Henry Ford, Industry 4.0, And A Recovery For Manufacturing

John Robinson

Register for a webcast for midsize businessesThere is a quote attributed to Henry Ford that I think holds the key to the future success of manufacturing. It may even change our thinking during the current crisis and provide the basis for successful recovery, digital transformation, and the adoption of Industry 4.0. And perhaps it can unlock significant value from an organization’s legacy investments.

Now, these are bold and potentially career-ending statements. So, before I tell you the quote I am referring to, I need to provide the context and the rationale behind such a claim.

To understand where we are today, we first need to look back to see where we came from.

Historic trends in manufacturing before Industry 4.0

Over the past 30 to 40 years, global manufacturers have followed four major trends in parallel that have been aimed at improving their manufacturing performance:

1. Strategy

In its simplest form, manufacturing strategy is essentially what to make, how to make it, and where to make it. Strategy is influenced by a huge range of internal and external factors. Pre-2020, the typical examples I used to illustrate strategic influences were sustainability, the circular economy, Brexit, changing consumer behavior, disruptive business models, trade wars, emerging markets, workforce skills, labor, energy, and material costs.

Strategic factors drive mergers, acquisitions and divestments, new market entry, new product development, and capital investment in manufacturing facilities.

The objective is to gain a competitive advantage from manufacturing operations in whatever form that takes for the organization in question, such as increased market share, cost reduction, product quality, shorter time to market, and product innovation.

A look at any global manufacturer’s history will provide an example of this trend. Clearly, the current crisis will have the biggest impact on manufacturing strategy we have ever witnessed.

2. Operational excellence

The second major trend has been the introduction of operational excellence programs. Most major manufacturers have their own internally branded methodology, but the core principles can be traced back to the fundamentals of Taylor, Ford, Shingo, Toyota Production System, LEAN, Six Sigma, and Theory of Constraints.

Examples of these tools and techniques can be seen in action during a walk around most production facilities.

3. Information technology 

The third major trend aimed at improving manufacturing performance has been the investments made in information technology. Here, I am referring to the solutions that typically fall into the domain of the CIO and the IT department: ERP, CRM, and SCM applications, IT infrastructure, networks, and platform standards, to name just a few. These enterprise-level IT systems have a huge impact on manufacturing performance because they are the solutions that run the supply chain outside of the “make” activities. They capture demand, plan production, procure raw material, manage work in progress (WIP), store finished product, and transport it.

4. Operational technology

The fourth major trend has been the investments made in operational technology. Operational technologies are the solutions that perform the “make” activities inside the four walls of the factory, and this is normally the domain of the engineering department. OT includes instrumentation, measurement and control, automation, PLCs, HMI, SCADA, DCS, historians, APC, batch control, MES, LIMS, and OEM equipment. These investments are centered around capacity increases, quality improvements, process optimization, labor savings, and waste reduction.

The results: falling short of expectations

Most organizations can see clear improvements in manufacturing performance that are directly attributable to each of the four investment areas. Manufacturing has made huge strides during this time period and is clearly far more efficient and effective than it was.

However, the overwhelming feedback is that none of the four investment areas have fully delivered on their potential. The manufacturers didn’t quite achieve the level of manufacturing performance improvement they expected, and their current KPIs show that there is room for improvement.

Why is this the case? In a word: silos. Not just internal departmental silos in the manufacturer’s own organization but silos in the external ecosystem of suppliers.

Internal silos

Let’s begin by looking at the internal dynamics inside a typical manufacturer. The strategic manufacturing goals and objectives are cascaded down from CXO level to plant directors and manufacturing teams. The operational excellence program provides the principles, tools, and methodologies for manufacturing to utilize in the pursuit of performance improvement. And the business looks internally to IT and engineering functions for solutions that will provide both the information and processes needed to support manufacturing’s objectives.

As mentioned previously, IT provides many of the core Level 4 solutions in the classic ISA95 model. On a typical manufacturing site, it is IT solutions that provide the production planning, warehousing, logistics, and financial reporting systems. The choice of technology, vendor, and implementation partner and the budget normally rest with IT.

Meanwhile, OT is the domain of engineering: process, chemical, mechanical, electrical, and automation engineers, to name just a few. These are the people who design and build new production facilities, whether it is a car production line, soft drinks, chemicals, or pharmaceuticals. The choice of technology vendor, implementation partner, and budget normally rest with engineering.

