Industry 4.0: Northern manufacturers’ once in a generation opportunity

By Phil Murden, Head of Management Consulting in the North at KPMG.

Let’s forget concerns and uncertainties about Brexit for a minute. The UK manufacturing industry has enjoyed some good news of late. Output rose for the second month in a row in March, taking levels to their highest in over 10 years according to the ONS.

While these national statistics may link to stockpiling for the B-word more than UK-wide prosperity, in the North, where manufacturing is engrained in local consciousness, we can draw more certain conclusions. Demand for goods made in the Northern Powerhouse grew by 3.5% in 2017/18, highlighting that the sector is forging ahead despite this unprecedented period of change.

This growth is a positive sign for Northern manufacturers and looking ahead there is much more reason for optimism thanks to the most significant opportunity for industry-wide transformation in a generation: Industry 4.0.

The rise of digital industrial technology, widely recognised as Industry 4.0, was a major focus of KPMG’s recent report into the state of UK manufacturing and how businesses might gain a competitive advantage in the years ahead. Industry 4.0 covers a vast range of technologies including the Internet of Things, augmented reality, data analytics and cybersecurity. 

For example, a number of car manufacturers are currently demoing technology that can track a driver’s emotional state and, in response, create a soothing environment or warn if things get too stressed. Imagine an equivalent technology monitoring workers’ states of mind on the shop floor to identify and alert to productivity or health and safety issues.

Physical automation is widely recognised as a sure-fire route to slashing operational costs on the shop floor, but some forward-thinking players are now applying this to their planning processes, using digital technology to expedite their back office operations, and advanced analytics to enhance decision making and prioritisation.

Digital twins, meanwhile, have the potential to revolutionise the supply chain. By creating a mirror of an organisation’s processes and related business information, the software creates a continuous loop through which manufacturers can quickly and continuously fine tune the supply chain.

Hearteningly, our research highlighted that half of UK manufacturing businesses are already investing in next generation technology in an effort to boost their productivity.

Through our regular discussions with manufacturers across the North, it’s clear that confidence is mixed when it comes to investment, with many acutely aware that they are sailing into unchartered waters by implementing new technology. In fact, across the UK, nine in 10 business leaders in the sector recognise that they face significant obstacles in their mission to digitise their businesses. Perhaps alarmingly, more than two thirds (67%) went as far as to say they view technology as a threat to their business model.

Strategy is king

The picture that these stats paint is one of confusion and, as a CEO recently told me she had observed from one of her competitors, “disruption for disruption’s sake”. At a time when next generation technologies are often both emerging and unproven in creating profit or growth, we should be encouraging industry leaders to take a step back and ask themselves to what end are they implementing change?

To date, we’ve seen that the proportion of businesses looking at Industry 4.0 technology from a strategic standpoint is relatively small. Instead, most are focusing on tech as a way of reactively resolving tactical ‘pain points’ in pursuit of short-term productivity gains.

While these approaches are powered by the right intention – to release value and resource – the value chain is much wider than just the executional element of the manufacturing process.

This sentiment is reflected in our research, which identified that less than half (46%) of existing digitisation strategies are being led from the executive team or have the necessary measures in place to evaluate success (47%).

Those who prosper as a result of Industry 4.0 will be those who close the gap between the execs, the technologists and the shop floor. By setting a strategic destination from the top, it is then much easier to assess how the introduction of things like automation and Artificial Intelligence can have a positive impact across the business in planning, decision-making and in support of back office functions.

Addressing the skills gap

Data, of course, will be key to understanding how technology might achieve those ambitions. While our insight points to the availability of data and skills as major barriers to genuine transformational change, it’s helpful to know that success doesn’t hinge on every manufacturer needing to be armed with a team of data scientists.

When it comes to data, organisations often fail to recognise what they already have at their disposal – particularly within the minds of their employees. Firms can make the most of this tacit knowledge through the use of relatively basic, self-generated data. In fact, capturing this information and converting it into usable analytical data is a crucial step that leading companies are already taking at low cost to inform investment.

Likewise, when it comes to the availability of talent, Northern manufacturers need only look to the strength of the region’s research institutions, including the Advanced Manufacturing Research Centre (AMRC) in Sheffield and the National Graphene Institute in Manchester. Not only can businesses lean upon world-leading academia on their doorstep, but there is also the potential to upskill in-house resources by collaborating with these institutions. As part of a strategic approach, boards should be mapping out the skills they already have in place against those they will need in the future in order to invest wisely.

Time to be bold

The UK has an opportunity to be at the forefront of technology and Industry 4.0, and for this to happen, it must recognise itself as a world leader. Reduced access to major international markets will decrease the availability of cheaper, skilled labour in the UK. It will be harder to stay competitive, which means technology will have a greater part to play than ever before in driving productivity.

As such, the time for experimentation is over. If Northern businesses are to ride the wave of Industry 4.0 they should strategically pursue technological innovation as a tool for growth and not simply an end in itself. By viewing investment within the context of a long-term transformation strategy, we can ensure the North remains a manufacturing powerhouse for years to come.