GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY

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GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
Global Lighthouse
Network
Insights from the forefront of the 4th Industrial Revolution
January 2020

CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company
is strictly prohibited
GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
Executive summary
The latest findings from the Global Lighthouse Network, an ongoing research collaboration
between McKinsey & Co. and the World Economic Forum, show that industrial leaders in
applying Fourth Industrial Revolution (4IR) digital technologies are benefiting from a head start
to generate even more value across the entire enterprise, and not just within factories
This brief summary examines what the 44 Lighthouse manufacturers do differently; crucial
insights for the vast majority of manufacturers that aren’t yet competitive with the leaders
At least 70 percent of manufacturers are languishing in “pilot purgatory,” unable to bring
manufacturing innovation to scale; they’re at higher and higher risk of falling permanently
behind the leaders
A detailed look at Lighthouse success cases reveals organizations that are driving outsized
improvement in productivity, sustainability, operating cost, and speed to market
A common thread across Lighthouses is that the digital journey begins with the transformation
of the plant’s system of operations and is then propelled through 6 key scale-up enablers
End-to-End (E2E) Lighthouses in particular are using technology to drive value for the
enterprise in three ways: customer-centered design, seamless connectivity across functions,
and continuous connectivity beyond organizations
Transforming manufacturing from sourcing to delivery increases complexity and shifts
stakeholder incentives as digital connectivity expands; addressing these changes requires
breaking down internal divisions, sharing data externally, and building new capabilities,
demonstrating the importance of the human element in successful technology application.
Adoption of 4IR technologies affect tasks performed and the ways in which people work
together. Lighthouses are preparing their workforce through 6 common actions to maximize the
potential of workers.
                                                                                                    McKinsey & Company   2
GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
The Global Lighthouse Network includes 44 sites where 4IR
technology is successfully deployed at scale

1   Zymergen                    13 AGCO
    Biotechnology, US              Agricultural equipment,                                                                                                                                                                                                                                        37 Johnson & Johnson
                                                                                                                                                                                                                                                                                                     DePuy Synthes
                                   DE
                                                                                                                                                                              19
2   Fast Radius with UPS                                                                                                                                                                                                                                                                             Medical devices, CN
    Additive manufacturing,     14 Rold
                                                                                                                                                                         18
    US                             Electrical components, IT                                                                                                                                                                                                                                      38 Bosch
3   Johnson & Johnson                                                                                                                                                                                                                                                                                Automotive, CN
    vision care                 15 Bayer
                                                                                                                                                                                                                                                           41
                                   Division pharmaceuticals,                                                                      6             10        12                                                                                  32
    Medical devices, US                                                                                                                7             11
                                   IT                                                                                                       9             13        17
                                                                                                                                                                                                                                               33                               44                39 Procter & Gamble
                                                                                                                                        8                      16                                                                                   34
4   Groupe Renault                                                                                                                                                                                                                                    36                  42   43                    Consumer goods, CN
                                16 BMW Group                                                                                                              14 15                20
    Automotive, BR
                                   Automotive, DE                                                                                                                                                                           26
                                                                                                                                                                                                                                                                     40

    MODEC                                                                                       2                                                                                       22                                                                           39                           40 Boashan Iron & Steel
5                                                                                                                                                                                  21
                                                                                                                                                                                                                                                                38
                                17 Procter & Gamble
                                                                                       1                                                                                                                                                            35 37                                            Steel products, CN
    Oil and gas, BR
                                   Consumer goods, CZ                                                 3                                                                                                                                  31

