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How Industry 4.0 can help future-proof Southeast Asia’s manufacturing sector

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In the dynamic and constantly evolving world of manufacturing, Industry 4.0 stands as a beacon of transformation globally, particularly in Southeast Asia, which has an emerging economy and where innovative technologies can fast-track rapid progress.

During a recent conversation on The Deep Dive podcast, Alvarez & Marsal Southeast Asia and APAC Senior Director Tingfeng Ye and the International Centre for Industrial Transformation (INCIT) Chief Executive Officer (CEO) and Founder Raimund Klein discussed the transformative effects of Industry 4.0 across Southeast Asia’s manufacturing sector and the significant technological advancements propelling growth in the industry. They also distinguished the operational and strategic differences between top-performing multinational corporations (MNCs) and small—to medium-sized enterprises (SMEs) and top trends that have emerged in the manufacturing sector.

Emerging Industry 4.0 and digitisation trends

The power and quality of innovative solutions emerging from the age of Industry 4.0 cannot be overlooked. In fact, they could be a game changer for manufacturing businesses, especially in terms of data.

Did you know that the manufacturing industry amasses substantially more (twice as much) data than other industries equating to 1800 petabytes? The integration of advanced technologies, like the Internet of Things (IoT), artificial intelligence (AI), automation, and robotics, will be necessary for many reasons, including managing the industry’s avalanche of data and also bolstering cybersecurity measures.

With these advancements being utilised in manufacturing processes, a drastic spike in efficiency, productivity, and innovation can be unlocked, which can benefit Southeast Asia’s progress in its manufacturing proficiencies and competitiveness on the global stage.

To help accelerate the incorporation of new emerging technologies, over half (54 per cent) of manufacturing companies intend on spending 10 per cent or more on software in 2024 compared to 2023. Additionally, 67 per cent of Chief Information Officers are prioritising the advancement of operating models as the most significant outcome for their digital technology investments.

SMEs versus MNCs on their Industry 4.0 journey

Investments are required to future-proof the manufacturing sector; however, it could be argued that the strategy of a solid Industry 4.0 approach is just as critical.

INCIT is a member of the World Economic Forum, and with their proprietary Smart Industry Readiness Index (SIRI), the business collates data and has the potential to catalyse the digital transformation for global manufacturing partners.

According to data from SIRI, INCIT found that specific trends also clearly surround connectivity, followed by horizontal integration, which is something manufacturers typically exhibit on a Multinational corporations (MNC) level and aligns with best-in-class performance. They focus on asset and equipment efficiency and on planning and scheduling effectiveness.

Whereas small-to-medium enterprises (SMEs) usually take a different approach, choosing to focus on workforce efficiency and second, product quality, meaning there is an entirely different focus from a data pattern recognition. Unfortunately, this use of strategy leads to SMEs lagging behind.

Innovative solutions to the rescue

During the podcast discussion, Klein and Ye agreed that if manufacturers act quickly by adopting the right strategy and innovative tools, they will be better situated to ensure they are not left behind their peers. They emphasised that the use robotic process automation (RPA), big data analytics, and artificial intelligence (AI) can be employed to discover new opportunities and enhance manufacturers’ value.

An Ernst & Young (EY) survey underpins the importance of emerging technology and automation. It found that by 2035, 45 percent of supply chains are predicted to be primarily autonomous, such as driverless forklifts and vehicles, robots in warehouses and stores, delivery drones, and wholly automated planning. The challenge is pinpointing the right technology.

Manufacturing leaders express worry over digital journey

In a recent Gartner survey, 47 per cent of respondents said that distinguishing the appropriate technology and compatibility for their current systems (44 per cent) are the major obstacles manufacturers face when planning investments in new software. Further, 48 per cent of manufacturers said that they have buyer’s regret from one of their latest tech purchases, stemming from “cost, implementation issues or insufficient functionality.” To prevent buyer’s remorse, manufacturers indicated they must first establish clear goals, complete a security review and execute a supplier risk assessment to take stock of business requirements and its digital maturity.

“At the moment, companies don’t really know what their digital maturity profile is. And when you don’t know where you are, you also don’t know which direction to go [in] as a next step,” INCIT’s Raimund Klein asserted.

Are digital maturity assessments the answer?

Assessing a manufacturer’s digital maturity can reap significant rewards. According to Deloitte, the more advanced the organisation’s digital maturity, the higher the earnings before interest and taxes (EBIT) and revenue, and integrating an “ecosystem approach” can support businesses to fast-track their digital maturity journeys, allowing for benefits to emerge quickly. To progress in this area, however, added investments are required to drive future growth.

During the podcast, the discussion covered the importance of digital maturity assessments and how that can be a powerful solution that manufacturers should add to their Industry 4.0 toolkit because assessments can advance their productivity development and growth.

INCIT’s Smart Industry Readiness Index (SIRI) is the world’s first independent digital maturity prioritisation index for manufacturers and supports businesses in globally reinventing their Industry 4.0 journeys. SIRI, however, is meant to act as a moving target to continue improving with an iteration of improvements.

“It’s not like, let’s say, when you reach the target state or get a certification that organisations can sit down and relax; you always need to reach for success in the next stage, and our indexes calculate the next step of your improvement,” Klein said.

The top 3 digital challenges of manufacturers globally

It’s a stressful time for manufacturers who must evolve with a sustainable mindset, while adopting emerging technologies. These challenges represent the most significant in the industry:

1. Enhancing productivity through digital transformationProductivity will be optimised after a manufacturer executes its digital transformation, but before then, the process can be disruptive. Detailed planning can help support manufacturers ensure disruptions are minimised, and they are on the correct path to achieve goals.

2. Digital tools to apply to reach net-zero – By integrating cloud applications and a portfolio of digital tools, McKinsey & Company found that this strategy could enhance a machinery manufacturer’s EBIT by anywhere from five to eight percentage points, underscoring the importance of leveraging digital transformation solutions, such as IoT, automation, etc.

3. A digitalised supply chain – Manufacturers are also struggling to digitise their supply chains to make it more resilient. EY suggests that manufactures plan to integrate a digital and end-to-end supply chain across planning, procurement, and logistics because this approach can unlock competences and also reveal new profit streams.

An Industry 4.0 digital strategy that yields results

SMEs are struggling compared to MNCs, but all businesses must prioritise ESG practices to uphold a positive reputational status and sustainable success. To thrive and not just survive during a sustainability journey, manufacturers embracing Industry 4.0 together with ESG practices must ensure they are driven in parallel. Agility will be critical in this endeavour, and manufacturers who consider the reinvention of how things are traditionally being made will be leaders amongst the competition.

Navigating the arduous task of integrating the innovative solutions that are the hallmark of Industry 4.0 is no easy task, but with the proper planning and undertaking a digital maturity assessment can help illuminate the best path forward.

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