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A Smart Manufacturing Call to Arms

Rhett Ramos, Director, Asia IT, Allegro MicroSystems Philippines

Rhett Ramos, Director, Asia IT, Allegro MicroSystems Philippines

To transform digitally or not to transform? That is the dilemma facing the manufacturing industry as it decides to usher its decades’ old operations into the digital age. Other industries are taking the leap into digital transformation and doing it quickly. In banking and finance, insurance, travel and leisure, and retail industries, organizations have reaped phenomenal benefits from technology. So now, the question lies—what about manufacturing? Where does this industry stand in the race to digitalization compared to the other aforementioned industries? It’s a mixed bag, and why?

History has shown that this industry is willing to transform itself in a revolutionary way as it has gone through three of these cycles: the first industrial revolution took place in the 1780’s when water and steam powered mechanical manufacturing facilities allowing machines to augment the work humans did. The second revolution happened in 1870 when electricity enabled mass production. The third happened a hundred years later in the 1970’s when electronics like PLC’s and IT made possible manufacturing automation.

Many say we are now facing the fourth industrial revolution where cyber-physical, transparent data exchange between systems and machines, and autonomous decision-making are propagating on not only the factory floor but also the entire supply chain. While that may be true for some companies, there is no widespread adoption in the industry itself in the same manner the aforementioned industries are embracing this transformation by storm.

I have been living in Southeast Asia for the past twenty years and witnessed the exponential economic growth that has coincided with the expansion of its manufacturing terrain in this region. More and more multinational companies shifted their manufacturing activities to Southeast Asia due to cheaper labor and infrastructure needed to produce that same part than developed regions, thereby increasing profit margins. It was a great reason then and it still is nowadays, but that rationale can only push the profit margin thinking so far.

Employee salaries and, inevitably, the cost of living will increase leading to higher infrastructure costs and eventually eroding those profit margins. Witness what is happening in China where, because of the explosive growth in manufacturing, demand for labor has driven labor costs to the point where it is now on par with some European countries. Firms are now taking their manufacturing activities to lower wage countries in Southeast Asia to retain those profit margins.

Will the China manufacturing growth and contraction pattern repeat in Southeast Asia? There is no reason why it won’t unless the manufacturers find a way to differentiate themselves. History has proven that when manufacturing activity increase, the country’s economy increases as well. The first and second industrial revolution helped shape the US into the superpower that it is today. India, a country that is synonymously known for its BPO and service industry is pushing the “Made in India” slogan, a campaign thrust by Prime Minister Modi’s government to encourage companies to manufacture their products in India.

Many say we are now facing the fourth industrial revolution where cyber-physical, transparent data exchange between systems and machines, and autonomous decision-making are propagating on not only the factory floor but also the entire supply chain

For manufacturers to “end the bleeding” of migrating their manufacturing presence from one higher cost region to a lower one, they must adopt Smart Manufacturing as their central and long-term strategy. But before this can take place, governments must first take the lead in creating an ecosystem within the country to promote Smart Manufacturing.

In 2014, Germany, under Chancellor Merkel’s leadership, started what is now popularly coined as “Industry 4.0”, a program aimed at making their country the leader in chip production by promoting digitization in manufacturing. Today, one in four machines in Germany is networked. Half of German companies are using applications for Industry 4.0. Solution providers such as Siemens and Bosch are leaders in Industry 4.0 offerings in both hardware and software. Clearly, this vision is reaping rewards for German manufacturers, and the country.

This same model can be replicated elsewhere. The forward-thinking government of Singapore has partnered with TUV SUD to craft the Smart Industry Readiness Index (SIRI).It was developed to equip Singaporean manufacturers practical knowledge to help them understand the tangible benefits it yields, assess their own level of maturity, and set a target. In the Philippines, where I reside, there are considerable efforts by my industry colleagues to work with government to draft a similar approach but with a pure focus on manufacturing versus industry-wide. Thailand and Malaysia are going the same route. This is good news, but I want to emphasize that this is merely a starting point.

To get widespread adoption, manufacturers should leverage these indices to measure where they stack in the maturity scale and use it as a springboard to craft a long-term roadmap to digitize their factories.

The tools are already there for them to utilize, and in some ways, manufacturers have the edge in that communication protocols such as OPC used in PLC’s, SECS/GEM I and II for the semiconductor firms, and RS-232, and sensors are already built into the equipment. Before the Internet of Things (IoT) spread like wildfire, the manufacturing industry already had this concept in place since the start of the third industrial revolution. We had a forty-year head start only we didn’t realize it. The manufacturing equipment was the “Thing”.

The next logical step is to connect all those machines and start implementing next generation digital tools such as artificial intelligence, machine learning, predictive analytics, and virtual/augmented reality (AR/VR). And more good news, this journey does not have to start from scratch. Those German solution providers have developed many of those tools and used them in their internal factories. Tech titans such as Google and Microsoft offer a cadre of AI tools be it on the cloud or on-premise and can also provide the hardware such as Google Glass and Hololens to accelerate your AR/ VR implementation. On top of those tech giants, startups such as DataRobot which provides an automated machine learning platform for predictive modeling and Landing AI, a company aimed specifically at providing AI solutions for manufacturing, are springing everywhere. There are also tools available such as low code and microservices platforms if you prefer to build those solutions on your own.

If you go back to my original question, the answer is quite obvious. It should no longer be a Go/No Go question but a how, what, and when. How do manufacturers take the transformation journey? There will doubtlessly be obstacles faced but they should not be technical in nature. Business processes and cultures have to be changed. How would you change them?

Companies cannot take the leap in one fell swoop, so you have to identify what areas in manufacturing do you transform first. What processes, or companies with multi-factory landscapes, what factories will you work on first, then your second up until you have converted all?

The when is really more tied to your how, what and how much are you willing to invest in the first year, second year… of your multi-year strategy.

Together with your local government, put your stratagem in place and execute with full-focus. I look forward to citing our industry as the benchmark for digital transformation.

Check out: The Manufacturing Outlook