Fourth Industrial Revolution

Here’s how factories can lead in the Fourth Industrial Revolution

An employee works on an assembly line producing automobiles at a factory in Qingdao, Shandong Province, China, March 1, 2016. Activity in China's manufacturing sector shrank more sharply than expected in February, surveys showed on Tuesday, prompting smaller companies to shed workers at the fastest pace in seven years and suggesting Beijing will have to ramp up stimulus to avoid a deeper economic slowdown. REUTERS/Stringer ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA.       TPX IMAGES OF THE DAY      - GF10000328892

For a group of ‘lighthouse’ companies, AI is transforming the nature of work. Image: Reuters

Charlotte Edmond
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Fourth Industrial Revolution

This article is part of: Annual Meeting of the New Champions

There are as many people working in manufacturing in the US now as there were 70 years ago.

At the tail end of 1949, 12.88 million people were employed in manufacturing: seven decades on and almost equal numbers have jobs in the sector, according to the US Bureau of Labor Statistics.

While in 1949 the US was in the middle of a harsh recession, and a push by the White House to boost manufacturing jobs has driven up numbers more recently, the comparison still provides food for thought given the wholesale changes in the economy and broader workplace since.

Despite – and also because of – the changes that have taken place in our factories in previous decades, the manufacturing sector is still ripe for innovation. Many manufacturers have yet to embrace the Fourth Industrial Revolution, turning digitization and analytics to their advantage. Stagnating productivity and volatility are still presenting significant challenges for many.

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However, a group of 'lighthouse' manufacturing companies, identified by the World Economic Forum, in collaboration with McKinsey & Company, are successfully finding opportunity in using Fourth Industrial Revolution technologies. For them, innovations like AI are transforming the nature of the work they do, driving greater efficiencies and enhancing the work of their human employees.

The global Lighthouse Network represents a range of industries and geographies and provides a platform for sharing knowledge and best practices for scaling up technology adoption. Ten new factories have been added to the network.

Here are some of the traits lighthouses have in common:

1. Technology working alongside humans, not replacing them

Contrary to concerns about robots taking our jobs, industry leaders are adopting technology in ways that allow employees in production to enjoy working routines that are less repetitive, and more interesting, diversified and productive.

At the Arçelik lighthouse in Ulmi, Romania, for example, automation of low-value tasks has reduced operational costs by 11%. The Ford Otosan site in Kocaeli, Turkey, meanwhile, uses digital manufacturing and advanced automation to increase its output by 6% and employee engagement by 45% without any additional cost.

2. Big jumps, not small steps

The manufacturing sector has typically been characterized by incremental changes and small improvements: lighthouses, however, are making changes that fundamentally reset industry benchmarks.

Image: McKinsey&Company

Analysis by McKinsey & Co suggests there will be a marked difference between those manufacturers that are early AI adopters versus those that lag behind. As the chart above shows, front-runners can expect a 122% hike in cash flow, versus a 10% cumulative change seen by the followers.

3. Collaboration is key

Innovation happens best in an ecosystem that involves working with universities, start-ups and other technology providers. Leading manufacturers are showing the way but they are not working in isolation.

Nokia’s site in Oulu, Finland uses 5G to bring together its design and production functions to introduce new products. Various technologies connected by a private wireless network have allowed the site to improve productivity by 30%, and it now brings products to market 50% faster than before.

Image: McKinsey&Company

The Posco plant in Pohang, South Korea works with AI to boost productivity and help drive improvements in the steel industry. It is working with academia, SMEs and start-ups to build its own smart-factory platform.

And Schneider Electric’s base in Batam, Indonesia is sharing a number of its technology solutions with its customers and partners, improving the operations of the entire ecosystem.

4. Size doesn’t matter

Innovations with the biggest impact are not the preserve of the biggest companies. SMEs can also make huge changes by focusing on key issues that don’t require significant investments.

Likewise, innovation and access to new technologies isn’t limited to the richest nations. China is home to the largest number of lighthouses, while a number are in Eastern Europe.

5. New isn’t always better

Big changes can be made by adapting existing systems and technologies rather than just by investing in new ones. Legacy equipment has not presented a barrier to innovation for many of the lighthouses, which have instead transformed their existing operations.

The remote location of the Petrosea plant in Tabang, Indonesia throws up a number of challenges. But by adopting technology like optimized truck dispatch, real-time monitoring and drone surveys the mine was transformed from a loss-making entity into a profitable one in just six months.

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Related topics:
Fourth Industrial RevolutionEconomic GrowthJobs and the Future of Work
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