6   Johnson & Johnson                                                                                                                                                                               23 24
    DePuy Synthes                                                                                                                                                                                                                                                                                 41 Haier
                                18 Sanvik Coromant                                                                                                                                                                  25                                                                               Appliances, CN
    Medical devices, IR            Industrial tools, SE
7   GSK                                                                                                                                                                                                                          27 29
                                19 Nokia                                                                                                                                                                                          28
                                                                                                                                                                                                                                                                                                  42 POSCO
    Pharmaceuticals, UK                                                                                                                                                                                                                  30
                                   Electronics, FI                                                                                                                                                                                                                                                   Steel products, KOR
8   Schneider Electric
                                20 Arcelik A.S.
    Electrical components,                                                                                                                                                                                                                                                                        43 GE Healthcare
    FR                             Home appliances, RO                                                                       5
                                                                                                                         4                                                                                                                                                                           Healthcare, JP
9   Groupe Renault              21 Petkim
    Automotive, FR                 Chemicals, TR                                                                                                                                                                                                                                                  44 Hitachi
                                                                                                                                                                                                                                                                                                     Industrial equipment, JP
10 Tata Steel                   22 Ford Otosan
    Steel products, NL             Automotive, TR
11 Henkel
                                23 Saudi Aramco                25 Tata Steel                        26 Siemens                        27 Infineon                                            28 Schneider Electric                29 Micron                                    30 Petrosea
    Consumer goods, DE
                                   Gas treatment, SA              Steel products, IN                                                     Semiconductors, SG                                     Electrical components, ID
                                                                                                          Industrial automation                                                                                                          Semiconductors, SG                          Mining, ID
12 Phoenix Contact                                                                                        products, CN
                                24 Unilever
    Industrial automation, DE
                                   Consumer goods, UAE         31 Foxconn Industrial Internet       32 FOTON Cummins                  33 Danfoss                                             34 Weichai                              35 SAIC Maxus                             36 Haier
                                                                  Electronics, CN                         Automotive, CN                    Industrial equipment, CN                            Industrial machinery, CN                      Automotive, CN                         Home appliances, CN

                                                                                                                                                                                                                                                                                         McKinsey & Company                     3
GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
Lighthouses demonstrate what’s possible with measurable
improvements in operations
                                                                                                                             E2E Lighthouses   Factory Lighthouses

KPIs improvements                                                  Impact range observed                                 Lighthouse example
                                Factory output increase                                                        4-200%

                                Productivity increase                                                           5-160%

           Produc-              OEE increase                                                      3-90%
           tivity               Product cost reduction                        5-40%

                                Operating cost reduction                          2-45%

                                Quality cost reduction                                            5-90%

                                Waste reduction                                   5-45%
           Sustain-
                                Water consumption reduction                 10-30%
           ability
                                Energy Efficiency                                    1-50%

                                Inventory reduction                                               10-90%

           Agility              Lead time reduction                                               7-90%

                                Change-over shortening                                       30-70%

           Speed to             Speed to market reduction                                             30-90%
           market               Design iteration time reduction                   15-40%

                                Configuration accuracy increased         15-20%
           Customi-
           zation               Lot size reduction                                                55%-90%

Source: McKinsey & Company Lighthouse Analysis                                                                                         McKinsey & Company       4
GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
Lighthouses are deploying 92 use cases with some focusing within the
manufacturing site and others on connecting the E2E value chain (1/2)
Manufacturing

