GLOBAL LIGHTHOUSE NETWORK - INSIGHTS FROM THE FOREFRONT OF THE 4TH INDUSTRIAL REVOLUTION - MCKINSEY
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Global Lighthouse Network Insights from the forefront of the 4th Industrial Revolution January 2020 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Executive summary The latest findings from the Global Lighthouse Network, an ongoing research collaboration between McKinsey & Co. and the World Economic Forum, show that industrial leaders in applying Fourth Industrial Revolution (4IR) digital technologies are benefiting from a head start to generate even more value across the entire enterprise, and not just within factories This brief summary examines what the 44 Lighthouse manufacturers do differently; crucial insights for the vast majority of manufacturers that aren’t yet competitive with the leaders At least 70 percent of manufacturers are languishing in “pilot purgatory,” unable to bring manufacturing innovation to scale; they’re at higher and higher risk of falling permanently behind the leaders A detailed look at Lighthouse success cases reveals organizations that are driving outsized improvement in productivity, sustainability, operating cost, and speed to market A common thread across Lighthouses is that the digital journey begins with the transformation of the plant’s system of operations and is then propelled through 6 key scale-up enablers End-to-End (E2E) Lighthouses in particular are using technology to drive value for the enterprise in three ways: customer-centered design, seamless connectivity across functions, and continuous connectivity beyond organizations Transforming manufacturing from sourcing to delivery increases complexity and shifts stakeholder incentives as digital connectivity expands; addressing these changes requires breaking down internal divisions, sharing data externally, and building new capabilities, demonstrating the importance of the human element in successful technology application. Adoption of 4IR technologies affect tasks performed and the ways in which people work together. Lighthouses are preparing their workforce through 6 common actions to maximize the potential of workers. McKinsey & Company 2
The Global Lighthouse Network includes 44 sites where 4IR technology is successfully deployed at scale 1 Zymergen 13 AGCO Biotechnology, US Agricultural equipment, 37 Johnson & Johnson DePuy Synthes DE 19 2 Fast Radius with UPS Medical devices, CN Additive manufacturing, 14 Rold 18 US Electrical components, IT 38 Bosch 3 Johnson & Johnson Automotive, CN vision care 15 Bayer 41 Division pharmaceuticals, 6 10 12 32 Medical devices, US 7 11 IT 9 13 17 33 44 39 Procter & Gamble 8 16 34 4 Groupe Renault 36 42 43 Consumer goods, CN 16 BMW Group 14 15 20 Automotive, BR Automotive, DE 26 40 MODEC 2 22 39 40 Boashan Iron & Steel 5 21 38 17 Procter & Gamble 1 35 37 Steel products, CN Oil and gas, BR Consumer goods, CZ 3 31 6 Johnson & Johnson 23 24 DePuy Synthes 41 Haier 18 Sanvik Coromant 25 Appliances, CN Medical devices, IR Industrial tools, SE 7 GSK 27 29 19 Nokia 28 42 POSCO Pharmaceuticals, UK 30 Electronics, FI Steel products, KOR 8 Schneider Electric 20 Arcelik A.S. Electrical components, 43 GE Healthcare FR Home appliances, RO 5 4 Healthcare, JP 9 Groupe Renault 21 Petkim Automotive, FR Chemicals, TR 44 Hitachi Industrial equipment, JP 10 Tata Steel 22 Ford Otosan Steel products, NL Automotive, TR 11 Henkel 23 Saudi Aramco 25 Tata Steel 26 Siemens 27 Infineon 28 Schneider Electric 29 Micron 30 Petrosea Consumer goods, DE Gas treatment, SA Steel products, IN Semiconductors, SG Electrical components, ID Industrial automation Semiconductors, SG Mining, ID 12 Phoenix Contact products, CN 24 Unilever Industrial automation, DE Consumer goods, UAE 31 Foxconn Industrial Internet 32 FOTON Cummins 33 Danfoss 34 Weichai 35 SAIC Maxus 36 Haier Electronics, CN Automotive, CN Industrial equipment, CN Industrial machinery, CN Automotive, CN Home appliances, CN McKinsey & Company 3
Lighthouses demonstrate what’s possible with measurable improvements in operations E2E Lighthouses Factory Lighthouses KPIs improvements Impact range observed Lighthouse example Factory output increase 4-200% Productivity increase 5-160% Produc- OEE increase 3-90% tivity Product cost reduction 5-40% Operating cost reduction 2-45% Quality cost reduction 5-90% Waste reduction 5-45% Sustain- Water consumption reduction 10-30% ability Energy Efficiency 1-50% Inventory reduction 10-90% Agility Lead time reduction 7-90% Change-over shortening 30-70% Speed to Speed to market reduction 30-90% market Design iteration time reduction 15-40% Configuration accuracy increased 15-20% Customi- zation Lot size reduction 55%-90% Source: McKinsey & Company Lighthouse Analysis McKinsey & Company 4
