Digital new world – Part 1: From traditional product business to digital business model
With this post we want to discuss some of the main topics in the digital transformation process focusing mainly to small and medium sized enterprises in producing industry in Germany.
Digitalization is one of the main development area and discussion topic in almost all business areas. Digital business models are already well thought and also implemented in the service business – we buy products online, book tickets, hotel room or Uber-cars over smart phone without thinking that the whole business process behind our activity is highly automated and running without lot of human involvement.
But how is the situation in the manufacturing companies? There management is still struggling with the basic question: Does my business need a digital transformation process? And if the answer is Yes – Where do I start and How far should the digitalization go in my company?
Industrie 4.0 is the keyword in Germany for digitalization in the producing industry. Everybody talks about Industrie 4.0, but many understand it differently and have started very different type projects which they call Industrie 4.0 implementations. This is logical, because German companies have fantastic working operational processes that they have themselves developed and finetuned for their own purposes over long period of time. These in-house processes give unique competitive advantage and increased profitability for German SMEs today. Increasing automatization in production is in many SMEs declared as Industrie 4.0 and digitalization strategy, but seldom companies are looking for open value networks, where their suppliers and customers are participating openly together with the manufacturer to the value generation. Normally the supplier networks are “closed systems” where incremental product improvement is tuned to perfection, but disruptive innovations are almost impossible.
Incremental Industrie 4.0 implementation will work for time being, but is it enough to survive in the future? There will not be an explicit answer to this and every business need to look their own processes and business environment to be able to understand the digitalization requirement in their business process. But it is at least safe to say that if a company is not investing to business process digitalization, the risk is increasing every day that a completely new competitor is entering to the market and capturing relevant market share or in the worst case, replacing the existing business with completely new solution and existing companies will disappear from the market.
This scenario should be to any company, independent of the company size, enough motivation to spend significant amount of time and resources to think about their business processes and look for opportunities to improve speed, flexibility and efficiency of their Business.
First should you look internal processes and understand what kind of data your process is generating already and how to utilize the data. Next step would be to evaluate new usage for that data and understand how to improve core processes just with statistically analysis. After this expanding the data source by adding sensors to other areas of the process and data interfaces to new machines would be a logical next development level. This should be enough to build a real-time monitoring and control system for your manufacturing and making your factory “virtual”.
The benefit of the “making first internal processes digital” is that with this work a company can define themselves the speed of the implementation and possible mistakes and delays in the implementations stay in house and don’t disturb customer processes. During this work internal organization can also learn key methods of a digitalization implementation project and are able to start working in supplier/customer projects more professionally and more confident.
After selected internal processes are moved to “digital era”, a company should look after the extensions towards suppliers and customers. The target of this work is to create full digitalized value chain covering all value chain players from the raw material supplier to the final end-customer. In the optimal world, the customer demand would steer the whole value chain initiating the raw material supply in the beginning of the chain, capacity reservation in the production and delivery time confirmation at the customer. It is obvious, that this is even theoretically possible only with standard products, but also if the product requires customer specific design or adaptation, this “digital value chain” thinking helps to understand better the value generation in the whole supply chain and thus improves the efficiency and profitability in this chain. This would benefit all value chain players and motivate them to work more closely with each other.