Digital assembly & machines                Digital maintenance                      Digital performance management             Digital quality management                 Digitally enabled sustainability
Real-time locating system (RTLS) for       Cost optimization Of heavy operations    Analytics platform for remote              Scanning to replace and improve            Energy optimization by
key manufacturing components               through sensor analysis                  production optimization                    performance for high cost CMM (scans)      predictive analytics
Cycle time optimization through big-       Machine alarm aggregation,               Digital dashboards to monitor OEE          Automated in-line optical inspection to    IIoT real-time energy data aggregation
data analytics on lines PLCs               prioritization and analytics enabled     performance                                replace end-product manual                 and reporting dashboard
Light-guided assembly sequence             problem solving                          Digital twin for remote production         inspections                                Sensor-based data collection for energy
Mixed reality to enable digital standard   Predictive maintenance aggregating       optimization                               Digital work instructions & quality        management
work/trainings                             data based on historical and             Enterprise Manufacturing Intelligence      functions
                                           sensor data                              system to upgrade operations               Digitized standard procedures for line
Advanced IIoT applied to process
optimization                               Real-time pipeline cost optimization     management                                 operations with integrated workflow
                                           based on edge sensors                    Integration platform to connect            Mixed reality glasses to guide operators
Artificial Intelligence-powered process
control                                    Remote assistance using                  machine-level data with enterprise-        in the end-of-line inspection
                                           augmented reality                        software                                   Field quality failures aggregation,
Digital lean tools
(e.g., eKanban, eAndon, eSpaghetti)        Analytics platform for deviation root-   Real-time asset performance                prioritization and advanced analytics
                                           cause identification                     monitoring                                 enabled problem solving
Artificial intelligence guided machine
                                                                                    and visualization                          IoT enabled manufacturing quality
performance optimization
                                                                                    Sensor-based manufacture KPI               management
Digitally enabled variable takt time
                                                                                    reporting                                  Digital quality audit
Digitally enabled modular production
                                                                                    Digital tools to enhance a connected       Quality improvement by
configuration
                                                                                    workforce                                  predictive analytics
                                                                                    Digital recruitment platform tailored to
                                                                                    shop floor
                                                                                    Digital twin of sustainability
                                                                                    Digitally enabled man-machine
                                                                                    matching

                                                                                                                                                                                    McKinsey & Company             5
GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
Lighthouses are deploying 92 use cases with some focusing within the
manufacturing site and others on connecting the E2E value chain (2/2)
End-to-end value chain

Supply network connectivity                 E2E product development                     E2E planning                               E2E delivery                             Customer connectivity
Aggregate demand across end-to-end          3D printing for rapid design prototyping    Predictive demand forecasting              Dynamic delivery optimization            Connected devices to track and
supplier network                            3D simulations / digital twin for product   Real-time S&OP                             Robotics enabled logistics execution     measure consumer behaviors
Should-cost modeling to support make        design and testing                          Real-time inventory management             Digital track and trace                  Mass customization and B2C
versus                                      Testing automation                          (internal / extremal)                                                               online ordering
                                                                                                                                   Asset utilization and yard management
buy decisions                                                                                                                                                               Delivering to customers wherever they
                                            Advanced analytics for performance          Dynamic production scheduling with         for logistics
Analytics driven procurement supported      management across the idea                  digital twin                                                                        are through new delivery solutions
                                                                                                                                   No touch order management
by spend intelligence & automated           to market                                                                                                                       Customer end-user interface to
                                                                                        Dynamic network optimization               Digital enabled picking and transport
spend cube                                                                                                                                                                  configure and order a product, and
                                            Product development using robotics          Predictive inventory replenishment
End-to-end real-time supply chain                                                                                                  Predictive maintenance in fleet assets   track delivery
                                            Big-data / Al enabled product design        Analytics for dynamic warehouse
visibility platform                                                                                                                "Uberization' Of transport               Smart / intelligent packaging
                                            and testing                                 resource planning and scheduling
Supplier and materials quality tracking                                                                                            ATP based on real-time constraints       Customer analytics enabled by RFID
                                            Virtual reality supported prototyping       Dynamic simulation for warehousing
Part traceability from unique digital tag                                                                                          Digital logistics control tower          Online communities for customer
                                            Digital thread implementation through       design
based on surface scanning                                                                                                                                                   insights
                                            product development lifecycles              No-touch master planning (allocation to
Digital supplier performance                                                                                                                                                GPS based map and customer location
                                            Rapid outsourced prototyping                the plants)
management
                                            Crowd-sourcing & competitions to            Digital integrated business planning                                                3D printing
Artificial Intelligence to accelerate
                                            develop digital solutions                   Closed loop planning                                                                Connected devices to track and
scaling of digital applications
                                                                                                                                                                            measure product performance
across sites                                                                            End-to-end real-time supply chain
                                                                                        visibility platform                                                                 Digital Twin of Customer System
Joint data analytics with equipment
OEM for process optimization                                                            Advanced analytics to optimize
                                                                                        manufacturing and distribution footprint
                                                                                        Production planning optimized by
                                                                                        advanced analytics

