Next-generation production systems: Unlocking the benefits of a digital supply chain

The disruption, complexity and pace of change of next-generation technologies are redefining today’s manufacturing landscape. They all represent a challenge to business leaders in meeting shareholders’ expectations of value creation while simultaneously presenting an enormous opportunity for manufacturing operations to become the hub of an intelligent, connected, digital supply chain. To successfully transform, organizations need to overhaul their traditional corporate production systems.

Ed Koch, Senior Business Partner, CCi Europe, recently facilitated a webinar featuring a panel of CCi experts. They shared their insights on developing a modern production system implementation road map and strategies for a seamless, successful transition. They also explained how manufacturers could take advantage of digital technologies to design systems and supply networks and scale operations to achieve an end-to-end digital supply chain and reach new levels of competitiveness. The CCi panellists included Glenn Leask, CEO, Geoff Schreiner, Products Director, Dr Dino Petrarolo, Senior Vice President CCi Asia-Pacific, Tony Riachi, Vice President of Supply Chain CCi Americas, and Jacques Matthee, CTO.

What has caused the shift from traditional corporate production systems to modern or digital operating systems? And how does this impact companies’ continuous improvement journey?

According to Glenn, companies have tried to replicate the Toyota Production System for decades, the premise of which is that the effective application of lean principles across a wide network needs to be universal and essentially needs a system to drive the transformation. However, implementing the three fundamental principles of lean – the supply chain as the ultimate source of competitive advantage, designing organizations around processes and value chains and not functions, and empowering people to improve processes – requires a large-scale transformation in itself. Companies have realized that this is difficult to do unless there is a system behind it, hence the emergence of the corporate production system about two decades ago.

Another important point is that the focus of continuous improvement has traditionally been within the manufacturing confines, and has had time to evolve into fundamental change across processes, structures, people and systems to ensure sustainability. Companies that have been successful at operational excellence in manufacturing have earned the credibility to start applying this same thinking across their supply chains.

Production systems or integrative improvement systems have now evolved to what Gartner terms digital operating systems (DOS). Having just entered the Gartner Hype Cycle, these systems represent an emerging approach to production systems that harmonize lean and continuous improvement principles with smart manufacturing. While DOS won’t necessarily change corporate production systems’ fundamental purpose, they will transform how they are built and run. This is because they integrate the application of technologies and digital deftness with lean and CI principles to drive competitive advantage across the end-to-end value chain.

What key challenges do businesses face at the moment as they navigate the new normal? And how can they overcome these challenges?

Tony perceives two challenges from a supply chain perspective:

1. Dealing with new constraints
2. Managing the workforce safely and flexibly

First, workplaces have seen tremendous and swift changes because of the COVID-19 pandemic, the impact of which will most likely remain. As a result, new working and social arrangements are likely to emerge, leading to further challenges and factors to consider when managing the workforce.

Ed added that changing skills requirements is another significant challenge for organizations to deal with since it could lead to a mismatch of skills. The switching from internal combustion engines to electric vehicles in the automotive sector is one such example. Even tasks within jobs and job locations are changing, such as in engineering and diagnostics.

In terms of new supply chain constraints, disruptions can and will happen, said Tony. This may take different shapes and forms, some of which we may be familiar with and others we may or may not be able to predict, such as COVID-19. Our ability to deal with such disruptions efficiently and effectively is defined by adopting an advanced supply chain planning capability.

Tools such as scenario management, also known as the What-If Analysis, and disruption sensing are essential in today’s digital supply chain management toolbox. They help supply chain leaders develop different mitigation plans to reduce the risk of supply chain failure as much as possible. In addition, advances in IT such as the Internet of Things, cloud computing, 5G, artificial intelligence, and 3D printing are all contributing to a new digital supply chain.

What role will digital and new technologies play as organizations adapt to the new normal?

Several manufacturers adopted automation 10 or 20 years ago when they introduced PLCs, SCADA and even ERP systems to their operations. Today, said Dino, many early adopters are building on their existing infrastructure to become more digitally supported. They are using this infrastructure to orchestrate behavior and practices on the ground, so operational teams are notified in more succinct ways when to do quality checks or maintenance activities.

However, the organizational design of many of these companies is still steeped in very traditional constructs of ‘‘boxes and arrows’’. Few have transitioned to a matrix organization and taken advantage of learning paradigms and center of excellence, yet they want to leap straight into a networked environment. To experience the full benefit of a digital future, Dino cautioned, companies first need to follow a maturity-based approach to operational excellence.

Jacques added that as organizations move toward a remote and hybrid way of working, agile and outcomes-based practices are becoming more common, including access to data and the ability to draw actionable insights from it. Process automation is also becoming more prominent to help elevate value-added and strategic employee activities. Cloud technology is also enabling organizations to become more collaborative.

