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Operations
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Industry 4.0 adoption
with the right focus
A new tool can help companies unlock digital transformation—for
operations excellence in the next normal and beyond.
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By Matteo Mancini
Leads our work in advanced industries in Southeast
Asia, and advises manufacturing and technology
companies on a broad range of productivity
improvement and cost-optimization programs
By Gustavo Marteletti
An electronics engineer specializing in techenabled operations
By Alpesh Patel
Leads McKinsey’s Digital Capability Centers in Asia
Pacific; pursues cutting-edge insights on Industry
4.0 to help companies across the operational value
chain
By Laura Requeno
A WEF-certified Industry 4.0 Smart Industry
Readiness Index assessor
By Tingfeng Ye
Leads McKinsey’s Digital Capability Center in
Singapore
DIGITAL | TRANSFORMATION
October 21, 2021 ‑ Long before the COVID19 pandemic, companies were already
seeing the significant benefits that Industry
4.0 technologies can provide when adopted
at scale. The pandemic’s disruptions have
underscored that integrating advanced
technologies better equips organizations to
achieve operational excellence—the
foundation of long-term resilience to and
sustained competitive advantage.
Recent evidence shows that the move
towards digital transformation is gaining
momentum across virtually all sectors. In
fact, in a survey of more than 400 global
manufacturing companies, 94 percent of
respondents indicated that Industry 4.0
helped them to keep their operations
running during the crisis, and 56 percent
said the digital transformation they
undertook was essential to their pandemic
responses. Conversely, for those companies
that hadn’t scaled—or even begun—their
digital transformation, the past year has
served as a serious wake-up call to review
operational strategies and refocus on
Industry 4.0 capabilities.
Breaking out of
the ‘pilot trap’
Indeed, our yearly global survey of
manufacturing companies indicates that
more than ever, most companies remain
stuck in a “pilot trap” when it comes to
Industry 4.0 implementation. In late 2020,
74 percent of respondents indicated that
they were facing such challenges—even
more than the 70 percent who said so in
2017. Yet over the years it’s also become
increasingly clear what it takes to break free
from the trap: a clear articulation of the
company’s desired future, an understanding
of its most pressing business problems, and
a highly specific perspective about which
technologies could address them.
Business looking to free themselves from
the pilot trap have additional resources as
well. One is the Smart Industry Readiness
Index (SIRI),a neutral, third-party review that
evaluates the industry 4.0 readiness of a
company’s production capacity. The
assessment is comprehensive, reviewing
processes (including operations, supply
chain, and product lifecycle), technology
(automation, connectivity, and intelligence),
and organization (talent readiness). And it’s
been endorsed as a standard assessment by
the World Economic Forum (WEF), in
partnership with a network of leading
technology companies, consultancy firms,
government bodies, and industry and
academic experts.
Delivered by a worldwide pool of certified
assessors, SIRI has been used by more than
500 company sites across 15 countries,
delivering insights to help industrial
companies benchmark the progress of their
digital transformations. SIRI therefore serves
as a sort of guide on the digital journey. And
in some cases, SIRI is also a catalyst,
encouraging organizations to (re-) start,
scale, and sustain their adoption of Industry
4.0.
Through a clear definition of maturity levels,
SIRI allows companies to understand what
best-in-class looks like, where they stand
compared to peers in their industry, and set
their aspiration accordingly.
Targeting the
right Industry 4.0
priorities
For users such as the site head at the
Infineon Plant in Singapore, SIRI revealed
opportunities to investigate new dimensions
not considered previously, so the company
could pursue its Industry 4.0 strategy in a
more targeted fashion. Advanced analytics–
enabled scheduling and dispatching
increased personnel efficiency by 50
percent, while a manufacturing control tower
eliminated rework and an IoT-enabled
manufacturing system reduced material cost
by 10 percent.