In my 30 years of experience, IT and engineering have not collaborated particularly well. In many cases, they appear to be in competition, as they champion different solutions to solve the same business problem. At times, there also appears to be a lack of understanding of their respective domains. This is understandable, as the roles within each domain have their own full-time education and career paths. The example I often use to illustrate this point is their respective interpretations of the term “‘real-time.” Real-time in the world of IT is a transaction. Something has moved from A to B and has a different value (e.g., WIP). In the world of OT, real-time is usually millisecond scans on a process to ensure it is in control.

The net result is that these internal frictions and challenges often leave manufacturing operations without the solutions they need to hit their goals, and the overall results tend to plateau below expectations.

External silos

Let’s look at the dynamics of the external ecosystem of suppliers.

The dominant players advising on strategy in the C-Suite are the “pure” consulting firms, such as McKinsey, BCG, Bain, AT Kearney, and Bearing Point. In addition, there are the “Big Four” advisory arms and the consulting arms of the large system integration companies.

In the traditional IT ecosystem, you will find the major enterprise software application vendors, their integration partners, and a wide range of hardware and platform providers. But in the OT ecosystem, we find a very different set of hardware and software vendors because the implementation partners differ and OT is also where we find the OEMs. Yet, the operational excellence ecosystem is largely populated by consultancies that provide professional services that specialize in teaching and implementing operational excellence techniques and programs.

In many respects, the external ecosystem of suppliers is a mirror image of the silos found inside manufacturing.

My experience leads me to believe that there are very few manufacturers that have truly broken down both the internal and external silos and fully optimized their investments in these four areas. The point to emphasize here, however, is that what we are still discussing is Industry 3.0. In recent years, the picture has become more complicated by the advent of a fifth global trend, Industry 4.0.

The emergence of Industry 4.0

The past decade has seen the emergence of a range of disruptive technologies such as AR/VR, AI/ML, IoT, 3D printing, and several others. When grouped together and applied in a manufacturing context, we have the basis of Industry 4.0.

The Industry 4.0 market, however, is emerging and immature. The Industry 4.0 “white space” is being entered by most of the established strategic consultancies as well as the traditional IT and OT ecosystem players. This area has seen the emergence of the hyperscalers together with a large number of startups. Acquisitions, mergers, and failures are a regular occurrence, and this will continue to be the case until the market consolidates.

This is an exciting area to be involved in, and I genuinely believe that the potential value Industry 4.0 offers manufacturers is enormous. My prediction, however, is that on our current path, investments in Industry 4.0 will also fall short of expectations. They will be investments that again under-deliver against both their potential and promise.

Why? Silos still persist.

The traditional pre-Industry 4.0 internal and external silos are still largely intact. The players are still grouped into their traditional domains and following their established business models. We now have the added complication of a fifth silo in Industry 4.0, which is certainly blurring the lines but also making the challenge more difficult for manufacturers.

An audit of a typical manufacturing facility will illustrate the large number of players who currently have an influence on manufacturing performance. However, solving this problem is challenging but not impossible.

The solution

Most articles currently being published recognize that a major rethink of global manufacturing supply chains is required in what is being termed “the new normal.”

It is my contention however that radical change and a new way of working should not just apply to manufacturers. It should go much further and apply to the entire ecosystem of external suppliers. We must break down the competency silos and the competitive “arms-length” way of working.

Success will be delivered through collaboration and coopetition.

The facts are that each external supplier has significant value to add to bring to the equation. Clearly there are some areas of overlap but, once the competitive process is completed, there is no reason not to cooperate, as that is in everyone’s best interests.

And while this crisis has been a monumental shock to us all, it has highlighted the need for huge change in manufacturing. It seems illogical to expect manufacturing to successfully execute a paradigm shift while the external ecosystem of suppliers remains unchanged.

So what is the quote from Henry Ford that encapsulates the message I am trying to convey to both the manufacturers and the supplier ecosystem alike?

“If you always do what you’ve always done, you’ll always get what you always got.”

In this time of uncertainty, we are opening access to technologies that can help employees, companies, communities, and governments continue to move forward.

John Robinson

About John Robinson

John Robinson is currently responsible for development of the Industry 4.0 go-to-market strategy for the northern region of Europe, Middle East, and Africa at SAP. Prior to joining SAP in June 2019, John’s career included senior roles at EY, Atos and Schneider Electric. His client experience includes most of the world’s largest manufacturers across all sectors and provides him with a unique insight into the challenges of digital transformation in manufacturing.