Bodo Wiegand heads the Lean Management Institute, which is the German affiliate of the Lean Enterprise Institute. In his latest newsletter, on Wiegand’s Watch, he explains how he feels manufacturers should respond to the German government’s Industry 4.0 initiative.
Here is the full translation of his two articles, followed by my comments on each:
Part 1 — The current situation
Bodo Wiegand: “Conventional wisdom is that a revolution is underway that affects all industries and businesses: With Industry 4.0, fundamental changes are coming – the keyword is Disruption.
The many articles and books on Industry 4.0 describe the future state. Machines exchange information among themselves. Components report where they are and receive information about where they need to go and when, control programs react when machines fail and products are manufactured almost without human intervention. It is a beautiful perspective and an idea for the future. It would be a revolution that would allow high-wage countries to manufacture products that were previously associated with high labor costs.
Indeed, the digital revolution has far-reaching consequences on how we do business, think, and live: new business models appear, , industrial processes are optimized, and manufacturing processes are revolutionized.
Machines begin to take care of themselves. And, in the Internet of Things objects start to communicate independently with each other. Soon computers will be no longer be just tools, but each company will be a digital organization.
But this information chain has a prerequisite: the whole production system must have been properly sized properly, all possible interference must be manageable, all variants must have been considered, and all processes must be ready.
This presentation of the target state is a vision to strive for, that you should have a vision in mind if you want to align an ‘analog’ company strategically and lead it into the digital future.
Here is unknown potential to be realized, and the opportunity to gain decisive advantages over competitors.
But the Industry 4.0 theme seems to be completely fallen into the hands of IT, with Big Data, networking, digitization, etc. as the keywords.
Most companies invest huge sums in their digital future. They spare no expense to bring old data files to the latest IT standards. Extra shifts are called to transfer the knowledge and experience of all employees into comprehensive IT systems. And the most expensive consultants are hired who develop exclusive software solutions that we believe prepare us for the digital future. But soon problems arise.
The following questions come up:
- How can the current, traditional companies meet the challenges of Industry 4.0?
- How do I get there without putting my company at risk?
- How do I manage the transition to Industry 4.0?
Many people have these questions, but, so far, there are no conclusive answers. The available books are only for IT and machinery companies, who will present their solutions to manufacturers with the mantra: “If you use our programs, machinery and equipment, you become an Industrial 4.0 enterprise.”
The descriptions of these ideas are forward-looking. But no one has been formulated what the roadmap to this future might look like.
If one excludes the case of a company throwing overboard its the old structures, machines, processes, and people to build something completely new on a ‘greenfield,’ we must ask ‘how can I get out of the current state of a more or less analog manufacturing to my vision of a digitized enterprise – an Industry 4.0 enterprise?’
Too often, companies attempt to map their existing business model one-to-one into the net, ignore the inertia of outdated or rigid structures, where functional departments and fiefdoms bring value creation to a halt.
95% of companies in the German-speaking countries are still functionally organized. It is only in production that they have often succeeded, in moving from the job-shops to the process-oriented flow lines.
But interfaces remain disturbances that cause substantial inefficiencies. Interfaces between functions inevitably creates waste because the functional optimization does not work across interfaces, and no overall optimum can be achieved.
If you start moving such function-oriented companies into the digital age, you are doing it with inefficient or unstable processes, and thereby automating the production of digital waste!”
Michel Baudin‘s comments:
As in previous posts, I share Wiegand’s skepticism about Industry 4.0 keeping its promises. IT has developed far beyond manufacturers’ ability to use it effectively, and it has been true as far back as I can remember. I do, however, part company with him when he implies that organizing by functional departments is always wrong.
Even in production, it is often technically impossible or impractical to have dedicated resources by product or product line from start to finish, and there usually are processes that remain as common services, shared by all products and processes, including painting, electroplating, or heat treatment.
And breaking up support departments to integrate their members into different “value streams” is a simplistic idea that does not always improve performance, for a variety of reasons:
- Some support functions, like maintenance, require a critical mass to make sure there is always one technician available to respond to an emergency.
