Industry4.0.pdf
How digitization
makes the supply
chain more
efficient, agile, and
customer-focused
Industry 4.0
2 Strategy&
Contacts
Dallas
Mike Kinder
Director, PwC US
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Anil Khurana
Partner, PwC UAE
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Düsseldorf
Stefan Schrauf
Partner, PwC Strategy& Germany
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stefan.schrauf
@strategyand.de.pwc.com
Irvine, Calif.
Mark Strom
Principal, PwC US
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London
Dave Phillips
Director, PwC UK
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John Potter
Partner, PwC UK
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Malmö
Peter Malmgren
Director, PwC Sweden
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Munich
Philipp Berttram
Principal, PwC Strategy& Germany
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@strategyand.de.pwc.com
Reinhard Geissbauer
Partner, PwC Strategy& Germany
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Benoit Romac
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Huw Andrews
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Vincent Espie
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Roger Muelle
Director, PwC Strategy& Switzerland
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3Strategy&
About the authors
Stefan Schrauf is a partner with PwC Strategy& Germany, based in
Munich. He is a leading practitioner of supply chain management and
digital operations for Strategy&, PwC’s strategy consulting business,
and heads the PwC Strategy& Industry 4.0 team in Germany,
supporting companies in manufacturing industries globally.
Philipp Berttram, a principal with PwC Strategy& Germany, based
in Munich, is a leading practitioner of supply chain management and
digital operations for Strategy&. He leads the firm’s digital supply chain
team in Germany, focusing on companies in manufacturing industries
around the world.
4 Strategy&
Executive summary
If the vision of Industry 4.0 is to be realized, most enterprise processes
must become more digitized. A critical element will be the evolution of
traditional supply chains toward a connected, smart, and highly
efficient supply chain ecosystem.
The supply chain today is a series of largely discrete, siloed steps
taken through marketing, product development, manufacturing, and
distribution, and finally into the hands of the customer. Digitization
ings down those walls, and the chain becomes a completely integrated
ecosystem that is fully transparent to all the players involved —
from the suppliers of raw materials, components, and parts, to the
transporters of those supplies and finished goods, and finally to the
customers demanding fulfillment.
This network will depend on a number of key technologies:
integrated planning and execution systems, logistics visibility,
autonomous logistics, smart procurement and warehousing, spare parts
management, and advanced analytics. The result will enable companies
to react to disruptions in the supply chain, and even anticipate them, by
fully modeling the network, creating “what-if” scenarios, and adjusting
the supply chain in real time as conditions change.
Once built — and the components are starting to be developed today
— the digital supply “network” will offer a new degree of resiliency
and responsiveness enabling companies that get there first to beat the
competition in the effort to provide customers with the most efficient
and transparent service delivery.
5Strategy&
The supply chain ecosystem
At most companies, products are delivered to customers through a
very standardized process. Marketing analyzes customer demand and
tries to predict sales for the coming period. With that information,
manufacturing orders raw materials, components, and parts for the
anticipated capacity. Distribution accounts for upcoming changes in the
amount of product coming down the pipeline, and customers are told
when to expect shipment. If all goes well, the gap between demand
and supply at every point in the system is small.
This rarely happens, of course. Forecasting remains an inexact science,
and the data it depends on can be inconsistent and incomplete. Too
often, manufacturing operates independently from marketing, from
customers, and from suppliers and other partners. Lack of transparency
means that none of the links in the supply chain really understand what
any other link is doing, or needs. Inevitably, it seems, the orderly flow
from marketing to customer is disrupted somewhere.
Over the course of the next few years, this will all start to change. This
will not be because we will have fewer disruptive weather events, flat
tires, or outsourcing snafus. No, what is changing is the supply chain
itself. With the advent of the digital supply chain, silos will dissolve and
every link will have full visibility into the needs and challenges of the
others. Supply and demand signals will originate at any point and travel
immediately throughout the network. Low levels of a critical raw
material, the shutdown of a major plant, a sudden increase in customer
demand — all such information will be visible throughout the system,
in real time. That in turn will allow all players — and most important,
the customer — to plan accordingly.
Better yet, transparency will enable companies not just to react to
disruptions but to anticipate them, modeling the network, creating
“what-if” scenarios, and adjusting the supply chain immediately as
conditions change.
The goal of the digital supply chain is ambitious: to build an altogether
new kind of supply network that’s both resilient and responsive.
