a brain. The idea is that visibility, communication, planning, analysis, and execution are all orchestrated across critical operational phases based on real-time inputs and requirements. Work and data flows span functional silos – leading to greater flexibility and consistency. Benefits include reduced financial and operational risk through early detection and greater customer satisfaction through quicker resolution of issues.

Ultimately, it is this supply brain that powers the intelligent enterprise. It enables the use of intelligent technologies that drive change. IoT, for example, can be used to drive predictive (and prescriptive) maintenance. Machine learning can help detect fraud. 3D printing can bring production closer to the customer. Blockchain can be used to track and trace goods in a transparent way that garners everyone’s agreement.

With intelligent technologies like these, intelligent enterprises are able to overcome the challenges of a volatile and complex digital economy and deliver the kinds of experiences the customers expect.

Stay tuned for more blogs in this series, where we will explore the notion of Industry 4.0 and the digital supply chain in the context of manufacturing, asset management, and logistics.

Download the IDC report “Leveraging your intelligent digital supply chain” to find out how an end-to-end digital supply chain – from design and planning to manufacturing, logistics, and operations – addresses the operational pressures of shorter product cycles, design variability, fluctuating demand, and faster delivery expectations. 


Mike Lackey

About Mike Lackey

Mike Lackey is VP of Solution Management at SAP.