Imagine you’re a trader on the floor of the New York Stock Exchange. Every morning, you check the prices of the stocks that you’re interested in, and you act on those numbers, not checking them again until the end of the day. Your competition, on the other hand, is using real-time information to inform their trading decisions. Which technique seems more likely to yield a profitable trading strategy? Your knee-jerk reaction is probably that you’re going to lose money virtually every day, because your competition has a more accurate picture of the real financial landscape while you’re using information that’s obsolete virtually as soon as you set foot on the trading floor.
It’s long been an open question in the world of business: which is a bigger hurdle, planning or execution? As the global supply chain has become more sophisticated, however, we’ve gotten a wealth of evidence that for the majority of companies, execution is the more frequent stumbling block. In an informal poll a few years ago, Dick Ruhe at Blanchard found that 76% of the more than 300 respondents said that the most common experience at their company was "good planning and poor execution" (compared to just 4% who said "good planning and good execution", 8% who said "bad planning and bad execution", and 13% who said "bad planning and good execution"). Though these statistics don’t speak to supply chain management in particular, they do give an accurate sense of how difficult it can be to put even a well-conceived business or production plan into action.
Industry 4.0 is already radically changing the global manufacturing landscape; so much so that Deloitte estimated that as many as half of the S&P 500 firms would be replaced by 2027 due to digital disruptions. Prognostications like this lend a sense of urgency to discussions of the adoption of Industry 4.0 principals like interoperability and cyber-physical integration. What many forget, however, is that it’s not technology alone that determines a company’s long-term staying power. Rather, it’s the customers who ultimately determine the success or failure of a given business.
No matter how sophisticated your methods, or how intimate your knowledge of the field, no demand or sales forecast will ever be 100% accurate. Just as supply chain disruptions are simply a fact of life in the world of manufacturing, deviation from a your expected outcomes are unavoidable. Given this state of affairs, you may be wondering if it’s worth expending resources on improving forecast quality. This feeling is understandable, but while there will always be a gap between expectations and reality, the rise of Industry 4.0 has improved our ability to predict future outcomes. With modern IT solutions and business processes, it’s possible to escape the past-oriented planning models of yesteryear (which fail to account for future developments) and drive towards a more future-oriented approach.
Imagine for a moment that you are the supply chain planner for a company that manufactures parts for automotive production with major clients overseas in Asia. To save money on shipping costs, you accept the long lead times associated with ocean shipping over air freight and send a large shipment of parts by boat. Once the parts have already been shipped, your demand planners revise their demand estimates and it becomes necessary to ship a large number of parts by air at great expense in order to meet the new demand estimate. By not assessing demand accurately before shipping, your company has left significant value on the table and incurred significant additional shipping costs.
At a recent event, renowned consulting firm Deloitte revealed the results of a survey showing that only 14% of C-level executives were highly confident in their readiness to utilize Industry 4.0 principles to their maximum advantage. While other surveys have shown similar anxieties to exist throughout many different spheres of global manufacturing, we at the flexis blog believe that the new changes surrounding so-called smart factories, though significant, become less daunting as one learns more about them. After all, this new technology is explicitly meant to make life easier for businesses. In the spirit of demystifying the new global technological landscape, here are a few things you might not know about Industry 4.0:
Imagine for a moment that you’re on a flight from London to New York. You probably take It for granted that someone has charted an appropriate route at an appropriate altitude based on weather and air traffic patterns, and that departure, arrival, and flight time have all been carefully calculated based on past flights and current conditions. At the same time, no matter how much planning has gone into a flight, you probably also take it for granted that there is a pilot in the cockpit, measuring real-time information with her instruments and communicating with air traffic control to make necessary adjustments and course corrections as new scenarios emerge.
If you had walked onto a factory floor during the second or third industrial revolution, it would have been immediately obvious what was so modern about what you were witnessing. You would have seen raw parts being turned into complex products on a moving assembly line, or newly automated processes making use of modern industrial machinery and early computer networks. In the world of Industry 4.0, the so-called “fourth industrial revolution,” the differences in appearance might be more subtle. You might still see a mix of manual labor and automated, computerized systems carrying out various production tasks, while many of important innovation brought about by Industry 4.0 might remain invisible to you. You might even be prompted to ask, “what’s so modern about modern manufacturing?”
Imagine for a moment that you’re an employee at an automotive manufacturing company. Every year of two, the owners create and share a strategic vision for the long-term future with management. Managers, in turn, create shorter-term plans of several months to put the longer-term vision into practice with Sales and Operations Planning (S&OP). As an employee, you manage your day-to-day tasks in accordance with those plans, responding the small crises of the workday with whatever resources and insights are available to you. Perhaps in responding to these situations, you find yourself wishing that there was something to bridge the gap between S&OP and those day-to-day processes. Sales and Operations Execution (S&OE) is that bridge, and it represents the path to the most responsive possible supply chain.
Ask anyone in the manufacturing industry: No matter how hard you try, disruptions, exceptions, and bottlenecks are just part of the business. In today’s global, complex automotive supply chain where demand planning and production programs often shift and change depending on a wide range of variables and elements - everything from the availability of component parts to labor to facility capacity and job scheduling - the ability of manufacturing companies to respond and weather these variables is critical to remain competitive in an increasingly crowded landscape.
But to help mitigate the risks associated with global manufacturing, companies have a new tool at their disposal: sales and operations execution (S&OE). Coined in the last few years by supply chain industry publication Gartner, S&OE acts as a demand planning supplement or safety net to detect the possibility of bottlenecks or breakdowns in larger-scale planning platforms. This in turn allows planners and managers to create and deploy solutions to these disruptions to enhance each touchpoint of a company’s overall value chain.