Asia's dominance in manufacturing has put the spotlight on supply chain resilience. When Chinese factories closed due to COVID-19, it caused significant repercussions across global supply chains. Some European automotive manufacturers, for example, faced critical shortages of components for their manufacturing operations.
Rebuilding the supply chain
COVID-19 has shown companies that they need to move to more flexible manufacturing and supply chain models that are digitally enabled. Across various sectors, from heavy industry to apparel and pharma, manufacturers are looking to be less reliant on one major supplier. Many plan to onshore or near-shore where they can. Others are looking to stockpile inventory to replace lean, just-in-time manufacturing.
"Diverse sourcing and digitization will be key to building stronger, smarter supply chains and ensuring lasting recovery," according to Jesse Lin, Trade Specialist at the World Economic Forum. This will result in some companies bringing manufacturing home.
The big issue, however, for European and U.S. manufacturers is that costs can be much higher at home than in Asia. Consequently, any onshoring or near-shoring strategies must embrace Industry 4.0 to drive down production costs.
"Many Western organizations will have to explore new forms of automation on the factory floor to decrease the costs of near or onshore production. Some also favor a partial option, such as manufacturing in Asia and moving only the final assembly closer to the customer," explains Kamala Raman, Senior Director Analyst with the Gartner Supply Chain Practice.
Industry 4.0: digitizing the value chain
On the positive side, COVID-19 is giving manufacturers an opportunity to transform their factories and supply chains. McKinsey maintains that "successful companies will redesign their operations and their supply chains to protect their business against a wider and more acute range of potential shocks and disruptive events." Companies that can make their supply chains more transparent, predictable and resilient will have a considerable advantage over their competitors.
Manufacturers now looking to recover from the fallout of the pandemic will put into action short- and long-term plans. In the immediate future, manufacturers are looking to remain afloat, many having had their operations closed for long periods, and ramp up production. According to a survey by HFS Research, manufacturers are looking to invest in technologies that can offer quick cost savings, including automation, smart analytics and cloud. They will provide the foundations to deploy more extensive Industry 4.0 technologies in the future.
Positive times ahead
Despite the pandemic, investment in smart manufacturing will rebound. A recent update from IDC shows IoT spending growing 8.2% year on year to $742 billion in 2020, down from 14.9% forecast at the end of last year. IDC, however, believes there will be a jump back to double-digit growth in 2021.
"Although the current pandemic forced many organizations to pause some innovative IoT deployments, IoT will be a key 'return to growth' accelerator with selected use cases being safe bets for end users to focus on in order to reach a new level of automation, remote everywhere experience and hyper-connectivity," said Andrea Siviero, Associate Research Director with IDC's Customer Insights and Analysis.
In addition, government initiatives and investments to promote the concept of smart factories are also starting to propel Industry 4.0. China, for example, is investing $3 billion in its Made in China 2025 program to digitally transform its manufacturing sector. In India, the government has created SAMARTH-Udyog Bharat 4.0 to demystify Industry 4.0 among the country's manufacturers and aggressively pursue the creation of a smart factory ecosystem. The Indian government estimates that only around 10% of manufacturers currently have an Industry 4.0 roadmap in place.
Making manufacturing stronger post-COVID
COVID-19 will have a lasting impact on business, but manufacturers must put plans in place to emerge stronger than before, which will require accelerated digital transformation to dramatically improve manufacturing efficiencies.
McKinsey maintains that what it refers to as trailblazing “Lighthouse Factories” have proven that deploying IIoT at scale brings operational flexibility and, with it, significant performance benefits. Some manufacturers have increased output by 10% to 200%, reduced costs by 5% to 40%, and decreased time to market by 30% to 90%. The lighthouses are the factories that have taken Industry 4.0 technology from scaled pilots to production.
To succeed in scaling digital manufacturing in this way, manufacturers must have a robust digital strategy with clearly defined financial and performance goals, according to McKinsey. These goals must be linked to real business needs.
Manufacturers that can move quickly to digitally transform will be better placed to respond to the changes in the operating environment that COVID-19 has triggered and ramp up production again, according to McKinsey. At the same time, it will give them a massive lead over slow-moving competitors.
Keeping pace with digitization
Manufacturing has been hit hard by the pandemic. For manufacturers to survive, they must develop digital transformation strategies and adopt new technologies within Industry 4.0 that offer both relevance and resilience to their businesses
"Disruptions such as COVID-19 show the importance of digitization for European manufacturers more than ever before. The right (digital) technology is an investment for the long run, not just for survival per se, but for getting ready for the new post-pandemic normal," said Maggie Slowik, Research Manager, IDC Manufacturing Insights.
Manufacturing now has a chance to catapult itself up the digital transformation curve. How manufacturers react to embracing the concept of the smart factory and Industry 4.0 will shape the future of manufacturing for some time to come.
Read this exclusive IDC InfoBrief on IT/OT convergence within manufacturing, and recognize the importance of supply chain resilience, says Frank Baggermans, Managing Director Benelux at Orange Business Services.
Jan has been writing about technology for over 22 years for magazines and web sites, including ComputerActive, IQ magazine and Signum. She has been a business correspondent on ComputerWorld in Sydney and covered the channel for Ziff-Davis in New York.