Smarter
Operations:
The Value Chain’s
Vital Role in
Digital Evolution
Chapter 2
The Look of Production
of the Future
1DX Initiatives and Investments
Digital Operations
The Value Chain’s Role
Industrial IoT and Production of the Future
Conclusions and Takeaways
A four-part series helping manufacturers make progress today while building for tomorrow
Introduction
Concepts
Thought leaders envisioning the digital future of manufacturing production have put names to different movements
or strategies. For consistency, the following definitions are being applied.
Digital Transformation (DX)
Technology analyst and advisory firm IDC defines
DX as transforming decision-making with technology.
Manufacturers must look at DX as a mechanism to
deliver the next level of value for the organization
through the use of digital technologies.
Industry 4.0
This fourth Industrial Revolution is the next wave of
disruptive technology that will enable manufacturers
to make great leaps in productivity, efficiency and
innovation.
Smart Operations
A step forward from Smart Manufacturing to the digital
connectivity of machines, facilities and people outside
a factory’s walls. Smart Operations helps integrate
processes both upstream and downstream to improve
visibility and enable flexibility in both planned and
unplanned changes.
Trading Partners
Businesses contributing at any point in the value chain
to the manufacture and delivery of products.
Value Chain
The unique internal and external contributors to a
manufacturer’s end-to-end supply chain that add value
to the product being supplied to customers.
Modern digital technology is transforming every industry, including manufacturing. Yet in The Rise of Smart
Operations, a survey of machinery manufacturers conducted by UPS and IDC, roughly one-half of the respondents
said their digital or “smart” operations were lagging the competition or were at a significant disadvantage. This
four-part series continues to explore the building blocks required to create a smarter, more digital operation.
Manufacturers will also find practical solutions they can consider implementing today to incorporate smarter
operations in their production processes of the future.
Smarter Operations: The Value Chain’s Vital Role
in Digital Evolution
2DX Initiatives and Investments
Digital Operations
The Value Chain’s Role
Industrial IoT and Production of the Future
Conclusions and Takeaways
Of all that digitization of the supply chain promises manufacturers, whether you call it
Smart Operations, Digital Transformation (DX) or Industrial Internet of Things (IIoT), the
potential to drive efficiencies gets the most attention. Often overlooked, however, is the
potential of your digital transformation to fuel innovation and revenue growth.
Case in point: UPS built its Package Flow Technology using a network of connected
sensors and scanners to monitor, evaluate and optimize every step in a delivery cycle
— from the way a package is routed and tracked to how it’s loaded and then delivered.
That visibility, originally intended to optimize operations, also led to breakthroughs in the
ability to intercept packages and provide the alternative delivery options now available
through the UPS Access Point™ Network and UPS MyChoice® services.
Those UPS innovations evolved over a matter of years — a lifetime in today’s terms
considering the pace of technological change and rising customer demands. Just imagine
the complexity of production processes of the future with virtual and augmented
reality, Bluetooth beacons, RFID — not to mention the growing buzz about Blockchain
technology. Few companies can assemble the skills needed to design, engineer and
integrate these new operating processes and systems, let alone staff the new operation
given the ever-widening manufacturing skills gap.
Recognizing this new reality, companies have been opening their doors to some
surprising collaborators. Coined “industrial mash-ups” in a paper by Ernst & Young and
Harvard Business Review, such alliances can come together faster than mergers and
acquisitions, and they can “develop new products and services rapidly by piecing together
components from an ecosystem of collaborating partners,” the paper found.
As the “industrial mash-up” examples make clear, manufacturers today can no longer
afford to be digital fast-followers. Further, companies will have to open their doors to a
wider range of outsiders in order to find efficiencies and disruptive innovations.
My simple advice would be to start with your value chain partners. Not only do they have
unique knowledge of their customers’ operations and specialized expertise, they also
have a vested interest in their customers’ success.
Whichever path is chosen, the most important message is to start today.
In our new industrial reality, if you’re standing still, you’re actually falling
further behind.
by Charlie Covert
Vice President,
UPS Customer Solutions
for Industrial, Automotive
and High Tech.
Charlie Covert’s executive role
includes providing customer
solutions, supply chain design
and consulting services for UPS
customers in the global industrial
manufacturing, high tech and
automotive industries.
Introduction
Introduction
3DX Initiatives and Investments
Digital Operations
The Value Chain’s Role
Industrial IoT and Production of the Future
Conclusions and Takeaways
Introduction
Today manufacturers are in the midst of the 4th industrial revolution, as our ability to
connect digitally to physical assets is enabling change in the way they operate, manage,
and interact with the equipment and processes across their entire value chain. In the
modern environment, manufacturers are looking at this industrial revolution through
the lens of digital transformation (DX).
