Manufacturing companies have to plan for a future where the industrial Internet is going to change the way their business is managed.
Capital investment in the industrial Internet in Europe alone is expected to be around EUR140 billion every year until 2020, representing about 50% of all planned investment by manufacturing companies[1].
These investments are pretty evenly spread across most verticals, such as automotive, process, electronics and ICT. Many of the companies making these investments are your future customers and suppliers within the global supply chain network. As they invest they will be increasingly upping the ante on you by requiring full digital participation in their value chain. Your company will have to adapt or risk being sidelined.
For many executives, developing a strategy for Industrie 4.0 and the industrial Internet is not a trivial exercise. The 2014 study by Strategy&[1] has found that a quarter of companies have not planned for any capital investment in the industrial Internet. This is either because of a conscious decision not to, or because the subject has not yet made an impact on their strategic planning process.
Strategic planning is a process that all companies need to undertake regularly. Strategy planning typically results in annual budgets and a programme or portfolio of planned capital projects. How then should you make sure that the industrial Internet opportunity is properly included in your company’s planning process?
The business needs assessment
A key element of strategic planning is the ‘business needs assessment’. This is the process of analysing a business problem or opportunity to assess what is required to solve the problem or exploit the opportunity. The business needs assessment must consider the overall business context.
The output of the assessment is a potentially viable solution that will require further evaluation. The proposed solution must be presented as a business case. The business case will quantify the impact of the investment in terms of value.
A properly developed solution will also have the early commitment of all key stakeholders. It will also compare the current organisational capabilities with those required to deliver the envisaged solution and identify gaps.
Twelve steps to initiating your industrial Internet programme
If yours is one of the 25% of companies that have not yet started their planning for the industrial Internet, here are twelve practical pointers to help you get this opportunity properly evaluated. You should align your approach with the business needs analysis process in your own company:
1. Start by getting the buy in of the CEO and the senior executive team. Senior buy in is a prerequisite for success because of the transformational impact the digitisation programme will have on the whole organisation.
2. Assess your current capabilities with regards the IIoT. In line with the business needs analysis above, understanding your current capability is important to developing action plans for any future transition.
3. Re-define your business value chains to incorporate your network of suppliers and customers. Many companies look inward at their value chain when optimising manufacturing processes. Make sure you incorporate the whole network and understand the constraints. Any sole suppliers/customers must be an integral part of your plan.
4. For each area in your value chain, determine the potential value investments in respect of your digitisation programme. These could be in areas such as data processing, manufacturing execution, quality tracking, logistics etc.
5. Develop a high level business case for each of these investments in terms of your existing strategic KPIs like productivity, efficiency, agility, sustainability and so on.
6. Determine scenarios around your supplier network, their future requirements on you and your leverage/power over them. This will help reveal any gaps or constraints in your proposed solution.
7. Prioritise your investments in line with your portfolio planning process in IT, engineering, manufacturing operations and so on. Rome was not built in a day: your industrial Internet digitisation programme will have a 5-10 year horizon.
8. Together with the executive team, envisage possible disruptive trends in your industry. Classify these to address the most significant as part of the risk management process within your company. Quantifying specific industry disruptions in terms of their risk will ensure that you get the attention of the board and their support to proceed.
9. Consider investing now in those platforms that will serve you into the future. Start evaluating the vendors and move towards a strategic relationship with a few key technology suppliers. Avoid investing heavily in solutions until you really understand the future architecture that you will need for your business.
10. Determine the skills requirements for the industrial Internet and put in place programmes to develop, acquire and retain these skills. In particular, data analysis and processing skills are predicted to be in very short supply in the future.
11. Secure buy in across the whole business. The investments in the industrial Internet will be significant and will not immediately deliver returns. Manage expectations carefully and ensure you deliver exactly what you promise.
12. Make sure you understand the digital policy and security barriers. Identify and work with external stakeholders that have influence on this, including legislators, industry and standards bodies.
The approach suggested above is not exhaustive and will obviously need to be adapted for your situation.
Concluding remarks
The industrial Internet is developing rapidly and there is a great deal of hype. Make sure you understand the difference between hype and feasibility. It may be useful in the planning stage to engage consultants that are familiar with manufacturing technology, contemporary information technology (particularly data analytics) and manufacturing executions/operations systems.
Reference: [1] Strategy&/PWC
Opportunities and challenges of the industrial Internet – Accessed at http://www.strategyand.pwc.com/media/file/Industry-4-0.pdf on 5 July 2016.
Gavin Halse is a chemical process engineer who has been involved in the manufacturing sector since mid-1980. He founded a software business in 1999 which grew to develop specialised applications for mining, energy and process manufacturing in several countries. Gavin is most interested in the effective use of IT in industrial environments and now consults part time to manufacturing and software companies around the effective use of IT to achieve business results.
For more information contact Gavin Halse, Absolute Perspectives, +27 (0)83 274 7180, [email protected], www.absoluteperspectives.com
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