                                                                                                                                                                                      McKinsey & Company            6
GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
The gap between the frontrunners and the
majority continues to grow

                                                                                             ~50
                                                                                             WEF lighthouses1
                                                                                             expected for 2020, first
                                                                                                                            Only a handful
                                                                                             lighthouses with impact
                                                                                             across the e2e network
                                                                                                                        vanguards went from
                                                                                                                        pilot to lighthouse and
                                                                                                                         are starting to scale
                                                                                             71%                             network-wide

                                                                                             of manufacturers stuck
2017                         2018                           2019               2020          in pilot purgatory
Manufacturers                Initial 16 WEF                 26 WEF Light-houses, several
experimenting                Lighthouses,                   starting to scale, e.g.,…
with several                 e.g.,...                                                                                     Secret formula for
pilots
                                                                                                                          scaling business
                                                            Emergence of E2E connected WEF                                 impact decoded
                                                            Lighthouses

1. Estimated based on pipeline of applications to the WEF

Source: World Economic Forum and McKinsey & Company                                                                              McKinsey & Company   7
To escape pilot purgatory, Lighthouses become the scale-up vehicle
for the entire company

Scale-up architecture                                  Scale-up Unit
Lighthouses as scale-up vehicles                       Lighthouses create an MVP1 of the company wide IIoT operating system

One              Company operating system
                 New way of working across value
                                                                                                        IIoT/Data
                                                                                                        systems               Modernized IIoT stack & data model
                                                       Augmented-reality operators,                                           allow cyber connection between reality
                 chains, people, assets and sites      robotics, and leaned-out,                                              (eg, shop-floor sensors) and IT
                                                       automated processes are                                                systems, and agility to add use cases
                                                       simulated and optimized using                                          in matter of weeks (technology
Few              Lighthouses                           digital twin methodology             Business          Management      democratization)
                 Integrated 20+ use cases that                                              process            systems
                 together innovate a value chain or
                 factory and allow to build the        Upskilled workforce with FoW 2                                         Digital performance management—
                                                       ready profiles via an IIoT                                             with AI-powered, personalized
                 infrastructure to scale                                                                                      dashboards and alerts—creates one
                                                       academy. Agile operating model                    People
                                                       fostered through agile digital                                         source of truth and eliminates waste in
                                                                                                        systems
50+              Use cases                             studio                                                                 decision making

                 Digital innovations that change how
                 business/process is conducted
                                                       Scale-up enablers
500+             Deployments
                 Local transformations that innovate
                                                       Lighthouses build the infrastructure to scale

                 the way we work across the                      Agile approach                          IIoT stack                    IIoT academy
                 organization
                                                               Agile digital studio                    Tech ecosystem             Transformation office
1. Minimum viable product
2. Future of work

                                                                                                                                          McKinsey & Company        8
Key enablers are the secret sauce to scaling fast

Scale-up enablers
Lighthouses build the infrastructure to scale

                              Lighthouses iterate quickly, fail fast, and learn continuously. Create minimum viable products (MVPs) in two-week sprints, and bundle
          Agile approach
                              use-cases for fast transformations This agile approach stands in stark contrast to year-long pilots that are designed for perfection

          Agile digital       To be agile, co-location of translators, data engineers, ERP systems engineers, IIoT architects, and Data Scientists is key, as is
          studio              direction by product managers and an agile coach, who make sure that results are delivered in sprints and iterated fast

                              Lighthouses are preparing existing IT systems to design & modernize the next generation of technology capabilities, ensuring that
          IIoT stack
                              selected IIoT architecture is sufficiently adaptable and future proof

                              Relationships supported by mutual exchange of large amounts of data and collaboration on technology platforms to facilitate the
          Tech
                              exchange and consumption. This is a notable shift from the age-old idea of safeguarding technology solutions and data as a
          ecosystem
                              competitive advantage

