Wishes that are coming true with digital transformation

24 June 2019
From our ‘Thinking outside the box’ series
The trending concept of a 'digital transformation' or 'Industry 4.0' involves many previously established ideas from supply chain management, writes Professor Behnam Fahimnia.

Mechanisation (1760 – 1840) was the first industrial revolution when machines powered by water wheels or steam engines slowly replaced making goods by hand. Mass production was the second industrial revolution (1870 – 1914), as the technological revolution, characterised by introducing assembly lines, interchangeable parts and product/process standardisation (and of course followed by the internal combustion engine and cars and trucks). The third industrial revolution (1960-present) occurred with the mass use of computers enabling manufacturing automation (industrial robots) and computerisation (CNC machines).

The first and third revolutions were the results of emerging new technologies (the steam engines and computers). In contrast, the second revolution was more about optimisation than invention of new technologies. The fourth industrial revolution, commonly known as Industry 4.0, could be a combination of both “invention” and “optimisation”. For example, additive manufacturing, like 3D printing, is the core of the emerging technologies that contribute to the fourth industrial revolution (invention). The results are personalised production and shorter supply chains (reduced cost and environmental burden). On the other hand, transformative technologies such as artificial intelligence, machine learning, sensor technology, advanced robotics, and data analytics may not be as revolutionary, but they can significantly improve how we manage our supply chains today (perhaps more evolutionary, than revolutionary). Similarly, the blockchain concept is expected to play an important role in the supply chains of the future. We believe that 2020s will witness the true digital transformation, a transition toward effective machine-to-machine and human-to-machine communication as well as fast integration of decisions, feedback and control loops.

The terms “Digital Transformation” and “Industry 4.0” have proliferated across trade, business and academic publications in recent years. It is true that the digital age has started to have some real impacts and is rapidly transforming how businesses operate. The extensive use of advanced robotics, artificial intelligence, sensors, and internet of things (IOT) technologies have resulted in improved supply chain integration, visibility, responsiveness and predictive maintenance (reduced disruptions and unplanned downtimes across the supply chains).

The reality is that much of what is reported as new or emerging concepts is not especially new; it has existed since supply chain management was introduced almost three decades ago. The popular buzzwords of digital transformation and Industry 4.0 such as “integration”, “cooperation”, “collaboration”, “visibility” and “data sharing” are the primary keywords of supply chain management. The breakthrough is that new technologies are now available (and affordable) to help turn these concepts into reality.

For example, inventory control systems and feedback mechanisms have existed for several years. But true supply chain visibility can only be achieved through the extensive use of network-connected sensors and advanced data analytics. As another example, cooperation and collaboration with customers, suppliers and suppliers of suppliers are not new concepts. But how can the complex supply chains of today achieve this without the use of IoT technologies and connected sensors feeding back live product information during product lifecycle? This is indeed an exciting time for supply chain executives witnessing their wishes coming true.

There are many opportunities and challenges to take into consideration as we move toward the fourth industry revolution. Firstly, digital transformation offers seemingly limitless options for technology investment. The key question for most businesses is where across the supply chain to invest resources, and which technologies can best serve their strategic needs. Recent survey results indicate that digital transformation is a top strategic objective for most organisations; however, only a small portion of businesses have identified avenues for profitability in the short/medium term. Interestingly, most operations and supply chain executives do not appear to have a seat at the table when it comes to decisions about digital transformation investments.

Secondly, transformation comes with many low hanging fruits that are easy to implement, which will offer business improvements in the short to medium term. But the real opportunities that provide competitive advantage at the national and corporate levels are more difficult to achieve in terms of resource allocation, time commitment, and level of disruption. Companies tend to be conservative when it comes to technology deployment, especially when those technologies tend to disrupt operations and require specialised skills. Digitalisation may sound like one which comes with its own challenges and risks. Equally important are the challenges associated with organisational restructuring when moving from a physical to digital infrastructure.

Thirdly, governments and key industry stakeholders need to recognise the significance of being an active participant in this domain. Australia is well-placed to take advantage of the opportunities created by digital transformation. Digital technologies have potential to provide a major boost to our economic competitiveness by tackling our traditional challenges of high labour costs and long distance to suppliers/markets. Success in this domain requires close collaboration between educational/research institutions and industry to develop skills, design and implement technologies, and manage the transition.