Despite of several challenges and disruptions encountered in the supply chains, manufacturers face pressure to meet rising customer demand while recovering from years of reduced profits. This article explains why Industry 4.0 holds the answers. Young refers to a prediction made by Ahmed Bin Sulayem, Chairman & CEO, DP World Group, stated, “Rising freight rates, low production levels and the social-economic situation in Europe will keep inflation high in 2022, as companies struggle with the challenging trading environment.”
The current supply chain crisis shows no signs of slowing down, with experts predicting it could be at least two more years before the situation goes back to normal. The challenges in Europe are being felt by manufacturers across the globe. New Zealand’s annual inflation, for example, rose to a 30-year-high of 6.9% in the first quarter of 2022. New Zealand and Australia freight rates from China have also tripled since early 2020. While supply chain costs have eased somewhat post-pandemic, further restrictions in China in addition the Ukraine war, are preventing near-term improvements.
The modern strategy
Industrial manufacturers are feeling the effects, with many at risk of halting production as they struggle to maintain supplies of necessary materials, while also keeping costs at an acceptable level. As a solution, manufacturing has seen a major shift towards - Just In Case (JIC) inventory management, freezing the traditional and popular - Just In Time (JIT) strategy.
The JIT approach, where parts are delivered when needed to minimise inventory levels, has become unviable as supply chain disruptions create an unpredictable supply base. Instead, JIC is a risk management system that involves creating a stockpile of assets likely to experience shipping delays, to maintain demand during shortages. Advantages of JIC management for manufacturers include that it can prevent the shutting down of production lines, and prices of stock can be increased due to higher demand. On the other hand, the JIC strategy can be inefficient, expensive and wasteful if not implemented correctly.
While supply chain challenges cannot be solved overnight, there are a few options to help manufacturers take better control of their supply. Industry 4.0 encompasses a range of automation technologies that help manufacturers control inventory, improve warehouse visibility and forecast asset shortages — let’s look at some examples.
A lack of end-to-end visibility in global supply chains can expose manufacturers to a higher risk of disruption or financial loss. Without enough information on the state of their supply chain, manufacturers are less able to identify problems and act accordingly. Technology can help predict the unexpected and react to unexpected situations, giving manufacturers the insight needed to improve supply chain management and reduce lead times. For example, digital twins — virtual representations of a physical object or process — can be used to test issues with supply and distribution, using dummy datasets that create possible scenarios to see how the supply chain problem will impact the wider manufacturing process.
One option to improve production is to integrate AI-driven software into production machinery. AI can gather performance data from tracking technologies like sensors, installed at the device level, and relay this to a plant’s SCADA or Manufacturing Execution Systems (MESs). In doing so, the software can optimise business operations by analysing current market trends to understand the changing environments, so manufacturers can plan accordingly. For example, PwC’s Digital Factories 2020 report cites the example of Continental Automotive. The manufacturer now uses data analytics tools for machine-to-machine communication in its production line to understand current and upcoming material demands, and automatically order the components needed to keep operations running. The advantage of this approach is that less time is spent sourcing products — AI can predict when shortages may occur so manufacturers can plan ahead of time. By improving efficiency across the production line, manufacturers can gain better control of costs, increase productivity and boost margins. Many manufacturers are already integrating automated technology into production, but AI can exponentially improve speed and quality.
It’s also possible for AI to track a product’s journey throughout the entire supply chain. AI-driven software can identify any inefficiencies during transport, production or warehousing that could be easily corrected to improve efficiency and reduce demand on energy or resources.
Investing in supply chain visibility platforms is also a good idea to keep track of what happens in your extended supply chain and to spot disruptions, such as factory shutdowns or unusual traffic conditions, that may prevent materials from reaching the next node of the supply chain on time.
Overcoming lead times with technology
3D Printing can offer substantial benefits by reducing supply chain complexities. For instance, businesses are opting 3D Printing to replace on-site components to keep production up and running. This eliminates the time and costs of shipping spare parts, and the advantages of this approach are already being experienced in industries ranging from medical and aerospace to automotive. According to P&S Intelligence, Asia-Pacific (APAC) was the largest contributor to 3D Printing in construction in 2020. Research also predicts that more industries in the region are likely to adopt 3D Printing for on-demand manufacturing. Advantages of the technology include that manufacturers wouldn’t need to worry about warehouse inventory, and can reduce consumption by only using the exact material needed. In essence, manufacturers can use 3D Printing to create a digital warehouse of parts, which they can bring from software to reality at the click of a few buttons.
While investing in Additive Manufacturing technologies requires upfront costs, manufacturers can experience a fast return on investment (ROI) by saving costs on energy, material use and administrative labour. In a 2022 report by Gartner, 36% of manufacturers noticed improved business value by investing in digital technologies.
While integrating Industry 4.0 technologies and practices to the supply chain, it is valuable to think both globally and locally to ensure the manufacturer gets the best of both worlds. Therefore, the term glocalisation was coined to describe the process of developing and distributing a product or service globally, but adjusting it to accommodate users or consumers in local markets.
Manufacturers should also strive to implement a supply chain that acts on a global level but adapts to local demand — a glocal supply chain. To achieve this, it’s necessary to analyse data in real-time and be able to rapidly move items to where they will be needed. In addition, automation technology can help create what is known as a cognitive supply chain, which means all operations are fully digitalised. A digitised and glocal approach to supply chain management can save time, reduce shipping costs and decrease storage requirements by improving stock management. For example, if a product is not particularly in demand in Germany, German suppliers might be left with extra stock. Here, the supply chain management software with predictive capabilities would be able to forecast demand, and reduce the number of products sent to that region to avoid the problem.
To better react to local market conditions, many businesses are also considering reshoring, which is the process of transferring operations that were moved overseas back to their original country. The trade body - Make UK, revealed that 46% of companies are planning to reshore at least part of their operations in the next two years. In addition, sourcing raw materials locally where possible can also contribute to streamlined supply chains and reduced freight fees. While reshoring is a complex endeavour, investing in technology to increase visibility and improve communication, is a great step to facilitate this process.
Another area of supply chain difficulty is sourcing replacement components for machinery. Instead of waiting for a part to break down, the Industry 4.0 approach would encompass predictive maintenance technology to flag when a part is at risk. Ordering a replacement component before a system breaks down greatly reduces manufacturing downtime.
When the predictive maintenance system flags a replacement may be needed, refurbished components can be a great way to source parts that perform like brand new ones, even when the OEM cannot deliver. Another benefit is that refurbished and refurbished parts can keep precious metals and high-cost resources in the supply chain by reusing them. In some cases, it can be faster and cheaper to use an automation parts supplier that specialises in refurbished components rather than going direct to the OEM. While the current situation might seem bleak, supply chains are adapting to the current climate and some executives are positive about the future of trade. Luckily, automation can help predict problems across complex supply chains, so that manufacturers can get what they require as soon as possible. Added visibility to the supply chain with Industry 4.0 technologies can help manufacturers identify and address global supply issues and to paraphrase Sulayem, overcome struggles with challenging trading environments.