A healthcare company that suspected large
differences in operational effectiveness at
its plants used SIRI to evaluate Industry 4.0
maturity across all manufacturing sites. The
exercise enabled the organization to assess
site-specific issues and surfaced
opportunities that were being missed during
the overall digital-transformation journey. In
particular, the company found that at some
locations, limited digital integration and
manual data transfers held the
transformation back, while others lagged
behind in using advanced analytics to
visualize shopfloor performance. The results
also pointed to a need for workforce
learning and development to drive capability
building.
A Latin American pharmaceutical company
had identified the need for an independent
view their industry 4.0 maturity of their
plants. Despite having addressed lean
transformations at several sites, the
company had yet to explore tech-enabled
operational transformations. SIRI offered a
holistic view of smart-industry potential,
which helped company leaders prioritize
their efforts around the business.
For manufacturers, digital is no longer
optional. With the right approach and
support, digital transformation is possible for
companies regardless of size or sector—and
Industry 4.0 leaders are already realizing the
benefits of their investments. By focusing
digital efforts on the strategically important
business opportunities, companies can
achieve real scale at an accelerated pace.
That’s how long-term strategic advantage is
built.
To find out more about SIRI, please contact
us.
Matteo Mancini is a senior partner in
McKinsey’s Singapore office, where Alpesh
Patel is a partner and Tingfeng Ye is a
consultant; Gustavo Marteletti is a
consultant in the Buenos Aires office, and
Laura Requeno is a consultant in the Abu
Dhabi office.
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Ops 4.0—The Human
Factor: A class size of 1
Can your organization offer every employee a unique learning
experience?
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By Markus Hammer
Has a passion for capability building with deep
expertise in lean and green operations and the use
of advanced analytics in operations; experienced in
successful large-scale operations-transformation
programs
By Maya Harris
By Kiran Ramnane
By Erin Blackwell
OPS 4.0 | CAPABILITY BUILDING | DIGITAL
July 19, 2021 ‑ Over the past four years, this
blog has looked at the human side of the
technology-driven transformation that is
reshaping business operations. We’ve made
the case for large scale, systematic
capability-building efforts, arguing that
companies won’t capture the benefits of
new digital technologies if they don’t equip
their people with the skills to use them
effectively.
That idea is gaining momentum. In a
McKinsey survey conducted in August 2020
of 1,240 business leaders around the world,
nearly 80 percent of respondents
characterized capability building as
extremely or very important to the long-term
growth of their companies, up from 59
percent before the COVID-19 pandemic. A
few months later, 69 percent of respondents
in another survey told us they were doing
more capability today than before the crisis.
While recognizing the need for upskilling is
one thing, designing and delivering an
effective program is another. Not only must
companies deliver training at an
unprecedented scale, they must also ensure
that each individual in the organization gains
the right combination of skills. With dozens
of roles and thousands of candidates, each
with different needs, aptitudes, interests,
and learning styles, Ops 4.0 capability
building is a formidable task.
Successful companies are meeting this
challenge by taking a “customer-back”
perspective. Based on a clear understanding
of the skills, behaviors, and mindsets the
organization requires, these companies
identify capability gaps and improvement
opportunities across their workforce. Then,
instead of offering “one size fits all” training,
they design their capability programs based
on detailed analysis of the needs of
individual learners—while instilling a culture
that fosters learning throughout the
organization. That involves the application of
a few powerful principles.
The T-shaped skills profile
For any given role, some skill requirements
are universal. Every team member may need
to be comfortable working with data, or
solving problems in a structured way, for
example. Beyond those basics, however,
they will also want to develop a deeper
understanding of topics that allow them to
make a real difference in their job. That
could be the application of machine learning
to optimize a specific industrial process, or
how to design in sustainability into products
and services. The result is a T-shaped skills
profile, with a broad set of generally
applicable skills, supplemented by a spike of
specific expertise (exhibit). An effective
capability program must be able to deliver
both sets of skills, and the business needs to
keep track of where those spikes of
specialist knowledge are within its
workforce.