Lighthouses are deploying 92 use cases with some focusing within the manufacturing site and others on connecting the E2E value chain (1/2) Manufacturing Digital assembly & machines Digital maintenance Digital performance management Digital quality management Digitally enabled sustainability Real-time locating system (RTLS) for Cost optimization Of heavy operations Analytics platform for remote Scanning to replace and improve Energy optimization by key manufacturing components through sensor analysis production optimization performance for high cost CMM (scans) predictive analytics Cycle time optimization through big- Machine alarm aggregation, Digital dashboards to monitor OEE Automated in-line optical inspection to IIoT real-time energy data aggregation data analytics on lines PLCs prioritization and analytics enabled performance replace end-product manual and reporting dashboard Light-guided assembly sequence problem solving Digital twin for remote production inspections Sensor-based data collection for energy Mixed reality to enable digital standard Predictive maintenance aggregating optimization Digital work instructions & quality management work/trainings data based on historical and Enterprise Manufacturing Intelligence functions sensor data system to upgrade operations Digitized standard procedures for line Advanced IIoT applied to process optimization Real-time pipeline cost optimization management operations with integrated workflow based on edge sensors Integration platform to connect Mixed reality glasses to guide operators Artificial Intelligence-powered process control Remote assistance using machine-level data with enterprise- in the end-of-line inspection augmented reality software Field quality failures aggregation, Digital lean tools (e.g., eKanban, eAndon, eSpaghetti) Analytics platform for deviation root- Real-time asset performance prioritization and advanced analytics cause identification monitoring enabled problem solving Artificial intelligence guided machine and visualization IoT enabled manufacturing quality performance optimization Sensor-based manufacture KPI management Digitally enabled variable takt time reporting Digital quality audit Digitally enabled modular production Digital tools to enhance a connected Quality improvement by configuration workforce predictive analytics Digital recruitment platform tailored to shop floor Digital twin of sustainability Digitally enabled man-machine matching McKinsey & Company 5
Lighthouses are deploying 92 use cases with some focusing within the manufacturing site and others on connecting the E2E value chain (2/2) End-to-end value chain Supply network connectivity E2E product development E2E planning E2E delivery Customer connectivity Aggregate demand across end-to-end 3D printing for rapid design prototyping Predictive demand forecasting Dynamic delivery optimization Connected devices to track and supplier network 3D simulations / digital twin for product Real-time S&OP Robotics enabled logistics execution measure consumer behaviors Should-cost modeling to support make design and testing Real-time inventory management Digital track and trace Mass customization and B2C versus Testing automation (internal / extremal) online ordering Asset utilization and yard management buy decisions Delivering to customers wherever they Advanced analytics for performance Dynamic production scheduling with for logistics Analytics driven procurement supported management across the idea digital twin are through new delivery solutions No touch order management by spend intelligence & automated to market Customer end-user interface to Dynamic network optimization Digital enabled picking and transport spend cube configure and order a product, and Product development using robotics Predictive inventory replenishment End-to-end real-time supply chain Predictive maintenance in fleet assets track delivery Big-data / Al enabled product design Analytics for dynamic warehouse visibility platform "Uberization' Of transport Smart / intelligent packaging and testing resource planning and scheduling Supplier and materials quality tracking ATP based on real-time constraints Customer analytics enabled by RFID Virtual reality supported prototyping Dynamic simulation for warehousing Part traceability from unique digital tag Digital logistics control tower Online communities for customer Digital thread implementation through design based on surface scanning insights product development lifecycles No-touch master planning (allocation to Digital supplier performance GPS based map and customer location Rapid outsourced prototyping the plants) management Crowd-sourcing & competitions to Digital integrated business planning 3D printing Artificial Intelligence to accelerate develop digital solutions Closed loop planning Connected devices to track and scaling of digital applications measure product performance across sites End-to-end real-time supply chain visibility platform Digital Twin of Customer System Joint data analytics with equipment OEM for process optimization Advanced analytics to optimize manufacturing and distribution footprint Production planning optimized by advanced analytics McKinsey & Company 6
