Lighthouses of industrial digital transformation

Lighthouses of industrial digital transformation

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The global manufacturing industry has lagged behind in adopting the manufacturing technologies of the Fourth Industrial Revolution, with more than 70% of companies stuck in pilot phases of development, we are called to go beyond the initiative and make a conscious and consistent digital adaptation and transformation that will lead companies to receive the real, operational and economic benefits of this.

We are living a crucial moment where, in the wake of the pandemic and the logistical impact, it became clear that global production had been highly concentrated in a few places. One of the lessons of the new normal will be the ability to guarantee a constant supply to consumers. This is where Latin America is called to be a global player in production, addressing the creation of regional value chains, the new trends of nearshoring and the entry into new markets through digital platforms. These new opportunities will require a change in the development strategies of companies.

For Mexico, for example, in the case of manufacturing companies that contribute between 15% and 18% of GDP (global gross domestic product), the Digital Transformation is very relevant to remain competitive in a globalized world. The industries of this nation are in competition against a global manufacturing ecosystem, i.e. China, USA, Europe, so manufacturing is and should continue to be of excellence, and simultaneously cost-effective.

In a global landscape, there are leaders who, with the adoption of technologies and a transformation of the business model, become benchmarks. These leaders are willing to share their learning and generate a community so that others can see the way forward from their case studies and practices. This has been achieved thanks to the World Economic Forum (WEF) initiative. This initiative, which, seeing all industrialists from the same boat, with the same objective, makes visible the work of these leading factories that become global Lighthouses.

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Thus was born the platform "Shaping the Future of Advanced Manufacturing and Production", which has created the Global Lighthouse Network. Calling themselves "lighthouses" since these objects have always occupied a prominent place in the history of maritime tradition, aiding navigation and serving as guides, ensuring crucial access for commercial and industrial growth in untapped territory. When WEF began the initiative, in 2018 in collaboration with McKinsey & Company, leading manufacturers were illuminating the possibilities ahead for the future of the industry. That's how this community of manufacturers is showing leadership in using Fourth Industrial Revolution technologies to transform factories, value chains and business models, and achieve compelling financial and operational returns.

Breaking down Digital Transformation

For Argenis Bauza, lead partner of Digital Lighthouse in Mexico and Central America to KPMG, this term could be seen in its two components "transformation is the evolution of an organization to achieve new strategic objectives, or to adapt to changing external environments. The term digital reflects the world we live in today. One in which there is constant innovation, combined with permanent access to large amounts of data, which can be used for better decision making. So, digital transformation is the evolution of business transformation. A transformation that benefits from advances in technology because we now live in a digital world. Organizations can innovate and create value in entirely new ways to build a sustainable competitive advantage."

Organizations are generating investments and bets of transformation, however the complexity of the organizations, from personnel management, decision making, competitive environment, the inclusion of one or other technologies, are aspects to be taken into account during the process and pose significant challenges when starting in this.

For Bauza, an expert in transformation and operations consulting, there are challenges, some of them, unprecedented, such as:

  • Different parts of the organization with different needs and agendas for digital transformation.
  • No unifying approach: i.e., each area of the business initiates it on its own.
  • Unclear focus: sometimes it is initiated only by technology, without understanding how I am improving the business.
  • Silos: digital transformation is not used as an opportunity to integrate processes from start to finish, but to improve my "silo" in the business.
  • Not customer-centric: in our view, digital transformation should be customer-centric, even those that start with operational efficiencies.
  • Hard to know what good looks like: since it is something new, it is not clear if how the company should look like as a result of digital transformation.
  • Complexity: if we don't manage it well, it can become tremendously complex.
  • Resistance to change: like any transformation, we will have the normal and human resistance to change, which we must manage to achieve the expected success.

Global network: leaders' learning network

Globally, the landscape of 4.0 technology adoption and digital transformation is challenging. Francisco Betti, Shaping the Future of Advanced Manufacturing and Production Platform Leader, comments "Companies are investing significantly in new technologies, but are struggling to translate that technology into practical use cases that are implemented correctly and create significant operational financial impact. This was what we called 'Pilot Purgatory' in the Global Lighthouse survey which concluded that 70-75% of global industries are at this stage"... "The good news is that they have established that there is a small percentage of 25-30% that have already seen the results of their technology investments and have been able to generate impact at operational and financial scale by transforming their facilities and generating value change."