                              Given the need to reskill and upskill the workforce at scale, the development of effective learning methods focused on technology
          IIoT academy        becomes critical. Examples include gamification, digital learning pathways, VR/AR learning, and AR and digital custom real-time work
                              instructions

          Transformation      Lighthouses that achieve scale have established governance models to support best practice exchange and prioritization with a focus
          office              on impact and solutions, as opposed to focusing principally on technology

                                                                                                                                                  McKinsey & Company   9
Though Lighthouses have a common set of value drivers - E2E
leaders deliver value in 3 distinct ways

  Value drivers across both areas                                                             Value drivers in E2E Lighthouses                                Lighthouses

            Technology democratization and                                                         Customer centricity
            augmenting the operator                                                                By placing customers at the center of process design
            Technology on the shop floor is transforming                                           and operations, organizations are improving the initial
            ways of working, as operators develop their                                            purchase experience as well as use over the product
            own apps and solutions to facilitate and                                               lifetime
            automate their tasks.
                                                                                                   Seamless connectivity across functions
            Big data decision-making
                                                                                                   Seamless data exchange and transparency across
            Decisions are not hypothesis-driven, but                                               functions reduces friction, allowing for more efficient
            rather are based on big data deciphered by                                             decisions and reduction of redundant communications
            pattern recognition – and not by humans.

            Process and business model innovation
                                                                                                   Continuous connectivity across organizations
            Fourth Industrial Revolution technologies
            enable the lighthouses to develop new                                                  4IR technologies enable unprecedented data collection,
            business models that complement and/or                                                 exchange, and processing; this allows organizations to
            disrupt the traditional business and value                                             create new ecosystems in the manufacturing space
            chain.
Source: Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing                                                                  McKinsey & Company   10
Lighthouses are taking common actions to prepare their workforce
for change

 Transforming the ways in which                  Lighthouses are successfully navigating these changes through 6
 people work together as part of the             common actions to maximize the potential of workers.
 4IR transformation is essential

Lighthouses have invested in people
Keeping people at the center, empowering             Empowering the front line to innovate, using technology and data
them to realize their full potential alongside
that of digital technology, demonstrates that
                                                     Proactively building capabilities, both technical and soft, and managing talent
true 4IR innovation is directly entwined with
people and that the Fourth Industrial
Revolution is, after all, a human enterprise
                                                     Adjusting the organizational structure to enable Fourth Industrial Revolution
                                                     transformation

                                                     Implementing new ways of working such as agile and increased transparency

                                                     Improving day-to-day assembly and operating tasks through automation and
                                                     technology

                                                     Increasing levels of problem solving and collaboration on the front line
                                                                                                                      McKinsey & Company   11
“From-To” illustrates these common actions impacting front-line
workers’ daily work and engagement (1/2)

                       Example
                       lighthouses   From                                                           To
Empowering the                       Innovation in my production line is generated from the         I own innovation in my production line—we all come up with ideas
front line to                        top
innovate, using
                                     I always see scorecards measuring the same KPI—but             All our scorecards are based on data from a single source that now
technology and                       with different numbers                                         we all use to make decisions
data
                                     I spend my time confirming data accuracy and                   My data is tracked automatically from hundreds of sources and feeds
                                     inputting it into multiple report templates                    real-time into scorecards

Proactively building                 I learn the basics to perform my job, but have limited         I have a customized reskilling program, adjusted for my abilities with
capabilities, both                   opportunities to develop other skills                          digital technologies and accelerated multiskilling
technical and soft,
                                     My company relies on our internal knowledge and                My company uses innovative external methodologies for training,
and managing talent                  experience to train our team, and it is limited to the first   blending on-the-job coaching, rotations, augmented reality, and
                                     week on the job                                                virtual stations or a digital learning center

                                     The talent-management system is one-size-fits-all,             Partnerships with universities and other companies offer new
                                     relying on expertise                                           learning opportunities to learn from others, as part of an online
                                                                                                    platform with an individual training journey