The gap between the frontrunners and the majority continues to grow ~50 WEF lighthouses1 expected for 2020, first Only a handful lighthouses with impact across the e2e network vanguards went from pilot to lighthouse and are starting to scale 71% network-wide of manufacturers stuck 2017 2018 2019 2020 in pilot purgatory Manufacturers Initial 16 WEF 26 WEF Light-houses, several experimenting Lighthouses, starting to scale, e.g.,… with several e.g.,... Secret formula for pilots scaling business Emergence of E2E connected WEF impact decoded Lighthouses 1. Estimated based on pipeline of applications to the WEF Source: World Economic Forum and McKinsey & Company McKinsey & Company 7
To escape pilot purgatory, Lighthouses become the scale-up vehicle for the entire company Scale-up architecture Scale-up Unit Lighthouses as scale-up vehicles Lighthouses create an MVP1 of the company wide IIoT operating system One Company operating system New way of working across value IIoT/Data systems Modernized IIoT stack & data model Augmented-reality operators, allow cyber connection between reality chains, people, assets and sites robotics, and leaned-out, (eg, shop-floor sensors) and IT automated processes are systems, and agility to add use cases simulated and optimized using in matter of weeks (technology Few Lighthouses digital twin methodology Business Management democratization) Integrated 20+ use cases that process systems together innovate a value chain or factory and allow to build the Upskilled workforce with FoW 2 Digital performance management— ready profiles via an IIoT with AI-powered, personalized infrastructure to scale dashboards and alerts—creates one academy. Agile operating model People fostered through agile digital source of truth and eliminates waste in systems 50+ Use cases studio decision making Digital innovations that change how business/process is conducted Scale-up enablers 500+ Deployments Local transformations that innovate Lighthouses build the infrastructure to scale the way we work across the Agile approach IIoT stack IIoT academy organization Agile digital studio Tech ecosystem Transformation office 1. Minimum viable product 2. Future of work McKinsey & Company 8
Key enablers are the secret sauce to scaling fast Scale-up enablers Lighthouses build the infrastructure to scale Lighthouses iterate quickly, fail fast, and learn continuously. Create minimum viable products (MVPs) in two-week sprints, and bundle Agile approach use-cases for fast transformations This agile approach stands in stark contrast to year-long pilots that are designed for perfection Agile digital To be agile, co-location of translators, data engineers, ERP systems engineers, IIoT architects, and Data Scientists is key, as is studio direction by product managers and an agile coach, who make sure that results are delivered in sprints and iterated fast Lighthouses are preparing existing IT systems to design & modernize the next generation of technology capabilities, ensuring that IIoT stack selected IIoT architecture is sufficiently adaptable and future proof Relationships supported by mutual exchange of large amounts of data and collaboration on technology platforms to facilitate the Tech exchange and consumption. This is a notable shift from the age-old idea of safeguarding technology solutions and data as a ecosystem competitive advantage Given the need to reskill and upskill the workforce at scale, the development of effective learning methods focused on technology IIoT academy becomes critical. Examples include gamification, digital learning pathways, VR/AR learning, and AR and digital custom real-time work instructions Transformation Lighthouses that achieve scale have established governance models to support best practice exchange and prioritization with a focus office on impact and solutions, as opposed to focusing principally on technology McKinsey & Company 9
Though Lighthouses have a common set of value drivers - E2E leaders deliver value in 3 distinct ways Value drivers across both areas Value drivers in E2E Lighthouses Lighthouses Technology democratization and Customer centricity augmenting the operator By placing customers at the center of process design Technology on the shop floor is transforming and operations, organizations are improving the initial ways of working, as operators develop their purchase experience as well as use over the product own apps and solutions to facilitate and lifetime automate their tasks. Seamless connectivity across functions Big data decision-making Seamless data exchange and transparency across Decisions are not hypothesis-driven, but functions reduces friction, allowing for more efficient rather are based on big data deciphered by decisions and reduction of redundant communications pattern recognition – and not by humans. Process and business model innovation Continuous connectivity across organizations Fourth Industrial Revolution technologies enable the lighthouses to develop new 4IR technologies enable unprecedented data collection, business models that complement and/or exchange, and processing; this allows organizations to disrupt the traditional business and value create new ecosystems in the manufacturing space chain. Source: Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing McKinsey & Company 10