Exhibit
Learning on demand
People learn faster and remember more
when the content seems relevant and
directly applicable to their jobs. When the
pandemic forced millions of staff to work
from home last year, most quickly became
adept at the use of remote collaboration
tools. Successful capability-building
programs allow staff to access training when
they need it, for example through frequent
scheduled courses, apps, or video-ondemand services.
Multiple delivery formats
With so much ground to cover, companies
can’t rely on traditional classroom-based
learning as their sole way of imparting new
skills. Leading organizations are employing
a mix of learning approaches. They offer
self-service formats such as podcasts,
videos (some mimicking popular viral-video
formats), and e-learning modules; run
instructor-led virtual sessions via webcast or
video-conferencing platforms; and provide
multiday intensive courses that involve both
intensive learning and valuable networkbuilding opportunities.
There’s a lot to do, but companies don’t
need to do it all themselves. The strongest
capability-building programs draw upon a
range of resources, including brick-andmortar academic institutions, specialist
online universities, and commercial training
providers. Supplemented by bespoke inhouse content, these options can give an
organization the building blocks it needs to
create a unique classroom for every
employee.
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Disrupting procurement
through analytics
With vast quantities of data at their disposal, and tools that can turn
information into valuable insights, now is the time for procurement
functions to harness analytics and exponentially increase the value
they deliver to the business.
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By Theano Liakopoulou
PROCUREMENT | ANALYTICS
May 19, 2021 ‑ Organizations are facing
continuous pressure to improve productivity,
accelerate innovation, and drive ambitious
ESG agendas. Winning in the current
context requires predicting and reacting fast
to changing conditions: hyper volatility,
demand uncertainty, supply disruptions, and
rapidly shifting consumer preferences, to
name a few.
With typically >50 percent of a company’s
value chain dependent on third parties,
procurement has a unique role to play in
navigating this complex set of drivers, and
has the potential to do so by harnessing the
power of analytics.
Thanks to rapid advances in data and
analytics technology, procurement teams
now have access to large volumes of data.
With the help of advanced analytics they can
now turn this data into powerful insights, at
scale, and at speed, without relying on the
capacity of individual buyers. Examples
include using machine learning to predict
trends with >90 percent accuracy for >200
ingredients and make the right hedging
decisions, mitigating risks by automatically
screening >30 risk drivers across thousands
of suppliers, managing dynamically price
and service level deviations across
thousands of spend items globally.
With so much potential available, why has it
been difficult to capture this value?
In a recent survey, 86 percent of CPOs told
us that they lacked the platforms to access
good quality data—both internal and
external. Additionally, capacity constraints,
as well as the low penetration of analytical
skill in procurement teams, limit the amount
of data that can be processed with
traditional tools. As a result, as little as 10 or
20 percent of available procurement data is
currently leveraged to drive decision-making
and action.
Another typical challenge occurs when
organizations become stuck in a state of
pilot purgatory. Teams get distracted by the
number of solutions available, engage in
costly trials without a clear ROI, and fail to
scale.
Analytics lighthouses have started to
emerge in procurement. They showcase the
potential gains that can be achieved when
analytics are applied at scale. The impact
they achieve is profound and holistic,
boosting value delivery by 10-40 percent,
accelerating the innovation and
sustainability agendas, improving risk
mitigation, and providing an overall uplift in
organizational health, as the function starts
to become a magnet for talent.
Five factors are helping these successful
beacons stand out from the crowd:
1. They define and ask precise
questions they want to answer with
advanced analytics, and have
specific expectations about the level
of impact they want to achieve.
2. They invest in a robust data
backbone, with clean, structured,
and enriched data from within and
outside the organization.
3. They transform the organization,
introducing specialist roles and
redefining the role of the buyer.
4. They build capabilities and change
their organizational culture to
maximize the adoption of analytics.
5. They follow a systematic approach to
architect, run pilots and scale up
driven by a focus on ROI.
Analytics are the future of the function.
Those who harness the power of analytics
today will become the procurement leaders
of tomorrow—transforming their function
into a source of insights driving value across
the whole enterprise. The time to act is now!
This post originally appeared on the author’s
page on LinkedIn.com.
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