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How Will Industry 4.0 Affect the Supply Chain?

Sept. 16, 2015
The dynamic ‘reconfigurability’ of supply networks that Industry 4.0 promises requires re-examining service-level agreements with upstream and contracted suppliers.

Industry 4.0 is essentially a blueprint for digitalizing the value chain from factory to customer. It combines logistics, production, IT, engineering, production to digitize business operations. Technologies included are the Internet of Things (IoT) and the Internet of Services, which in turn create the Smart Factory.  

Simon Jacobson, research vice president at analyst firm Gartner, has outlined four key aspects of how Industry 4.0  will impact the supply chain:

  1. Smart factories – Automated and flexible manufacturing processes that are integrated with customers and business partners in support of product lifecycle changes – will impact current factory layouts.
  2. The Internet of Services – Connecting production facilities across geographies and company boundaries to create virtual production capabilities will create new business models and disrupt current supply chain designs.
  3. Advanced analytics – Capitalizing on big data and predictive analytics – to drive flexibility at the process level, not just production lines or factories – will put more pressure on organizations to use production data to its fullest.
  4. Focus on the knowledge worker - The rise of smart machines will not see the demise of the knowledge worker – rather, this increasing complexity demands supply chain professionals expand their problem solving and systems engineering skills.

He suggests that chief supply chain officers (CSCOs) start preparing for these changes by focusing on:

  1. Supplier management – The dynamic ‘reconfigurability’ of supply networks that Industry 4.0 promises requires re-examining service-level agreements with upstream and contracted suppliers. Dedicated capacities, enhanced risk profiling, IP protection and the reliability of materials will all need to be included.
  2. Supply chain visibility – To respond as quickly as possible to planned and unplanned events, the supply chain needs to be as transparent as possible. This will in turn increase productivity and reduce risks.
  3. Demand planning – Mass customization requires a connection of production capabilities, with the supply chain based on a clear understanding and translation of fluctuating demand patterns into targeted production units.
  4. Supply network design – To achieve agility and supply resiliency without compromising time to market, supply networks will need realignment. A 2014 Gartner study showed that this is an area where many companies fall short of expectations. As smarter factories take root, ensuring that alignment is done in a holistic way – not just within manufacturing or logistics – will be critical.
  5. Product innovation platforms - Products as we know them are changing. New physical devices, such as products, tools or even factory equipment, will have interconnected technology embedded in them. The way things are manufactured will require new thinking, and what new IT calls “product innovation platforms,” which aim to define and design products but also to manage product lifecycles.