What does the next-generation production system look like?

It is generally agreed and pointed out by Gartner that the key components of a digital operating system will mirror those of an older production system. The distinction between the two, stated Geoff, is the added importance of operations visibility and technology, with data at the heart of it. This data is increasingly accurate and real-time, and can fundamentally change practices such as short interval control and the managing and closing out of nonconformances.

Digital transformation is essentially about how an organization manages, sources and uses its data.

Data can also fundamentally change the way decisions are made in a business as it shifts ever closer to predictive, pre-incident decision-making. This can become a firm competitive advantage and a true source of value for businesses that are able to adopt a digital operating system.

Another feature of a DOS is the gradual integration between the two distant cousins – IT and operations technology (OT). Traditionally, OT was very focused on real-time observation and control of physical events, while IT was more concerned with transactional data and information processing platforms. However, the walls between the two are slowly crumbling. OT can provide exceedingly valuable data to the business with IT making it possible – through integration – to visualize the data on an end-to-end basis across the organization.

What are the expected challenges as companies move toward next-generation production systems?

The flipside to the data argument, said Dino, is that while the shape and form of the workplace might change, the fundamentals of practices such as teamwork and even gemba walks would remain. Toyota recently stated that even with digitization, they would not do away with the principle of ‘‘going to see’’ where the real work takes place.

Dino highlighted two challenges that a shift toward a digitized workplace would trigger:

1. The first, he said, would be an obscured workflow; in other words, not seeing what came before a task is initiated and what happens after a task is completed. Transactional operations are particularly vulnerable where, for example, in an accounts payable workflow, blocked payments are often because of diminished visibility.
2. The second challenge, Dino said, would be the concept of abstraction. Using the brewing industry as an example, he jokingly used the term ‘‘TV brewers’’, referring to brewers that would only sit in the control room staring at the screen with no connection with what’s going on outside. Then, if a sensor didn’t work correctly, thousands of liters of product could go down the drain simply because those in the control room were oblivious to the fault. Such malfunctions can be extremely costly and could increase as the workplace becomes more digitized and remote.

Tony agreed, cautioning against the early adoption of technology without planning and disregarding organizational readiness and practice maturity. For example, introducing an automated daily management system to an environment that lacks teamwork, visual management and problem-solving best practices would be a total waste. However, a proper operational alignment and improvement strategy will establish the right operating foundation for building the next-generation production system.

According to Tony, employee engagement is another challenge since some employees may view automation and digitization as a threat to their jobs. Therefore, it is critical for leaders to constantly emphasize that transformation is an opportunity for employees to upgrade their expertise to suit future practices, bearing in mind that next-generation production systems are designed around human-machine interaction. Internal capability building is therefore critical.

What would your advice be to companies looking to establish a DOS – where should they start, and what should they focus on?

Jacques’s advice is as follows:

1. Understand the overall information architecture since digital operating systems are ultimately about creating open standards in which access to information allows for actionable insights beyond the operating technology.
2. Secondly, one should look at vendor selections. It is critical to have meaningful conversations with potential vendors around their strategic road maps and understand what changes and new technologies are available.

It is also helpful to look at new entrants to the market as the digital space is in a fair bit of flux with new vendors and technologies arising constantly. It’s therefore essential to understand what the digital landscape looks like and to actively engage to make the right choices.

How has the move toward digital operating systems influenced CCi in terms of product development?

Client sentiment makes it clear that the market needs a simple, modern application to help organizations orchestrate and manage their journey toward a DOS. Geoff emphasized that digital transformation is a journey, not an event, that stretches across several years.

The first step in that journey is for companies to understand where they are in terms of their DOS maturity. CCi has an assessment application containing 10 years’ global data to help clients measure their DOS maturity. As a result, it can provide clear benchmarks to prospective users.

Equally important is that businesses get to understand the practices that underpin this maturity, and they also need to know how they’re progressing on their DOS journey. The new version of the TRACC Platform enables clients to establish the work they need to undertake as part of the journey. TRACC can link in with a client’s lineside or ERP system to generate the required performance data. The TRACC Leader Standard Work App then enables an organization to standardize and track aspects of this improvement work across the entire organization.

CCi’s longer-term objective is to extend its platform and apply artificial intelligence or machine learning to intelligently advise clients on a customized road map to help them meet specific performance outcomes and improve their DOS maturity. Ultimately, the early adoption of DOS technologies, and perseverance, will pay off and pave the way toward full-scale digital supply chains.

For the full panel discussion, watch the on-demand webinar Next-generation production systems: How to thrive in a digital world.

---