Digitalization and Intelligent Automation in the Time of COVID-19 and Beyond

2020-06-03

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While the COVID-19 pandemic has stopped the world, it has had the opposite effect on digitalization and intelligent automation since these new technologies provide a solution not only for the crisis but also for the post-pandemic world.

There are a lot of catalysts driving digitalization and the implementation of the fourth industrial revolution technologies. The most common of these include the following:

  • Manufacturing and supply chain optimization
  • Streamlining production and logistics
  • The need to increase the efficiency of manufacturing operations and equipment performance
  • Reducing operating costs

The COVID-19 pandemic and its impact on manufacturing companies and supply chains have radically begun to rewrite businesses’ priorities. Companies now give precedence to damage remediation to ensure business survival and — in the best case scenario — the immediate return to normal business operations.

However, the shift in priorities does not mean the same for business tools. Instead, the pressure of current events and economic trends have highlighted the importance of digitalization. The digital transformation and adaptation of new technologies, closely linked to the revision of processes and operation both inside and outside the company, are becoming a matter of survival for many businesses. The coronavirus pandemic can, therefore, be said to have contributed to the acceleration of digitalization and intelligent automation.

Intelligent Automation Before COVID-19

With new technologies come novel methods and concepts that directly impact established processes and business models. Digital technologies are actively transforming industries and have a noticeable influence on the supply chain and the end users.

In recent years, the digitalization of manufacturing and logistics has become the main priority of enterprises and businesses, especially because of its undeniable benefits and added value. Almost every company today has at least partially adopted the digitalization of their process, at least for basic in-house digital system regarding financial-administrative processes.

The consulting company, PwC monitors the digital transformation processes and updates of manufacturing companies. And according to its recent survey (carried out before the current pandemic), 91% of the surveyed industrial companies are investing in digital factories in Europe.

These companies cited the projected 12% increase in overall manufacturing efficiency over five years as the main drive for investing in the fourth industrial revolution technologies. Their other reasons for investing in digital automation were integrated planning and better use of assets. Moreover, they identified connecting factories internally and externally through an integrated Manufacturing Execution System (MES) as one of the strategies for increasing the efficiency of processes.

Connecting devices and other components on the shop floor and within the company on a single digital platform is only one of the first steps to successful digitalization. The real-time production planning and manufacturing management, consolidation and augmentation of process efficiency, as well as increased operational flexibility are mostly provided by modern Manufacturing Execution Systems (MES) or Manufacturing Operation Management System (MOM) or similar intelligent manufacturing solutions. These solutions are generally based on the principles of cyber-physical production systems and platforms of the Internet of Things (IoT) and services (IoS).

Furthermore, the integration of the MES system — or a similar smart manufacturing solution — with the company's ERP infrastructure (or within a larger digital ecosystem of the company) is a part of these transformation processes. The result is not solely the digitalization of internal processes (vertical integration) but also that of processes tied to other components in the production chain, which can often extend beyond the physical site of a factory (horizontal integration) across its supply chain.

There is also a growing trend toward using new technologies, such as digital twins, which contribute to leaner and more productive manufacturing operations. The PwC survey demonstrated that the number of companies using innovative technologies will double in the next five years.

This is particularly true for digital twin technology, as the cooperation and interconnection of labor and manufacturing and logistics equipment and facilities are key to increasing and streamlining production as well as other business processes. Digital transformation strategies include the deployment of intelligent algorithms for data analysis. Interestingly, the survey demonstrates that more than 50 percent of companies already use some form of intelligent algorithm to process data leading to more qualified and faster decisions.

According to PwC, as much as 77% of the investments planned for the following five years are going toward the digitalization and automation of existing factories in Europe. Concerning these investments, the companies expect a return on investment within two and five years.

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The state of digitalisation in the manufacturing industry according to a PwC survey

Acceleration of Digitalization and Automation Initiatives

According to the PwC survey, the acceleration of digital transformation and the implementation of new technologies are driven by two current global trends, product customization and regionalization of manufacturing (deglobalisation), both of which have a direct impact on company processes. Companies are increasingly adopting a more customer-centric approach — an expanded customization technique and the tailoring of products to individual customer preferences.

Conventional technologies do not allow for a more specific customization of products in batch production because of three key reasons:

  • Complex subcontracting network
  • Strictly hierarchical and standardized production procedures
  • Prompt delivery times

The digitalization of production and the deployment of intelligent production technologies transform manufacturing and supply processes into dynamic, agile, and intelligent processes.

Digital automation thus makes it possible to produce uniquely tailored products efficiently. Moreover, this form of manufacturing process can be operated without adjusting the preferences for the individual products as manually adjusting product customization is detrimental to the manufacturing cycle lead time or product quality.