Adjusting the                        I see many silos between IT functions and operations           We have new cross-functional team focusing on digital deployment
organizational
structure to enable                  My team is production only—we only focus on running            My team merges production and maintenance, with technicians and
                                     equipment                                                      operators running automated operations
4IR transformation
                                                                                                                                                   McKinsey & Company
“From-To” illustrates these common actions impacting front-line
workers’ daily work and engagement (2/2)

                       Example
                       lighthouses   From                                                      To
Implementing new                     Solution development is finished outside of our           To develop a fit-for-purpose product, the agile team involves us early
ways of working                      operations before being tested                            in minimum viable product (MVP) development, though sprint review
such as agile and
increased                            My discussion with my supervisor is based on the last     My discussion with my supervisor uses real-time and relevant data
transparency                         hour or day with limited data that does not help us       for the losses we are having, so we can diagnose root causes and
                                     problem solve—so its mostly just a review                 make decisions quickly

Improving day-to-                    More than 90% of my shift tasks are repetitive and        For basic tasks, I have help from automation and cobots
day assembly and                     manual
operating tasks
through automation                   I rely on few support tools, mostly paper standard        I have digital tools for real-time help (electronic SOPs, augmented
and technology                       operating procedures (SOPs)                               reality)

                                     I can only manage a few machines since they have          My machines are self-learning with automated centerlining and other
                                     frequent breakdowns, and I have to make adjustments       settings, which eliminates most breakdowns and allows me to track
                                     based on my experience                                    more machines in parallel

Increasing levels of                 I spend most of my time gathering data, yet most          I have relevant data available in a centralized source to use when
problem solving                      sessions lack all relevant data                           needed
and collaboration
on the front line                    Decisions in my line typically are based on experience,   My team relies on self-diagnosing machine-based data to make
                                     not data                                                  decisions

                                                                                                                                             McKinsey & Company
Scale-Up enablers             Value Drivers
                                                   Technology democratization and
                     Agile digital studio
                                                   augmenting the operator

                     Agile approach                Big data decision-making

Appendix –                                         Process and business model
                     IIoT stack
Case studies                                       innovation

                     Tech ecosystem                Customer centricity

                                                   Seamless connectivity across
                     IIoT academy
                                                   functions

                                                   Continuous connectivity across
                     Transformation office
                                                   organizations

                                                                  McKinsey & Company   14
Schneider electric case example for Continuous

Digital technology improves connectivity                                                                                                                                Connectivity across organizations

throughout the value chain allowing organizations
to minimize the effects of deviations in production

Schneider Electric in Batam has created a platform for stakeholders to monitor and
adjust to anomalies within its manufacturing processes

                                                            One Communication Portal
                                                            used by all suppliers to communicate
                                                                                                                                                        Key Impacts
                                                            operational capabilities enabling better                                                    +70% Supplier service rate
                                                            supply chain planning
                                                                                                                                                        -85% Administration time
                                                                                                                                                        +40% On-time delivery
 IIOT Platform                                            Supplier Portal                                          QR Code
 Monitors and transfers                                   Communicates demand                                      Aids company and
 real-time data to supplier                               forecasts to suppliers facilitating                      suppliers to effectively track and
 informing any variations in                              more efficient inventory                                 trace inventory throughout the
 production                                               planning at the suppliers’                               value chain
                                                          locations

Source: https://www.computerweekly.com/news/252451662/Inside-Schneider-Electrics-Batam-smart-factory; Site Visit Report                                                  McKinsey & Company           15
The right portfolio of interconnected                                                                         Nokia Case example for agile working mode

technologies enables operational agility
while minimizing efficiency costs

                                                                     Automated                Ex. Impact on KPIs
          VR                      Flexible Robotics
                                                                     Internal Logistics       Produc-
Virtualization of R&D            Rapid line changes to              Standardized point of     tion lead-
                                                                                                                                           -80%
                                 speed up NPI achieved              use stock replenishment   time
Lessens time to market
and helps identify               through modularity                 through automation
quality issues early             Multi-skill robotics to            No touch material
                                 ensure flexibility in use          handling
                                                                                              Standard
                                                                                              unit per                                     +90%
Wireless network & cloud infrastructure                                                       FTE