- Employees with special technical skills need to interact with colleagues for cross-fertilization, and need to stay current in their field.
- Employees who interact with outside entities like customers, suppliers, logistics services, etc., represent the whole company, not just a “value stream,” and must speak with one voice.
Not all functional silos can be blown up, and those that remain have their own IT needs, and making sure that they and their IT systems play well across department interfaces in a real challenge, discussed in a previous post.
Part 2 — What should we do?
Bodo Wiegand: “More and more companies fail in trying to go digital: as long as they do not solve the problems created by a functional organization, large investments in IT may make them more productive in in some processes, but they will not make the whole company operate more efficiently or more effectively, and thus not economically.
Success remains elusive in spite of all efforts. Instead of saving costs or at least becoming fit for the future, the companies get bogged down in complex IT projects. The degree of waste is going up instead of down. As long as companies do not strategically adapt their processes to the challenges of the digital world and stay focused on value creation, they are bound to fail in their IT projects.
Before a programmer even turns on his computer, the company needs to align its processes strategically and consistently to the new digital challenges. Digital customers have different requirements than analog. The logic of value creation follows other parameters. First optimize the processes, then go digital!
What’s to be done?
A successful effort must be connected to the realignment of the value creation process. This is based on four pillars:
- Align the compass. Describe the goal state, consistently geared to customer benefits. Lead organization to convert from from functional thinking to process thinking.
- Stabilize procedures. In whole value chain define, streamline and stabilize all processes in detail.
- Install autopilots. Insert self-governing control loops, namely starting from the customer through production to the supplier.
- Train the leadership. Develop leaders to change from functionally-oriented managers to value-creating team players.
These actions were profitable for companies already in the analog world; in the digital world, they are essential for survival, because they are the foundation to bring a company on the road to Industry 4.0. Without this evolution in a company, the investment in new IT is senseless money burning, for the following reasons:
- If I lose sight of the compass and don’t align my business with the value creation process, I will lose my way.
- If I computerize unstable operations, I automate the production of waste.
- If I don’t reduce complexity through self-steering control loops on autopilot, I will go not master the complexity and get lost in the data set.
- If I don’t train the staff and management in leadership, they will not will not understand their new roles and remain stuck in their myopic, function-centered thinking.”
Michel Baudin‘s comments:
As I indicated in a prior post, just because the German government starts a research funding program called “Industrie 4.0” to usher in a “4th industrial revolution” based on IT in manufacturing does not mean you have to believe it will happen. The history of IT in Manufacturing provides plenty of reasons to take the stated goals with a grain of salt. This program may yield useful technology, but the grand vision painted in its promotional materials strains credulity.
This being said, the gap between the capabilities of today’s IT and the use of it in Manufacturing is an improvement opportunity. What I read in Wiegand’s post is that manufacturers need to get their act together before doing anything about their IT.
If “doing something” about IT means immediately replacing all legacy systems, I agree with him that it is usually a waste of money, time, and effort. The more tightly coupled the systems are to daily operations — entering orders, receiving materials, issuing materials to production, posting work instructions,… — the more difficult they are to replace, with the debugging of new systems causing possibly fatal disruptions.
For all their flaws, however, the legacy systems sort of work and are repositories of information that is essential to any effort at improving operations:
- Product, process and resource definitions
- Purchasing, engineering and manufacturing bills of materials
- The status of inventory, bookings, billings, and backlog
- The history of orders and shipments
- The history of quality performance
Doing something about IT from the start of an effort at improving operations overall, should be an effort at retrieving more useful data out of the legacy systems and crunching it with more powerful analytics. As explained in my comments on Excel Hell, it involves developing a shared information model for all departments and retrofitting tools like a data warehouse or an in-memory database.
It is done for a fraction of the costs of new systems, and gives the organization the knowledge it needs to specify requirements for new systems when it eventually decides to buy them.