Q: People are talking about a “forth industrial revolution”. What does this mean?

KD: It means we’re on the brink of significant production and operational change. In the engineering and manufacturing sector (E&M), we will see shorter product lifecycles, increased individualization to fulfill customer demands, and many technological advances and new materials. These changes will necessitate more intelligent production processes.

At the center of this new intelligent production paradigm will be the ‘smart factory’. Connected machines, work pieces, and systems are already starting to create intelligent networks along the entire value chain and control each other autonomously. Instead of simply processing products as programmed, new intelligent industrial production machinery will also, in real time and with almost complete autonomy, gather and process information about orders and production, and adjust parameters accordingly. This injection of flexibility into the production process will allow E&M companies to increase product variety, making smaller quantities at an acceptable cost.

Manual work processes will also be supported by new technologies – for example, augmented reality (AR) tools will enable semi-skilled workers to perform more complex tasks, increasing efficiency and allow the re-design of entire production chains. In addition, technological developments are enabling greater connectivity and integration between every player in the E&M value chain.

Q: What is the key driver of these changes?

KD: The most important driver for Intelligent Manufacturing is increasing volatility and other exogenous threats. In the past, the market price for oil, iron ore, and other key resources was usually determined by supply and demand. Now, prices are impacted by other factors such as speculation, trading activities, geopolitical interests, and the weather, and this is driving up the volatility of these important resources for E&M businesses. As a result, there is greater uncertainty and less predictability in planning and decision-making processes.

If you operate globally, you face ever-growing exposure to geopolitical and ecological risks. Global warming and climate change are causing more frequent and more intense tsunamis, droughts, and other natural disasters, and the most vulnerable areas of our planet tend to be emerging regions such as sub-Saharan Africa, and South and Southeast Asia. Many E&M companies now take into consideration the risk of geopolitical disruption (such as political instability, protectionism, armed conflicts, and piracy), adding to the complexity of reliable forecasting and service delivery.

 

Q: How should E&M companies respond to these increasing threats?

KD: The answer is to improve resiliency. Up until now, E&M companies have tended to design supply chains with the ultimate goal of minimizing cost and maximizing customer benefits. Now we expect this to change. In future, supply chains will be designed for greater resilience and built around risk management. Companies must consider all potential risks to the supply chain, and this process should start as early as the R&D stage for a new product, extending through production planning and supply chain design and management. For existing supply chain networks, new contingency plans will be required, and supply chain managers must map critical paths or pinch points throughout their supply networks, right down to their suppliers and their suppliers’ suppliers, and of course to downstream customers.

The changing risk landscape may even influence where companies choose to locate manufacturing sites. Stable, low-risk environments could become more popular, surpassing locations with lower wages but higher risks. And as E&M supply chains evolve into digital supply chains, companies will also need to focus on achieving digital resilience against cyber-attacks.

For more information, download the recently published DHL Engineering & Manufacturing white paper here.

Published: May 2016

Image: DHL