Robust private cellular network infrastructure allows for all machines to be upload and
download data seamlessly
Enables plug and play of machines without rewiring LAN
                                                                                              Process
Data from the cloud is inputted into analytics platforms to identify inefficiencies and                                                    -50%
                                                                                              quality
correct those through planning
                                                                                              (PPM)

                                                                                                           2016 17       18 2019
                                                                                                                        McKinsey & Company          16
Fast Radius case Example for Integrated

Digital planning overcomes inefficiencies by                                                                                            data backbone

leveraging total data transparency across
functions to make holistically efficient decisions

Design                      Testing                    Production                Shipment
                                                                                                          Key Impacts
                            Analytics platform captures data throughout the process                       -36% inventory reduction

                            Analytics platform utilizes multiple machine learning algorithms to provide   -90% time to market
Digital Twin
                            specific feedback to all segments of the value chain
for Remote
Production                   Empowers root cause problem solving across all functions by utilizing
                              the feedback to work on the deficient areas
Production can be           The platform is enabled by an open communication protocol between all of
viewed across all sites     the factory’s sensors in the line and the central cloud data storage
Allocates job to the site   Reduced amount of quality issues and rework based on improved design
while solving for           from data feedback loop
logistics and capacity
of the sites

                                                                                                                        McKinsey & Company           17
Organizations place customer experience at the
                                                                                                                                                   Haier Case Example for customer centricity

core of their strategy and utilize technology to
establish a link with performance management

Haier’s air conditioning unit is achieving its transformational goal of moving from a one-time
customer mindset to a lifetime user mentality by utilizing digital technology to connect customer
experience with daily operations

                                                                                                                                             Key Impacts
                                    Real-time                                                                                                +21% quality improvement
                                   Data Monitor
                                                                                                                                             +63% in labor productivity
                               Customer PM analyzes
                                unit performance data                                                                                        -50% customer PM FTE
                               and any deterioration in
Product Purchase                    performance is                   Team/Dept.             Issue Solved             Lessons Applied         -33% lead time
                                       reported
Using interactive                                                With the data provided from the system, the root cause of the customer’s
platform, customer                                               issue can be addressed
customizes and places
                                                                 If production worker error caused the fault, the appropriate individual’s
order
                              Customer Complaint                 record will be updated in the shop floor bonus system accordingly
                                                                    If part error, parts will be examined to determine appropriate course
                        Customer calls with any issues and the       of action
                        data engine retrieves the performance
                        data from unit serial number

                                                                                                                                                             McKinsey & Company           18
SAIC Maxus case Example for customer centricity

E2E Lighthouses continue to generate value outside
the four walls by creating solutions that enable a
differentiated customer centric experience

SAIC Maxus is utilizing digital solutions to revolutionize the mass production of mass customized
vehicles to provide unprecedented service to the customers

                                                                                                    Key Impacts
                                                                                                    -35% Time to market
Online                                 Digital Supply         Smart               Quality
                                                                                                    -20% Production lead time
Platform            Digital Twin       Chain                  Engineering         Assurance
                                                                                                    99.8% Configuration
Customer uses       3D simulation to   Car configuration      Automated           AI tool           accuracy
web app to          configure car as   and production         system              continuously
customize, order,   per customer       queue are              differentiates      checks build      -30% Tooling and
and track status    order              transmitted to         thousands of        progress to       changeover
                                       supplier to initiate   configurations to   identify errors
                                       Just-in-Sequence       confirm correct
                                       shipment               build

                                                                                                                      McKinsey & Company          19
Schneider Electric Case Example for Seamless

As organizations foster cross function                                                                         connectivity across functions

collaboration, they are able to achieve impact at
scale rapidly

                                                                    Integrated cross-
Siloed Teams   Enabled by “transformation group leader”
                                                                    functional teams

