Could fragile supply chains threaten Industry 4.0?

Experts cite various challenges for businesses to overcome in the face of the digitalisation of manufacturing (or Industry 4.0), such as the skills gap, cyber security and data format conflicts. Yet there is another potential barrier that nobody is mentioning: supply chains.

UK Exports Export Barrier Free Trade Exporting Supply Chain Supply Chains Stock Image
For Industry 4.0 to work requires connecting the entire supply chain from one end to the other.

Are UK supply chains, in their current state of health, capable of supporting Industry 4.0? The latest edition of YouGov’s Supply Chain Funding index (SCFi) suggests not – in only six months the index has fallen from 6.6 to 6.2 out of 10.

What this tells us is there is an almost 40% chance of failure. How can a smart factory, needing to know where it stands with every supplier in the chain, operate with these odds?

Industry 4.0 relies on completely visible supply chains?

For Industry 4.0 to work requires connecting the entire supply chain from one end to the other. Consumer attitudes are changing; we are moving rapidly to a time where business will manufacture to demand rather than make a product and then look for someone to buy it.

For this to succeed, manufacturers will need to understand the supply chain right from the bottom to the top. UK manufacturing is not there at the moment. Most businesses know their Tier 1 suppliers, but after that things get a bit sketchy. And knowing who your suppliers are is one thing, knowing how healthy they are is something else altogether.

Supply chains are made up of businesses of all sizes – small, medium and large. For transparency to exist in a supply chain, all businesses have to exist as equals. The problem is many manufacturing SMEs don’t feel very equal – one-in-three suffered a broken supply chain in the past six months, and for six-out-of-ten of those it caused real business disruption.

Industry 4.0 requires businesses to invest

If you want to see what a smart factory looks like, visit Factory 2050 at the University of Sheffield’s Advanced Manufacturing Research Centre. It is clear that digital automation will bring great economic benefits, but to bring everyone in the supply chain into line will mean huge investment in technology, knowledge and people.

For SMEs to invest they have to change their focus from one of short-term survival to long-term growth. At present, a lack of liquidity in supply chains means SMEs are sitting on more cash just so they can pay bills and buy stock.

This is a real drag on investment, businesses said as much in the latest SCFi; if they were able to release liquidity in their supply chains they would:

  • Invest in equipment
  • Recruit more staff
  • Invest in research and development
  • Spend more on IT

More liquidity in supply chains makes businesses more confident. Confidence encourages a more long-term strategy and the investment that goes with it.

Industry 4.0 means a lot to the UK economy

In its recent report, Winning with the Industrial Internet of Things, Accenture said about the digital industrial revolution, “Arguably the biggest driver of productivity and growth in the next decade, this latest wave of digital innovation will accelerate the reinvention of sectors that account for almost two-thirds of world output.”

Accenture projected it would, by 2030, add $14.2tn to the global economy and $531bn to the UK economy. However, at the time of the report, only 7% of businesses had formed any kind of investment strategy.

Accenture also argued that Industry 4.0 could negate the need for centralised manufacturing and localised services, requiring a complete reinvention of business and employment models.

Decentralised manufacturing will mean bigger supply chains. Before businesses move enthusiastically into investing in automation, perhaps they should consider investing time and resources into fixing fragile supply chains. The future of industry depends on it.