Lighthouses are taking common actions to prepare their workforce for change Transforming the ways in which Lighthouses are successfully navigating these changes through 6 people work together as part of the common actions to maximize the potential of workers. 4IR transformation is essential Lighthouses have invested in people Keeping people at the center, empowering Empowering the front line to innovate, using technology and data them to realize their full potential alongside that of digital technology, demonstrates that Proactively building capabilities, both technical and soft, and managing talent true 4IR innovation is directly entwined with people and that the Fourth Industrial Revolution is, after all, a human enterprise Adjusting the organizational structure to enable Fourth Industrial Revolution transformation Implementing new ways of working such as agile and increased transparency Improving day-to-day assembly and operating tasks through automation and technology Increasing levels of problem solving and collaboration on the front line McKinsey & Company 11
“From-To” illustrates these common actions impacting front-line workers’ daily work and engagement (1/2) Example lighthouses From To Empowering the Innovation in my production line is generated from the I own innovation in my production line—we all come up with ideas front line to top innovate, using I always see scorecards measuring the same KPI—but All our scorecards are based on data from a single source that now technology and with different numbers we all use to make decisions data I spend my time confirming data accuracy and My data is tracked automatically from hundreds of sources and feeds inputting it into multiple report templates real-time into scorecards Proactively building I learn the basics to perform my job, but have limited I have a customized reskilling program, adjusted for my abilities with capabilities, both opportunities to develop other skills digital technologies and accelerated multiskilling technical and soft, My company relies on our internal knowledge and My company uses innovative external methodologies for training, and managing talent experience to train our team, and it is limited to the first blending on-the-job coaching, rotations, augmented reality, and week on the job virtual stations or a digital learning center The talent-management system is one-size-fits-all, Partnerships with universities and other companies offer new relying on expertise learning opportunities to learn from others, as part of an online platform with an individual training journey Adjusting the I see many silos between IT functions and operations We have new cross-functional team focusing on digital deployment organizational structure to enable My team is production only—we only focus on running My team merges production and maintenance, with technicians and equipment operators running automated operations 4IR transformation McKinsey & Company
“From-To” illustrates these common actions impacting front-line workers’ daily work and engagement (2/2) Example lighthouses From To Implementing new Solution development is finished outside of our To develop a fit-for-purpose product, the agile team involves us early ways of working operations before being tested in minimum viable product (MVP) development, though sprint review such as agile and increased My discussion with my supervisor is based on the last My discussion with my supervisor uses real-time and relevant data transparency hour or day with limited data that does not help us for the losses we are having, so we can diagnose root causes and problem solve—so its mostly just a review make decisions quickly Improving day-to- More than 90% of my shift tasks are repetitive and For basic tasks, I have help from automation and cobots day assembly and manual operating tasks through automation I rely on few support tools, mostly paper standard I have digital tools for real-time help (electronic SOPs, augmented and technology operating procedures (SOPs) reality) I can only manage a few machines since they have My machines are self-learning with automated centerlining and other frequent breakdowns, and I have to make adjustments settings, which eliminates most breakdowns and allows me to track based on my experience more machines in parallel Increasing levels of I spend most of my time gathering data, yet most I have relevant data available in a centralized source to use when problem solving sessions lack all relevant data needed and collaboration on the front line Decisions in my line typically are based on experience, My team relies on self-diagnosing machine-based data to make not data decisions McKinsey & Company
