Industry 4.0 – transforming the back office as well as the factory floor. by Stanley Chia
The UK Government’s Industrial Digitalisation Review announced that over the next ten years, industrial digitalisation could boost manufacturing by £455bn, increasing annual sector growth by three per cent.
The Review, which brought together input and recommendations from more than 200 stakeholders, including companies such as Rolls Royce, GKN, IBM, Accenture, various academic institutions and R&D centres of excellence, outlines the potential impact of rolling out advanced digital technologies including robotics, 3D printing, augmented and virtual reality as well as artificial intelligence. It believes these innovations could create a net gain of 175,000 jobs whilst reducing CO2 emissions by 4.5 per cent.
So why is digitalisation particularly pertinent at this time and how is the analogue approach holding businesses back? In short, it is because the world as we know it has changed. Across all industries, technology and digitisation have become fundamental to organisational success. In fact, research and advisory firm Gartner went so far as to predict that a lack of digital competence could cause 25 per cent of businesses to lose their competitive ranking this year.
There is no doubt that adopting digitalisation or ‘Industry 4.0’ as it is often called is now a national imperative. It will build on the UK’s natural technological strength, nurture R&D and utilise our highly skilled workforce. Encouragingly, a recent survey from Fujitsu found that nine in ten firms (89 per cent) are currently planning, testing or implementing digitalisation initiatives.
So, what exactly does digitalisation mean? According to Gartner, digitalisation is the ‘use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.’
Understandably, this is causing a revolution in manufacturing. Companies are using technology to move from mass production to customised production, and it’s happening at a rapid pace. At the centre of it all is the Internet of Things (IoT) and a vision of an interconnected factory where all equipment is online, networked and able to make decisions and communicate with other machines. Every piece of machinery is able to store specific information on individual customers and therefore able to manufacture according to customer preferences. The IoT can also provide real-time feedback and alert companies of defects or damaged goods, reducing costs and eliminating waste.
While reams have been written about IoT, robots and artificial intelligence, we are keen to spread the message that digitalisation in manufacturing isn’t just about the production line. It is also about the behind the scenes functions that keep businesses operating day to day and are often overlooked.
Transforming the back office as well as the factory floor
Take the accounts payable process as one example. Every day, many manufacturers waste time and energy manually checking invoices received from an increasingly complex supply chain. Later, a mass of unanalysed procurement data lies stagnant in these paper invoices.
Turn this process digital and there are many benefits. Technology like Tungsten Network’s e-invoicing platform can reject incorrect invoices before they even arrive, reduce invoice fraud and eliminate inefficiencies in the payment process. In addition, innovative analytics technology can be used to gain insight into spending trends and inform procurement decisions. This insight is vital as according to International Data Corporation (IDC) by 2025 the amount of data on the planet will grow to 163 zettabytes. Being able to penetrate and analyse this wealth of data will be paramount to succeeding in the future.
Barriers to entry
There are barriers to implementing digital technology – the initial investment, legacy systems and organisational silos can cause problems, along with company culture and individual attitudes. The good news however is the economic benefits of digitalisation are undeniable – our research has shown that digitising 10,000 invoices, for example, will likely save a business £58,000. Sometimes however the numbers alone aren’t enough – it can be a struggle to overcome old fashioned, paper-based processes that have been deeply ingrained in workers.
If this is the case, it is good to emphasise how digitalisation can remove friction in the supply chain, something that is easy to identify with. The manufacturing industry is extremely reliant on its supply chain and the strength of relationships between buyers and suppliers can have a huge impact on productivity. Having to chase for payment or failing to process invoices in a timely way can poison a manufacturer’s relationship with a supplier and all the ‘good will’ can be lost.
Teams tied up
It’s not just supply chain relationships that can be irreparably damaged. Tungsten Network’s inaugural Friction Index report highlighted how much time and therefore money is spent on inefficient payment practices.
We found the average UK business loses £88,725 per year through supply chain inefficiencies – this equates to thousands of team hours wasted every year dealing with payment issues. These include everything from chasing for purchase order numbers to processing paper invoices and responding to supplier enquiries. Understandably, given the wasted money and man power, 36 per cent of businesses stated that removing friction from the payment process is a top priority.
If manufacturers aren’t tied up chasing invoices or receiving phone calls from suppliers, they have more time to dedicate to expanding their global operations and driving growth.
Many are hoping that Industry 4.0 will help fix the productivity puzzle currently perplexing politicians and business leaders alike. Economists warn that the UK’s productivity continues to lag behind its major trading partners such as the US, France and Germany and the recent Autumn Budget saw the Chancellor announce that the OBR has lowered its forecast for productivity growth from two per cent to 1.5 per cent in 2017. While the most recent quarterly Purchasing Managers Index (PMI) figures show a rise in productivity for manufacturers, the industry is keen to ensure stagnant productivity doesn’t hold it back.
To me, industry 4.0 means allowing dataempowered growth strategies to pick up pace. Digitalisation should be revolutionising all aspects of the way we do business, just as it is revolutionising the way we live our personal lives. It can help manufacturers transform their production lines and supply chains and as a result have better visibility, control, and improved productivity.
Stanley Chia is Vice President and Global Head of Sales at Tungsten Network. Tungsten Network is a secure e-invoicing, purchase order services and workflow platform that brings businesses and their suppliers closer together with unique technology that revolutionises invoice processing, maximises efficiency and improves cash flow management. Tungsten Network processes invoices for 67 per cent of the FTSE 100 and 76 per cent of the Fortune 500.