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Industry 4.0 – A Perfect Storm Towards Supply Chains 4.0

“Don’t wait until a major supply chain disruption forces you to develop a Business Continuity Plan,” John Yuva, the editor of the Supply Chain Management Exec magazine wrote a year ago. “Risk permeates throughout the supply chain”, he wrote: insolvencies, counterfeiting, cybersecurity. It is unlikely that even companies that had a BCP for their supply chain included such an extreme high-impact-low-probability event like the Covid-19 pandemic, but, nonetheless, already before the pandemic, supply chains as we knew them were no longer going to be the same.

The epochal shock on the demand and supply side happens, moreover, at a time when technologies were already radically transforming the supply chain, and changes were becoming reality on the shop floors, control rooms and transport. Those technologies were not just the most apparent ones like blockchain, the industrial Internet of Things (IIoT), robotics and data—the so-called B.I.R.D.—but also others creating important synergies: from pervasive connectivity, the cloud and edge computing to artificial intelligence (AI), augmented reality (AR), 3D printing, drones, and more traditional but effective ones like RFID (Radio frequency identification) labels. Large and small companies were considering the best-suiting use cases to optimize their value chains.

“Supply chains are at the center of a perfect storm,” Francisco Betti, head of the Manufacturing and Advanced Production at the World Economic Forum (WEF), told me a few months ago, “formed by four mega trends that will change them in scale forever”.

Francisco Betti, Head Advanced Manufaturing, WEF
Francisco Betti, Head Advanced Manufaturing, World Economic Forum

“Yes,“ he said when I spoke to him again recently, “last year we were observing how for a couple years those trends had been pushing companies to rethink and reconfigure their value chains, from their supply to their distribution model”.

One of the mega trends observed involved socio-economic dynamics such as aging of the population; another, the imperative to tackle climate change; a third, global trade tensions. Many companies were already diversifying, reshoring or relocalizing some productions to the country of origin. That was not only because of the trade wars, but also to be closer to the end customers and take advantage of the flexibility that technology now allows in manufacturing when it comes to hyper-customize the products and massively so.

Bringing back productions, also owes to the need for companies to ready their supply chains against natural catastrophes, such as floods or hurricanes, or events of man-made origin like nuclear incidents. “The goal was to make their supply chains future-proof,” Betti said. “The pandemic will surely accelerate the reconfiguration that was already underway,”

The research team at WEF identified the 4th Industrial revolution with all its disrupting technologies as the most powerful mega trend. “With Industry 4.0, manufacturing is changing for good, and potentially also its business models.”

The critical issues manufacturing now faces because of Covid-19 add to the effort many companies were carrying on to digitize, and to adopt and blend into their models the new technologies, sometimes with great success. Such is the case of AI and machine learning to fully automate the matching and pricing of truck loads and trucks circulation, thus reducing a company’s carbon footprint and costs. Reckoning requests that may come from a smartphone, the algorithms of Convoy, a US company, identify the available means and match requests and pricing with carriers.

On another scale, but also based on data software, happens the management of components and spare parts for the 5,000 aircraft, 650,000 objects in 1,500 sites around the world of the US Air Force. Here the SPM software manages the planning of demand and supply, errors and performance and the optimization of the warehouse.

In the supply chain sector, a first victim of the pandemic may be the concept of minimum storage. The overabundance of data, processed with data analytics—a market that only in the supply chain sector could top 10.7 billion dollars by 2026 (Acumen Research)—has allowed for supply and demand instant planning.

Full visibility over the supply chain, thanks to operational data and data collected from sensors—of movement, temperature, humidity and other metrics—and from RFID labels, glove-scanners, image recognition and other technologies led to a reversal in the approach to the warehouse. Together with automation, often supported by AI and machine learning, data spurred for the inventory—now no longer an asset, but a cost—the so-called just-in-time (JiT) approach or minimum warehouse.

“Companies with inventory for a year, perhaps the pharma industry, will survive this crisis with less pain. All other industries will suffer badly,” Betti said.

Production flexibility is one of the solutions and one of Industry 4.0 technologies’ major strengths. Advanced automation is one of these. “With independent cart technology”, Francesco Nanni, Head of Integrated Architecture at Rockwell Automation Italy explained, “we can reconfigure a line in zero time. And not only that: we can personalize a product to extreme details for even very small quantities, like napkins personalized for design, color and size for just a one birthday. When integrated with robots, these lines can be used to fill up perfume bottles of different sizes and capacities. We can do things that were unthinkable just a few years ago,” Nanni said.

A first and ongoing survey of companies on the issue by the WEF team finds that some factories could be forced to reposition their production or even change altogether the products they manufacture. “I would not be surprised if some textile industry converted lines to the production of masks”.

Since this article was published in print, over the last couple weeks a number of companies across the world reconverted lines and entire facilities to manufacturing the devices and gear needed to fight the pandemic. Another technology manufacturing companies are drawing on to make up for components not available in the scale needed is 3D printing— a technology that will likely create new supply chains, and close others.

Not making an explicit comparison, Betti notes that during the Second World War, many factories were forced to reposition their production, and that that “gave rise to an intense and fruitful wave of innovation“.