A Pandemic Silver Lining: the shortcomings of lean manufacturing compel a turn to Industry 4.0 for answers.
According to the McKinsey Global Institute, “while manufacturing has been increasingly automated and globalized, it still holds a special place in the national psyche in the U.S.” The report points out manufacturing’s extraordinary yet disproportionate benefits to our economy. For instance, despite representing only 11% of U.S. gross domestic product and 8% of direct employment, it contributes 20% to our nation’s capital investment, 30% of productivity growth, 60% of our exports, and 70% of business R&D—more reasons why it is important for manufacturers to keep pace with the technologies designed to accelerate new product development and boost their global competitiveness.
This is where Industry 4.0 comes in. Designed to bridge the gap between the physical and digital worlds of manufacturing through connected sensors and smart factories, it also addresses some of the shortcomings of far-flung supply chains inherent to lean manufacturing practices as was glaringly evident during COVID-19. A seminal piece in the Wall Street Journal entitled “Auto Makers Retreat from 50 Years of Just in Time Manufacturing” points out how the pandemic, trade disputes, and populist protectionist sentiment have exposed weaknesses in a global supply chain that relies on just in time delivery mandates (think computer chips, lithium, and cobalt).
The idea that manufacturers can procure components and systems for production from sole source providers whenever they need them has turned theories regarding globalization, lean manufacturing, and the laws of comparative advantage on their collective heads. Historically, lean manufacturing has had a low tolerance for error, especially when confronted by black swan and even grey rhino events. These externalities have a penchant for broadsiding companies and forcing them to reassess their production and supply chain strategies to reflect new realities on the ground.
Industry 4.0 is not a substitute but a complement to lean manufacturing and serves as the next step in the evolution of manufacturing optimization and operational excellence, thanks in large part to artificial intelligence and Big Data. But geopolitical factors are forcing business and industry executives to pay more attention to how smart factories function as a safety net for future material shortages and other potential disruptions.
For example, Beijing’s creeping annexation of the South China Sea, where $3 trillion in trade passes through annually, has given Washington policymakers and manufacturing leaders headaches as they look for ways to China-proof the U.S. economy. Many Asian countries bordering China or within its orbit are gripped by the Stockholm syndrome and fear retribution if they upset Beijing’s sensibilities. This includes trade sanctions being abruptly imposed upon them or having their Belt and Road Initiative investment funds yanked away. Washington’s strategic ambiguity regarding Taiwan, where 80% of the world’s semiconductors are produced, engenders little confidence among Asian nations— especially when Chinese jet fighters continually violate Taiwanese airspace and Beijing meddles in Hong Kong’s internal affairs.
It gets worse. President’s Xi Jinping recent pronouncement to “tighten the dependence of international supply chains on China” to deter the West from countering the nation’s rise (Western Companies in China Succumb, Financial Times, May 6, 2021) should give the world pause as countries seek to strategically realign and repatriate their supply chains away from China. Although anathema to free market economists, a narrowly focused industrial policy aimed at economic self-reliance and protecting our critical manufacturing industries and intellectual property is gaining currency among government, military, and business leaders. A pandemic silver lining is recognizing some of the shortcomings of lean manufacturing today and turning to Industry 4.0 for answers.
In many cases, Industry 4.0 technologies and processes are enabling manufacturers to shift production closer to home more easily while continuing to enjoy the benefits of lean manufacturing. Lean principles allow for repeatability, redeployment of labor, reduction of waste, and savings on warehousing costs. Industry 4.0 and lean principles are indeed self-reinforcing and possess inextricably intertwined value propositions. The former enables the latter to improve its just-in-time deliveries with end-to-end digitalization powered by artificial intelligence and Bid Data. For example, blockchain and the 3-D printing of parts and even systems can now be done with home-based manufacturing by trained technicians in closer proximity to buyers or end users. In addition, these manufacturers can enhance their value proposition by adding services to the printed part like customization and faster delivery. Furthermore, intelligent factories can more quickly detect and respond to potential bottlenecks in the production process by using data collected by sensors to maintain the running of machines on the plant floor (referred to as predictive or prescriptive maintenance).
Creating a domestic ecosystem of agile manufacturers would negate economic theories postulating that wherever manufacturing goes innovation soon follows. Industry 4.0 enables bringing supply chains closer to home while mitigating the risks of having trade secrets compromised by cyber criminals. But like the transition to lean manufacturing, Industry 4.0 is facing similar barriers and blind spots to enterprise-wide adoption. They include financial (i.e., upfront costs and realization of ROI), technological (integration with legacy systems) and cultural. The latter is a function of human nature and includes our hard-wired resistance to change, especially within highly bureaucratic and hierarchical organizations.
Yet lean manufacturing best practices serve as a lesson for how companies today can incrementally and thoughtfully transform their business models from within their enterprises in response to pressures from without. Holistically speaking, lean principles and Industry 4.0, along with their underlying technologies and standardized processes, share the same goals: strategic alignment, sustainability, added value, and empowering labor. Despite the significant lag between concept and the broad acceptance of different ways of doing business, the future survival of manufacturing depends on it. Moreover, the exponential growth of today’s technologies, compressed product development cycles, and more demanding consumers make it an industry imperative. When it comes to continuous improvement and value creation, lean manufacturing and Industry 4.0 together are considerably greater than the sum of their parts.