New technologies bring novel ways not only for product individualization but also for the establishment of a shop floor capable of fabricating products made to order. This is also related to the overall shift of manufacturing strategy from the push type ("make-to-stock") to the pull type ("make-to-order").

Additionally, new technologies make it possible to optimize manufacturing processes dealing with large production volumes and at significantly lower costs compared to the mode of project production. Furthermore, manufacturing is becoming a recipient of transformation following the widespread service business models (XaaS - Anything as a Service). And because of digitalization and automation by modern technologies, manufacturing will soon be considered service on demand (i.e. Manufacturing-on-Demand).

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The evolution of deployment of Smart Factory initiatives between 2017 and 2019 (source: Capgemini)

 

COVID-19 Affects Digitalization

The second trend accelerating digitalization and automation is the "regionalization" of manufacturing or decentralized production. The purpose of this model is to get production companies (or decentralized shop floors) as close as possible to the end user. This will minimize the distance (also regarding the last mile delivery) and time between production and delivery.

As in Just-in-Time (JIT) manufacturing — a strategy ensuring the correct inventory or material is assigned to a predefined time slot as they are needed in the production process — regionalization of manufacturing is a production and logistics in space (or "Just-in-Place") strategy. More than half the companies PwC surveyed identified reducing logistics processes and transportation costs as important factors for scaling up the concept of digital factory.

The coronavirus pandemic and the implementation of strict precautionary measures have, in many cases, disrupted supply chains, thereby paralyzing manufacturing companies. Businesses have found that they often need to diversify their supply chains for emergencies — they also found that they need to make existing logistics flows more flexible and agile. Moreover, since a critical part of the logistics and distribution infrastructure is severely limited, businesses that could continue production face the challenge of getting their products directly to customers. Regionalization (decentralization) of manufacturing provides a partial solution to this situation.

The COVID-19 crisis has forced B2B companies to switch to B2C. Such an immediate significant change in the business model could only be achieved by companies that have implemented intelligent solutions for dynamic process management. Thanks to new technologies, they have sufficiently flexible and agile processes to realize such a 180 degrees turnaround and continue their business operations without downtime, friction, and excessive expenses.

The current pandemic will predominantly overwrite existing plans in many companies. If digitalization is yet to be a priority, businesses will need to reconsider their plans to remain in business after the coronavirus pandemic. The situation is similar to automation where, as a result of the current crisis, a similar boom is expected.

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Action across the supply chain that can help retailers meet consumer demand during the COVID-19 pandemic (source: McKinsey)

Transformation in The Time of COVID-19

The COVID-19 pandemic has highlighted the shortcomings and gaps in business processes at various levels — limitations that could be prevented using digital transformation and intelligent solutions. Digital transformation entails broad functionalities — from simple tasks like signing legal documents remotely to more complex solutions like dynamic manufacturing and logistics management.

The pandemic uncovered the need for digitalization not only concerning crisis management but also access to accurate and up-to-date data, which crisis managers could use to make timely yet informed decisions. Data access is concurrently linked to internal processes, external logistics flows, and supply chains. This data is also used for short-term planning to prepare for crises.

The COVID-19 crisis has divided businesses into two groups:

Business Whose Operations Have Been Forced to Shut Down Due to the Pandemic

These are newly endangered companies whose priorities are survival, consolidation after the crisis, and rehabilitation of business operations. The crisis helps them to identify weaknesses while focusing on boosting operational and processes flexibility so the company (shop floor) could adequately respond to extreme market fluctuations, like those triggered by the COVID-19 pandemic.

Companies Experiencing a Renaissance During the Crisis

These are businesses (primarily, those in the e-Commerce industry and FMCG sector) facing high demand and must implement processes that can handle the bulk order fulfillment — without negatively affecting order quality and delivery times.

Besides expanding the throughput of logistics flows, dynamic scaling is becoming a necessity for managing seasonal or surprise peaks. It’s also instrumental in expanding into other markets, thus increasing the standard operations volumes. These forms of enablement are made possible by smart logistics solutions, such as Warehouse Execution Systems, which manage put-away and picking processes in real time through intelligent algorithms.

The newly endangered group of companies and their counterpart above, however, are similarly affected by the pandemic in an aspect. This concerns the deployment of new technologies, process optimization, continuous innovation, and the setting up of new operational and business models.

That said, the coronavirus pandemic is not the sole reason for companies’ willingness to adopt new technologies. It is just one of several global factors companies must respond to in the near future to continue operating sustainably and remain relevant in their respective industries.

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