               Transformation group was composed

      IT
               of participants from every function ensuring                             Key Impacts
               collaboration throughout the transformation
                                                                      PRODUCTION
                                                                                        +12% operational efficiency
               Collaboration is enabled by a universal technology
               platform, EcoStruxure, with custom app development
                                                                                        -44% machine downtime
   PRODUCT
    DESIGN     that can be plugged-in to the ecosystem                  PRODUCT
                                                                         DESIGN

               Change management program effectively leveraged
 PRODUCTION    the collaboration to establish                              IT

               Quick pilot to scale-up cadence                        MAINTENANCE
 MAINTENANCE

                                                                                                          McKinsey & Company             20
Phoenix Contact Case Example for Seamless

Digital connectivity enables an integrated and trans-
                                                                                                                                          connectivity across functions

parent operating model that results in value creation
greater than the sum of each step in the value chain

Phoenix Contacts uses RFID tags that carry information ensuring transparency and accessibility of
data to all steps of the process

                                                                                                                     Key Impacts
                                                                                                                     24/7 running of the line
           Product                      Testing                   Production                    Delivery             +40% performance
           Design
                                                                                                                     Up to -30% production time
                                                                                                                     Unique products at cost of
                                                                                                                     mass production
Machine building department acts as R&D            All the testing data is     Customer information and delivery
facility for rapid introduction of new solutions   recorded and passed         details are known by production
Digital twin contains all testing specifications   along to the                team and conveyed to the
                                                   production team             customer for real-time order status

                                                                                                                                      McKinsey & Company            21
Zymergen case Example for Seamless connectivity

When utilizing a single repository of data, analytics
                                                                                                                                      across functions

and big data can effectively plan across functions
and contribute to connectivity

Zymergen is employing advanced analytics and automation to digitize the traditional method of
performing lab works

                                                                                                      Key Impacts
                                                                                                      +46% labor efficiency
Sensor              Central Data         Digital Work        Digital Work        Modular
                                                                                                      -42% operating cost
Network             Lake                 Scheduling          Instructions        Automation
                                                                                                      -50% lead time
Sensors at all      All data stored in   System analyzes     Cloud held data     In-house
processes collect   one location and     capacity, machine   used to generate    developed robots     +40% line yield
data and verify     effectively used     breakdown times,    work instructions   capable of using
that the process    across processes     and inventory to    for operators and   standard work
parameters are      to improve           schedule work       machines to         tools are reliable
being met           connectivity         centers and avoid   greatly improve     operators and
                                         costly errors       throughput rate     significantly cut
                                                                                 costs

                                                                                                                        McKinsey & Company          22
The Global Lighthouse Network is a community of production sites and other
             facilities that are world leaders in the adoption and integration of the cutting-
             edge technologies of the Fourth Industrial Revolution (4IR).

             Lighthouses apply 4IR technologies such as artificial intelligence, 3D-printing
The Global   and big data analytics to maximize efficiency and competitiveness at scale,
Lighthouse   transform business models and drive economic growth, while augmenting the
             workforce, protecting the environment and contributing to a learning journey
Network      for all-sized manufacturers across all geographies and industries.

             The Global Lighthouse Network is a World Economic Forum project in
             collaboration with McKinsey & Co, and the factories are chosen by an
             independent panel.

             Find out more: https://www.weforum.org/projects/technology-and-innovation-
             for-the-future-of-production

                                                                               McKinsey & Company   23
Want to
learn more?
Read the summary report at
https://mckinsey.com/business-    Enno de Boer        Yves Giraud         Ingrid Millan
functions/operations/our-           Lead Partner          Expert         Associate Partner
insights/industrys-fast-mover-
advantage-enterprise-value-
from-digital-factories

Read the full report at
weforum.org/whitepapers/fourth
-industrial-revolution-beacons-
of-technology-and-innovation-
in-manufacturing
                                  Julian Salguero     James Hoch          Katy George
                                      Partner       Engagement Manager    Senior Partner

                                                                           McKinsey & Company   24
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