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As of 2021, the Global Lighthouse Network brings together 69 sites on a platform to develop, replicate and scale innovations, creating opportunities for learning and collaboration, while setting new benchmarks for the global manufacturing community. These companies are also prioritizing workforce development and sustainability at the core of their businesses.

In the Americas there are already some Lighthouses, located mainly in the United States and Brazil. This is a challenge for Latin America, Betti considers that we are a power in innovation and there are cases under study, for the moment these would be some reflections and lessons learned from the Lighthouses to be applied in the territory, according to the specialist:

  1. Digital transformation is not necessarily expensive, as we have seen many companies take advantage even of commercially available technologies to innovate.
  2. The most amazing innovations can be generated from different parts of the world. So the industry is not just for the big global players.
  3. Industry 4.0 will be a key asset for Latin American manufacturers to remain competitive. Here it is key to ask how it is developing in most Latin American countries and ecosystems and how to help accelerate the transition? Here we must consider a mix where governments play the role of facilitating rules and access to technology, but also the private sector when it comes to training networks; and academia and civil society are also needed.
  4. The future of manufacturing is not about automation, but about the right combination of automation and worker augmentation. With the right technologies, the rate of incorporation is more than jobs being destroyed or disappearing because they become obsolete. We must be able to work, collaborate and take the right direction and put technology to work for people.
  5. Seek global learning, not only with the Forum, and its network, but different public and private organizations worldwide from where you can learn, collaborate and share how things are being done.

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How to get started in a digital transformation process

For Argenis Bauza regarding the manufacturing operation, "Industry 4.0 guidelines and guidelines help in the transformation process. Although it is always good to perform prototypes and proofs of concept to understand the effect of the technology, we at KPMG recommend following these steps before starting the Digital Transformation journey:

  • Review the Business Strategy, especially from a quantitative point of view (expected growth, in which markets, with what profitability, new categories and products, geographies, etc.) and understand how Digital Transformation will support in achieving the strategic objectives.
  • Explore what other companies in the industry are doing when it comes to their Digital Transformation and what emerging technologies are being utilized.
  • Understand very well and objectively, what state we are currently in, in the utilization of such technologies.
  • Define and detail the business challenges that we want to attack with Digital Transformation, and that are such that other paths (continuous improvement, implementation of business systems, reorganization, for example) are not the most effective and quickest. Typically, where we have hit a "performance wall" these are good candidates for Digital Transformation, as well as challenges that we have not been able to solve in the past.
  • Think enterprise-wide, as a connected enterprise. Avoid thinking in silos.
  • Generate a three-year vision of where we want to be digitally, aligned to the strategy.Understand the gaps we have from our desired state to our current state, and devise the initiatives that will lead us to close those gaps.
  • Define a roadmap with their respective business cases. Discard those initiatives with negative return or whose value is marginal.

Adoption of technologies, how to select one over the other

"Being business problems what we must solve, typically the solution sometimes involves the combination of more than one technology (for example, RPA and Low Code, IoT and Analytics). What must be very clear in the design is what each technology is for, and that will define its inclusion, of course taking into account its price-value ratio," says Bauza. Additionally, the consultant considers several criteria that need to be taken into account for the selection of the right technology, among them:

  • Applicability for the use case (e.g., IoT for automation and control, Blockchain for tracking and transactions between parties, RPA for process automation, LowCode for applications, Data and Analytics for modeling).
  • Technology availability.
  • Price-value ratio.
  • Ability to absorb, grow and sustain such technology over time by the company.
  • Cybersecurity considerations.

In agreement, for Francisco Betti an important concept to note is that it is not based on a single technology but are multiple technologies that come together with 4.0 and shape a new use case that will help improve operations. "In terms of Lighthouses they are not talking about individual technologies. They're taking an approach where from the first look they review what are the operational business challenges they want to focus on. And then they scan and look at the technology landscape to find the right combinations of technologies that will help them develop the best possible use cases."

Additionally, for Betti there are three technologies that will lead the way for digital transformation during 2021:

  1. 5G. Because of the speed at which it can carry processes, generating an operational advantage, as well as operating on-site or remotely.
  2. AI. It will have more and more applications in the industry, such as predictive maintenance and demand forecasting.
  3. Additive manufacturing. In the search for local production to be more resilient.

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