Market insights

What Industry 4.0 means for future businesses

13 February 2017 by Frans Kok

Industry 4.0 is set to change the very way businesses operate. In an exclusive interview, Frans Kok, General Manager of AEB Asia Pacific, a leading provider of IT solutions for supply chain and logistics, shares his thoughts on what the future may hold.

Frans Kok, General Manager of AEB Asia Pacific

1. Industry 4.0 proposes a very exciting vision for companies of the future, but implementation is still in its infancy. Do you think that companies understand why digital transformation through Industry 4.0 is relevant to their future strategies?

In the current climate, organisations understand the need to increase their competitive edge by providing customers with shorter delivery times, 24/7 operations, and customised service. Many companies face challenges such as volatile and sluggish market conditions, on top of labour shortages. Automation will reduce the need for repetitive tasks and open opportunities for higher-level roles for people working in manufacturing environments, helping to address many issues. Adopting Industry 4.0 is not only for the sake of competing. Eventually, it will be essential for survival.

It’s only a matter of time before the hardware and software that links equipment together on the factory floor are applied for a more seamless and flexible production line. As German Chancellor, Angela Merkel, has eloquently summarised: “everything that can be digitized will be digitized”.

Currently, according to a recent report by Forrester, more than 70 percent of Asia-Pacific enterprises have in place an Internet of Things (IoT) solution or are in the process of implementing one. Companies do realise the potential of Industry 4.0 in creating a ‘smart’ factory, but as with every new technology, it will take time to integrate into a current infrastructure.

Certain countries in the Asia Pacific region are ahead of others. China and India, for example, have already made a head start with the implementation. Large investments have been made to build smart factories where robots have taken over humans in assembling electronic devices. It’s a true revolution which is going on in those parts of our region and we can expect an increase in the coming years. For example, earlier this year, Foxconn announced that 60,000 workers would be replaced by robots.

What could be holding other businesses back is that we are still in the process of understanding the role of machines versus humans in this automation process.

2. There are many areas of a business that will be impacted by the Industry 4.0 evolution, supply chain being one of them. What do you think will be the impact on supply chains over the next five years?

According to ‘The Internet of Things in Logistics’, a 2015 report by DHL and Cisco, the operational efficiency of logistics processes could be greatly enhanced in the next 10 years if IoT is used to integrate millions of shipped, tracked and stored goods in real time. In the coming years, supply chains and logistics industry could see a potential US$1.9 trillion in revenue growth and costs savings.

In warehousing, the integration of pallets and goods offers the potential for smarter inventory management and in goods transport; IoT provides faster, more reliable shipment tracking with greater transparency. Automatic control of maintenance intervals and elimination of unplanned vehicle breakdowns could be made possible through the application of analytics to an integrated fleet.

Management and organisation structures will need to be re-examined as supply chains move towards increased digitisation. The role of employees will come under scrutiny as these developments unfold. The skill of today’s technicians may lose their value but other qualifications may also gain in value as production becomes more complex, requiring increased expertise to manage. In light of this, training and continuing education will become more critical and employees should learn about Industry 4.0, keep up with the latest developments and take action to boost their qualifications in order to remain indispensable to employers.

3. Proponents of Industry 4.0 purport that digitization will help increase transparency across the various silos within the traditional supply chain, allowing for higher flexibility to react and anticipate disruptions to accommodate ever-changing customer needs. Can you describe more about this particular benefit and others that come with the digitisation of the supply chain?

Cloud-based or hybrid systems have made it possible for multiple sources to update and refer to the same set of data without compromising other systems’ security. It supports key trends such as remote working, mobile access and bring-your-own-devices (BYOD) capabilities that allow companies to access data and update it in real-time, which ensures consistent information and updates on demand. Benefits enjoyed by companies that implement cloud technology include costs savings, resource optimization and agility. Companies become capable of engaging customers more effectively and increased collaborative decision-making is encouraged.

In addition, hybrid cloud platforms allow increased flexibility and security where parts of a system can be on a public or private cloud while others are working onsite. This makes it possible for businesses in a supply chain to share and access the right data, in turn improving the level of integration across all supply chain partners. Cross-functional knowledge transfer and information sharing, both within a company and between its partners, will enable supply chains to access the right information at the right time.

In the context of supply chain management, tracking of orders, products and goods both within the warehouse and beyond can benefit from cloud-hosted data accessible by multiple parties. For example, a customer who ordered a product can track his/her order and get the latest information on estimated arrival times. A manufacturer, distributor or retailer can initiate a pick-up of goods by the carrier. Logistics service providers, carriers, or freight forwarders can report any disruptions in pick-up or delivery so that both the shipper and recipient get an update on the change in order for them to take the necessary action.

Other examples could be for work orders to be made available through mobile devices to those in the field. They will be able to obtain information on the customer, update relevant data on the go and so on.

4. Of the various operating environments in Asia, what do you think of Singapore’s level of readiness to support companies in their digitization plans for the future?

Singapore is technologically advanced enough to lead the world in many niche segments. Singapore’s Smart Nation is a great example of the government’s willingness to embrace new technologies. Enabling business innovation and market growth through technology and use of shared data forms is one of the main pillars of this program. These are crucial steps and initiatives in creating a conducive business environment that encourages companies to adopt digital tools, expand and leverage technology to enhance supply chain networks.

The technological infrastructure created by the government provides a good springboard for many companies, especially regional businesses, to digitise in most aspects of their company, including their supply chains.

5. Some industries are further along the digital supply continuum than others. In your view, what are some industries and or companies within these industries that have progressed further in their transformation journey and what do you think have driven them to do so?

The process of digitization is taking place on a global scale, and the benefits for companies on the leading edge of the trend are greater customer insight and reach, higher productivity, and the creation of new business models. However, those benefits are not yet evenly distributed among different nations, markets, or industries. From what we’ve seen, the top three sectors in terms of industry digitisation are financial services and insurance, computers and electronics, and media and telecommunications.

The financial services and insurance sector has long been the highest-spending industry in terms of information and communication technology (ICT) investments. The financial sector lead in digitisation comes as no surprise as it is an industry that operates with information as its key currency. Digitization helps to increase the efficiency of acquiring data, allowing companies to create more precise strategies and maintain their competitive advantage.

As for the computers and electronics sector, it has a complex supply chain that is divided into multiple specialised players. Digital processing is essential to manage and control these complex value chains, which range from electronic procurement to paperless supply chains and transport logistics, to digital factories.

The media and telecommunications sector both supplies and utilises the means of digitisation. The sector’s lead in digitisation comes as no surprise, as it constantly pushes the creation and use of infrastructure and enabling technologies, and digital service integration capabilities.

6. What advice would you give to companies who have not begun to plan for a digital supply chain just yet?

Get to it! It is an arduous long-term process, and for many, costly. Companies must recognise that this is a “when” and not “if”. Companies should commit funds to restructuring their supply chain to keep up with the modern era. The sooner it is done, the more savings they will accrue eventually.

Having said that, before starting on a plan for a digital supply chain, companies need to ask themselves if they have a clear digital strategy, and a plan to adjust aspects of their company according to digital needs. These aspects include the company culture, business model, and employee skill requirement.

Companies should have a clear answer to the above questions before embarking on the transformation to a digital supply chain. 

Edited by Liew Hanqing and Tan Yi Xuan