Capturing value from disruption in manufacturing

Manufacturers can optimize the digital thread and overcome potential barriers, according to Richard Kelly, partner, McKinsey and Co. Inc. in a presentation about Industrie 4.0 and its potential at the SAP Manufacturing Industries Forum. See five barriers and five ways the digital thread captures value.


Richard Kelly, partner, McKinsey & Company Inc. talked about Industrie 4.0 and its potential in his presentation at the SAP Manufacturing Industries Forum and how manufacturers can optimize the digital thread and overcome potential barriers. Image courtesThe Industrial Internet of Things (IoT) and Industrie 4.0, a similar initiative in Europe, have received a lot of attention in recent years. The next industrial revolution in manufacturing-will be achieved through leveraging data and ubiquitous connectivity through the supply chain, according to Richard Kelly, partner, McKinsey & Company, Inc. He talked about Industrie 4.0 and its potential in his presentation, "Capturing Value from Digital Disruption in Manufacturing Industries," at the SAP Manufacturing Industries Forum on June 14.

Whatever you call it, the discussions have been more theoretical rather than practical. Kelly said that is starting to change. "We're at a tipping point, and we're starting to see real results," he said.

Three aspects are driving Industrie 4.0, Kelly said: Computing power (Moore's Law), data, and connectedness. And as they become more sophisticated and intertwined, this will have a positive impact on manufacturing, which generates more data than any other sector, including government.

There is a generally positive feeling, Kelly said, about Industrie 4.0. More than half of companies worldwide believe that Industrie 4.0 will increase their ability to be competitive. The U.S., however, is more optimistic about Industrie 4.0's potential than Germany and Japan. He added that Germany and the U.S. are implementing strategies to take advantage of Industrie 4.0 while Japan remains hesitant. 

Barriers, benefits to Industrie 4.0

While there is a lot of optimism and buzz about Industrie 4.0, there are some common issues that are keeping manufacturers from moving forward. Kelly highlighted five barriers mentioned by manufacturers:

  • Difficulty to coordinate actions across organizational units
  • Lack of courage to push through radical transformation
  • Lack of necessary talent, for example, data scientists
  • Concerns about cybersecurity when working with third-party providers
  • Lack of a clear business case that justifies investments in underlying information technology (IT) architecture.

Other issues cited by manufacturers include data ownership when working with third-party providers, challenges with integrating data, and uncertainty about in- versus outsourcing.

Even with the concerns, Kelly said that many manufacturers are using and realizing Industrie 4.0's benefits on the plant floor. He mentioned five applications where Industrie 4.0 is showing its benefits:

Digital performance management: Kelly said that the gateway to digital manufacturing due to minimal resource requirements is producing simple solutions that achieve as much as 50% improvement in overall equipment effectiveness (OEE).

Predictive maintenance: Advances in integrating diverse data sets and deep learning algorithms are increasing machine availability and reducing maintenance costs by 10% to 15%. Kelly said, "Predictive maintenance is an area a lot of people are focusing on. There's a great deal of potential."

Yield and energy optimization: Kelly said that integrating data from process control systems with other data to optimize yield, energy, and throughput is becoming a major priority for manufacturers. It is a priority for major companies to become more cost-effective and efficient, and Industrie 4.0 can play a major role in that. The key, Kelly said, is to combine the available data with the right algorithms for maximum effect.

Next-level automation: Industrial robotics are becoming more sophisticated, and some are being developed to work safely with humans, which would have been unheard of even 5 years ago. In addition to becoming more interactive, they're becoming more affordable.

Digital quality management: Kelly explained that this includes implementing digital documentation systems, using advanced algorithms, and implementing Big Data methods, such as semi-automated, root-cause analyses. 

Five ways digital thread captures value

Capturing value is critical for any manufacturer looking to use Industrie 4.0. Kelly highlighted five elements that are key in achieving this:

  • Analyze the entire digital thread
  • Focus efforts on a limited number of high-value applications
  • Leverage short-term workaround and long-term infrastructure solutions
  • Use the entire Industrie 4.0 ecosystem
  • Build organizational capability and adapt processes and culture.

"We have to move from IT transformation that involves projects that take 5 years and cost $500 million and work on smaller, more intensive projects," Kelly said.

The digital thread, which covers everything, including research and development, the supply chain, and customer service, allows information to freely travel from one end of the spectrum to the other and back again to improve operational efficiency and reduce potential errors in the chain.

"Successful companies are looking outside the four walls of the factory and across the entire digital thread to uncover two types of opportunities," Kelly said.

Kelly added that companies need to take pragmatic steps to leverage near-term solutions for Industrie 4.0. Manufacturers need to 1) take steps that will streamline operations while 2) setting the stage for more advanced methods of gathering data, such as predictive maintenance and throughput optimization. These steps, Kelly said, will go a long way in optimizing a manufacturer's return on investment (ROI).

All of this is about potential, and the future, while bright, remains uncertain. Kelly is optimistic. "There is a there there," he said, pointing to Industrie 4.0. "And there is a great deal of potential for the future."

Chris Vavra is production editor, Control Engineering, CFE Media,

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