Scale-Up enablers Value Drivers Technology democratization and Agile digital studio augmenting the operator Agile approach Big data decision-making Appendix – Process and business model IIoT stack Case studies innovation Tech ecosystem Customer centricity Seamless connectivity across IIoT academy functions Continuous connectivity across Transformation office organizations McKinsey & Company 14
Schneider electric case example for Continuous Digital technology improves connectivity Connectivity across organizations throughout the value chain allowing organizations to minimize the effects of deviations in production Schneider Electric in Batam has created a platform for stakeholders to monitor and adjust to anomalies within its manufacturing processes One Communication Portal used by all suppliers to communicate Key Impacts operational capabilities enabling better +70% Supplier service rate supply chain planning -85% Administration time +40% On-time delivery IIOT Platform Supplier Portal QR Code Monitors and transfers Communicates demand Aids company and real-time data to supplier forecasts to suppliers facilitating suppliers to effectively track and informing any variations in more efficient inventory trace inventory throughout the production planning at the suppliers’ value chain locations Source: https://www.computerweekly.com/news/252451662/Inside-Schneider-Electrics-Batam-smart-factory; Site Visit Report McKinsey & Company 15
The right portfolio of interconnected Nokia Case example for agile working mode technologies enables operational agility while minimizing efficiency costs Automated Ex. Impact on KPIs VR Flexible Robotics Internal Logistics Produc- Virtualization of R&D Rapid line changes to Standardized point of tion lead- -80% speed up NPI achieved use stock replenishment time Lessens time to market and helps identify through modularity through automation quality issues early Multi-skill robotics to No touch material ensure flexibility in use handling Standard unit per +90% Wireless network & cloud infrastructure FTE Robust private cellular network infrastructure allows for all machines to be upload and download data seamlessly Enables plug and play of machines without rewiring LAN Process Data from the cloud is inputted into analytics platforms to identify inefficiencies and -50% quality correct those through planning (PPM) 2016 17 18 2019 McKinsey & Company 16
Fast Radius case Example for Integrated Digital planning overcomes inefficiencies by data backbone leveraging total data transparency across functions to make holistically efficient decisions Design Testing Production Shipment Key Impacts Analytics platform captures data throughout the process -36% inventory reduction Analytics platform utilizes multiple machine learning algorithms to provide -90% time to market Digital Twin specific feedback to all segments of the value chain for Remote Production Empowers root cause problem solving across all functions by utilizing the feedback to work on the deficient areas Production can be The platform is enabled by an open communication protocol between all of viewed across all sites the factory’s sensors in the line and the central cloud data storage Allocates job to the site Reduced amount of quality issues and rework based on improved design while solving for from data feedback loop logistics and capacity of the sites McKinsey & Company 17
Organizations place customer experience at the Haier Case Example for customer centricity core of their strategy and utilize technology to establish a link with performance management Haier’s air conditioning unit is achieving its transformational goal of moving from a one-time customer mindset to a lifetime user mentality by utilizing digital technology to connect customer experience with daily operations Key Impacts Real-time +21% quality improvement Data Monitor +63% in labor productivity Customer PM analyzes unit performance data -50% customer PM FTE and any deterioration in Product Purchase performance is Team/Dept. Issue Solved Lessons Applied -33% lead time reported Using interactive With the data provided from the system, the root cause of the customer’s platform, customer issue can be addressed customizes and places If production worker error caused the fault, the appropriate individual’s order Customer Complaint record will be updated in the shop floor bonus system accordingly If part error, parts will be examined to determine appropriate course Customer calls with any issues and the of action data engine retrieves the performance data from unit serial number McKinsey & Company 18