6 Strategy&
But if companies are to make the digital supply chain — or perhaps
more properly, the digital supply chain ecosystem — a reality, they can’t
just gather technologies and build capabilities. They must also find
people with the right skills, and manage the shift to a culture that’s
willing to ca
y out the effort. In other words, they must transform
their entire organization.
The digital supply chain, as we envision it, consists of eight key
elements: integrated planning and execution, logistics visibility,
Procurement 4.0, smart warehousing, efficient spare parts management,
autonomous and B2C logistics, prescriptive supply chain analytics, and
digital supply chain enablers. Companies that can put together these
pieces into a coherent and fully transparent whole will gain huge
advantages in customer service, flexibility, efficiency, and cost
eduction; those that delay will be left further and further behind.
How these elements work to enable the digital supply chain, and, more
important, how they work together, is the subject of this report.
7Strategy&
The evolution of the
digital supply chain
Behind the great potential of the digital supply chain (DSC) lies Industry
4.0, the fourth industrial revolution. A transformation in production and
automation was
ought on first by steam and water power (Industry 1.0),
then by electrification (2.0), and more recently by the digital computer
(3.0). Industry 4.0, digitization, is about companies orienting themselves
to the customer through e-commerce, digital marketing, social media,
and the customer experience. Ultimately, virtually every aspect of
usiness will be transformed through the vertical integration of research
and development, manufacturing, marketing and sales, and other
internal operations, and new business models based on these advances.
In effect, we are evolving toward the complete digital ecosystem (see
Exhibit 1, next page).
This ecosystem will be based on full implementation of a wide range
of digital technologies — the cloud, big data, the Internet of Things, 3D
printing, augmented reality, and others. Together, they are enabling
new business models, the digitization of products and services, and the
digitization and integration of every link in a company’s value chain: the
digital workplace, product development and innovation, engineering and
manufacturing, distribution, and digital sales channels and customer
elationship management (see Exhibit 2, page 9).
At the heart of all this activity sits the digital supply chain, and it is
key to the operations of every company that manufactures or distributes
anything. Indeed, for many companies the supply chain is the business.
It extends the vertical integration of all corporate functions to the
horizontal dimension, knitting together relevant players — the suppliers
of raw materials and parts, the production process itself, warehousers
and distributors of finished products, and finally the customer — through
a network of sensors and social technologies, overseen via a central
control hub, and managed through an overarching data analytics engine
(see Exhibit 3, page 10).
Driving the transformation to the smart supply chain are two tightly
intertwined trends. On one hand, new technologies like big data analytics,
the cloud, and the Internet of Things are pushing into the market.
8 Strategy&
Exhibit 1
The long road to Industry 4.0, the digitization of every aspect of business
Source: Strategy& analysis
Flexible and integrated
value chain networks
Virtualized processes
Virtualized customer
interface
Industry collaboration
as a key value drive
The invention of
mechanical production
powered by water and
steam started the first
industrial revolution
Mass production,
with machines powered
y electricity and
combustion engines
Introduction of
assembly lines
Electronics, IT, and
industrial robotics for
advanced automation
of production
processes
Electronics and IT
(such as computers)
and the Internet
constitute the
eginning of the
information age
Digital supply chain
Smart manufacturing
Digital products,
services, and business
models
Data analytics and
action as a core
competency
Today
Industry 1.0 Industry 2.0 Industry 3.0 Industry 4.0 Digital ecosystem
XXXXXXXXXX1970s XXXXXXXXXX+
9Strategy&
Exhibit 2
The supply chain at the center of the digital enterprise
Source: Strategy& analysis
B2B2C customer
interaction
Digital customer
experience
Omnichannel sales
integration
Omnichannel marketing
Point-of-sale-driven
eplenishment
Microdeliveries
Customer lifetime
value management
E-finance
Digital HR
Internal knowledge
sharing
Vertical integration
Big data process
optimization
Predictive
maintenance
Condition monitoring
Augmented reality
Integrated digital
engineering
Digital factory
Integrated planning
and execution
Logistics visibility
Procurement 4.0
Smart warehousing
Efficient spare parts
management
Autonomous and B2C
logistics
Prescriptive supply
chain analytics
Digitally enhanced
products
Intelligent and
connected products
and solutions
Automated and
data-based services
Digital business
models
Digital
workplace
Digital
engineering and
manufacturing
Digital
supply chain
Digital products,
services, and
usiness models
Digital custome
and channel
management
Digital applications
Digital enablers