Industry 4.0 getting whipped

With all the media hype surrounding Industry 4.0 – intelligent machines and advanced analytics in the supply chain – and its parent, the so-called ‘Internet of Things – extending the virtual internet to physical objects – it’s easy to imagine that we’re at the dawn of a brave new, unfamiliar world. But are we? Or might we be returning to old supply chain principles that vanished in the era of mass production – a ‘make-to-order’ culture marked by personal service, bespoke products and minimal inventory?

Schrödinger’s Cat

The idea that these two realities could coexist once seemed as paradoxical as the famous “Schrödinger’s Cat” thought experiment. Put simply, Schrödinger said that if you place a cat and something that could kill the cat (a radioactive atom) in a box and sealed it, you would not know if the cat was dead or alive until you opened the box, so that until the box was opened, the cat was (in a sense) both “dead and alive” (source: Wikipedia)

This is precisely what supply chain people are getting so excited about: all the efficiencies of automated production combined with the social, economical, environmental and lifestyle benefits that come with highly personalised production and service.

The Schrödinger’s cat metaphor is surprisingly apt when thinking about supply chain’s evolution to Industry 4.0. The cat’s fate, just like that of a supply chain’s, is determined by external events. In the supply chain’s case those events are demand signals transmitted from some device, like a mobile phone or a point-of-sale terminal.

The Bullwhip Effect

Which brings me to our old friend – the bane of every planner’s existence – The Bullwhip Effect. In our utopian Industry 4.0 scenario, the Bullwhip Effect will have all but been eliminated. As most Supply Chain Movement readers will be aware, this phenomenon results from ‘noise’ caused by planning uncertainty that distorts the demand signal. The distortion leads to wrong decisions about inventory and throughput, which impacts every link in the extended supply chain. The consequences are unnecessary bottlenecks, waste and shortfalls. If you eliminate the uncertainty through a combination of being closer to the demand signals, smaller batch sizes, accurate sensor-to-sensor communications and advanced, intelligent analytics, you eliminate the noise that leads to the Bullwhip Effect.

Eliminating the Bullwhip Effect is the essence of what Industry 4.0 is trying to achieve and I personally find it very thrilling to contemplate. Dystopian futurologists, however, predict that the level of automation it involves will spell the end of humans in the supply chain – including facilitators like me (perish the thought!) For me this is one thought experiment too far. At this stage we’re still such a long way off from being able to depend on algorithms for fundamental things like setting safety stock levels. They almost always lead to excess inventory and require humans to fine tune them over time.

Supply chain software

My hope is that as Industry 4.0 evolves, supply chain software will finally start to be able to serve humans in the way it has been so aggressively marketed since the early 80s. Proof that it has been slow to fulfil its promise is evidenced by the fact that so many companies still run their supply chains on Excel spreadsheets.

Even when supply chains become much more automated, people will still need to ‘orchestrate’ things and exercise their judgement to handle the vast range of exceptions and circumstances. For instance, companies that want to manufacture products in low-cost, far-flung countries will still need to cope with long lead times and economies of scale that will certainly lead to noise in the demand signal.

And let’s not forget that supply chains extend beyond the ‘four walls’ of a company and they are only as strong as their weakest link. We hear about the likes of Amazon working to deliver products within an hour, but most 3PLs that companies work with are light years away from being able to fulfil products in line with the vision of Industry 4.0. You only need to look at the example of Toyota, which succeeded in building a lean, responsive factory process but was let down by an extended supply chain that filled up with stock and compromised the overall effort.

The vision for Industry 4.0 truly excites me and I think we’re already making some good progress in technology, ways of working and skills development. But for now planners still have to contend with the Bullwhip Effect so Schrödinger’s theoretical cat remains both alive and dead – as it were. The road ahead is long and I firmly believe that humans will continue to play an important role at every stage.

Alain Vix, Account Director and Co-Founder, Hughenden Consulting