SAIC Maxus case Example for customer centricity E2E Lighthouses continue to generate value outside the four walls by creating solutions that enable a differentiated customer centric experience SAIC Maxus is utilizing digital solutions to revolutionize the mass production of mass customized vehicles to provide unprecedented service to the customers Key Impacts -35% Time to market Online Digital Supply Smart Quality -20% Production lead time Platform Digital Twin Chain Engineering Assurance 99.8% Configuration Customer uses 3D simulation to Car configuration Automated AI tool accuracy web app to configure car as and production system continuously customize, order, per customer queue are differentiates checks build -30% Tooling and and track status order transmitted to thousands of progress to changeover supplier to initiate configurations to identify errors Just-in-Sequence confirm correct shipment build McKinsey & Company 19
Schneider Electric Case Example for Seamless As organizations foster cross function connectivity across functions collaboration, they are able to achieve impact at scale rapidly Integrated cross- Siloed Teams Enabled by “transformation group leader” functional teams Transformation group was composed IT of participants from every function ensuring Key Impacts collaboration throughout the transformation PRODUCTION +12% operational efficiency Collaboration is enabled by a universal technology platform, EcoStruxure, with custom app development -44% machine downtime PRODUCT DESIGN that can be plugged-in to the ecosystem PRODUCT DESIGN Change management program effectively leveraged PRODUCTION the collaboration to establish IT Quick pilot to scale-up cadence MAINTENANCE MAINTENANCE McKinsey & Company 20
Phoenix Contact Case Example for Seamless Digital connectivity enables an integrated and trans- connectivity across functions parent operating model that results in value creation greater than the sum of each step in the value chain Phoenix Contacts uses RFID tags that carry information ensuring transparency and accessibility of data to all steps of the process Key Impacts 24/7 running of the line Product Testing Production Delivery +40% performance Design Up to -30% production time Unique products at cost of mass production Machine building department acts as R&D All the testing data is Customer information and delivery facility for rapid introduction of new solutions recorded and passed details are known by production Digital twin contains all testing specifications along to the team and conveyed to the production team customer for real-time order status McKinsey & Company 21
Zymergen case Example for Seamless connectivity When utilizing a single repository of data, analytics across functions and big data can effectively plan across functions and contribute to connectivity Zymergen is employing advanced analytics and automation to digitize the traditional method of performing lab works Key Impacts +46% labor efficiency Sensor Central Data Digital Work Digital Work Modular -42% operating cost Network Lake Scheduling Instructions Automation -50% lead time Sensors at all All data stored in System analyzes Cloud held data In-house processes collect one location and capacity, machine used to generate developed robots +40% line yield data and verify effectively used breakdown times, work instructions capable of using that the process across processes and inventory to for operators and standard work parameters are to improve schedule work machines to tools are reliable being met connectivity centers and avoid greatly improve operators and costly errors throughput rate significantly cut costs McKinsey & Company 22
The Global Lighthouse Network is a community of production sites and other facilities that are world leaders in the adoption and integration of the cutting- edge technologies of the Fourth Industrial Revolution (4IR). Lighthouses apply 4IR technologies such as artificial intelligence, 3D-printing The Global and big data analytics to maximize efficiency and competitiveness at scale, Lighthouse transform business models and drive economic growth, while augmenting the workforce, protecting the environment and contributing to a learning journey Network for all-sized manufacturers across all geographies and industries. The Global Lighthouse Network is a World Economic Forum project in collaboration with McKinsey & Co, and the factories are chosen by an independent panel. Find out more: https://www.weforum.org/projects/technology-and-innovation- for-the-future-of-production McKinsey & Company 23
Want to learn more? Read the summary report at https://mckinsey.com/business- Enno de Boer Yves Giraud Ingrid Millan functions/operations/our- Lead Partner Expert Associate Partner insights/industrys-fast-mover- advantage-enterprise-value- from-digital-factories Read the full report at weforum.org/whitepapers/fourth -industrial-revolution-beacons- of-technology-and-innovation- in-manufacturing Julian Salguero James Hoch Katy George Partner Engagement Manager Senior Partner McKinsey & Company 24
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