Supply Chains and Industry 4.0: The Perfect Match?

Industry 4.0.

Sure, it sounds like something straight out of a science-fiction movie, but major technological advancements in manufacturing and industrial fabrication – especially throughout Europe, and particularly in Germany – have made the Industry 4.0 concept less fictive and more scientific in revolutionizing the automotive manufacturing industry.

While the benefits for the manufacturing sector have been discussed at length in recent years, the potential implementation of Industry 4.0 into supply chain logistics could have a massive impact on supply chain processes and supply chain planners (SCPs) as the movement becomes more and more integral in today’s global supply stream.

In a previous article, we discussed the supply chain trends and hurdles SCPs will have to face as we move through 2016.

While the incorporation of Industry 4.0 and its effect on the entire supply chain spectrum may not be as immediate as other issues, the possibilities it presents in driving value, increasing supply chain agility and transparency, and enhancing integrated reporting and forecasting capabilities make it a worthy discussion to have now rather than later.

Simply put, Industry 4.0, should it be incorporated into more and more supply chain planning models, could very well be a perfect match.   

Defining Industry 4.0

So, what exactly does this term mean? What are the key elements of Industry 4.0? How does one define it?

Coined as the "fourth wave of the Industrial Revolution" following the advent of the steam engine, conveyor belt, and early automated IT systems and processes, Industry 4.0 is a movement to promote the computerization and integration of smart systems across all points of the manufacturing sector. For many in the manufacturing industry, Industry 4.0's endgame is a 'smart factory' wherein integrated software solutions run and administer all parts of production. 

For example, think of it as a system of iPhones that can communicate with each other without human interaction, sending messages back and forth and exchanging data to achieve a certain goal. Via the internet or some other integrated network, each device or machine will have the ability to work autonomously, making production decisions and tracking outcomes instantaneously without the assistance of workers on an assembly line.    

It’s not hard to see the benefits for the automotive industry at large, which has for decades been relying on an assembly line system monitored by rotating shifts of workers. It's believed the implementation of Industry 4.0 will streamline efficiency, reduce costs, and potentially decrease the likelihood of mass product recalls, an issue that has plagued the automotive industry as of late.

Where Do Supply Chain Logistics Fit In?

If driving value, reducing costs, and streamlining processes are benefits for the automotive manufacturing sector, it’s not difficult to see how similar return on investment (ROI) opportunities could present themselves in terms of supply chain logistics and management. 

With seamless communication and real-time data generation and reporting, here are three potential benefits Industry 4.0 could offer SCPs:

• Big Data: Yes, this is one of the trends we discussed in our article about what to look forward to in 2016, but Industry 4.0’s ability to provide SCPs with curated, shareable data on supply levels, inventory readings, supply or transportation simulations, and more could not only give SCPs a leg-up on avoiding bottlenecks and troubleshooting potential warehouse or port holdings – particularly in the event of a port strike or inclement weather events – but it could also provide SCPs with the most detailed, up-to-date data on cost-effectiveness and other value-added propositions that result in sound and profitable decision-making.
• Transparency/agility: So, now that Industry 4.0 has provided the most in-depth reporting to date, how could that impact supply chains, sales and operations planning (S&OP), and enterprise resource planning (ERP)? Simple: having everyone on the same page, with access to detailed data and intelligent planning and forecasting systems, can only lead to increased communication across all levels of the supply chain management (SCM) spectrum. In addition, with increased communication and understanding of the impact of this data comes greater agility to troubleshoot supply or transportation problems, which could also have an impact on a company’s sales division as well – an understanding of inventory and current product holdings can help guide sales campaigns and vice-versa.
• Cost reduction and efficiency: If Industry 4.0 can reduce production costs and increase efficiency and quality at the manufacturing level, then wouldn’t it stand to reason the same could be said at the supply chain planning level? The decision to incorporate Industry 4.0 principles into an intelligent planning system or model will not only help drive value-added decision-making by reducing wasted time, manpower, and resources, but the capacity to capture Big Data and conduct instant, detailed analysis of that data could be a game-changer for SCP’s in leveraging freight costs, moderating supply levels, and increasing ROI, especially as integral supply hubs become more spread out across the globe.

Is Industry 4.0 Worth it for SCPs?

We’re not quite there yet. Industry 4.0 is still in its early evolutionary stages in the automotive manufacturing sector, and we’re still a ways off from the so-called ‘smart factories’ a number of German OEMs hope to see come to fruition in the years to come.

And yes, the initial costs and complications – both financially and from a manpower or resource standpoint – of adopting Industry 4.0 into SCM, Integrated Planning, or Material Management systems may be substantial, but if the trends toward intelligent planning systems, transportation management systems, and other smart supply chain software solutions is any indication about the potential for growth and success, SCPs would be well-advised to keep Industry 4.0 on their radar in the coming years.