Technology analyst and advisory firm International Data Corporation (IDC) defines DX as: To transform decision
making with technology. Manufacturers must look at DX as a mechanism to deliver the next level of value for the
organization through the use of digital technologies.
For example, a company that is moving a business application to the cloud, that
has not used the cloud before, would be considered a DX initiative as long as it
enables the company to do something that it hasn’t done before. On the more
advanced side, a company deploying sensors across the manufacturing operation
to gather and analyze captured data is also engaging in a DX initiative.
Manufacturers
must look at DX as a
mechanism to deliver
the next level of value
for the organization
through the use of
digital technologies.
Introduction (continued)
4Introduction
Digital Operations
The Value Chain’s Role
Industrial IoT and Production of the Future
Conclusions and Takeaways
Chapter 2:
The Look of Production of the Future
DX Initiatives and Investments
As Figure 1 shows, most manufacturers are investing in DX to some degree. According to the IDC Manufacturing
Vertical Insights survey, over 80% of manufacturers reported that at least some portion of their new technology
initiatives were being driven by digital transformation, with 46% noting that more than one-quarter of their
technology initiatives are being driven by DX.
DX Initiatives and Investments
Figure 1
A focus on DX initiatives comes with a concurrent rise in spending. In IDC’s Worldwide Semiannual Digital
Transformation Spending Guide, the research consultancy projected that spending on DX will reach $1.2 trillion
worldwide, led by China and the United States. The report also projects “discrete and process manufacturers
contributing almost 30% of this spending” with the spending highest in “connectivity services, IT services and
application development & deployment (AD&D). Combined, these categories will account for nearly half of all DX
spending this year. However, investments in these categories will vary considerably from industry to industry.
Source: IDC Manufacturing Vertical Insights Survey, IDC, 2016
Digital Transformation is Driving New Tech Initiatives in Manufacturing
What percent of your new technology initiatives are driven by digital transformation?
0%
18.7%
1-24%
34.8%
25-49%
22.9%
50-74%
14.5%
75-99%
5.4%
100%
3.8%
Manufacturing Industry
in AD&D
Transportation Industry
20%
in connectivity
services
50%
in IT services
13%
Where do
industries
invest their
DX budget?
5DX Initiatives and Investments
Introduction
The Value Chain’s Role
Industrial IoT and Production of the Future
Conclusions and Takeaways
Chapter 2:
The Look of Production of the Future
Digital Operations
D
IG
IT
AL
O
PE
RA
TI
O
NS
AU
TO
M
AT
ED
O
PE
RA
TI
O
NS
IN
TE
GR
AT
ED
O
PE
RA
TI
O
NS
IN
ST
RU
M
EN
TE
D
O
PE
RA
TI
O
NS
Sensors capture
data about
operations and
facilities to better
understand
operations
and identify
opportunities
for improvement.
Enables the
organization to
break down the
traditional silos
of insight and
create alignment
across the
end-to-end
value chain.
Automation
technology and
robotics help
drive eciency,
productivity,
and quality
improvements
throughout
the operation.
A digital
representation
(digital twin) of
products and
processes enables
modeling and
simulation to help
drive operational
improvements.
Access to Enterprise technology
and soware currently
used for corporate or
administrative purposes
Corporate Vendors
Global value chain visibility
Contract manufacturing,
warehousing and distribution
Established partnerships
with technology providers
Logistics & 3PLs
Product innovation
Shared services
Investment in tech for mutual bene
t
Industry best practices
Suppliers
Chapter One reviewed the four pillars of production of the future (Figure 2) which outline the foundational
steps toward smarter operations — Instrumentation, Integration, Automation and Digital Operations. The Digital
Operations pillar leverages software and applications from all pillars to create a digital model (digital twin) of the
products and processes across the manufacturing operation. Through digital operations, manufacturers are able to
run simulations to evaluate how their products and processes will respond to changes under a variety of scenarios.
Digital Operations
Advance Smart Operations with Support
from Value Chain Partners
Figure 2
6DX Initiatives and Investments
Introduction
The Value Chain’s Role
Industrial IoT and Production of the Future
Conclusions and Takeaways
Chapter 2:
The Look of Production of the Future
Digital Operations
Digital Operations is an extremely powerful element in production of the future.
The capabilities that enable the digital twin, shown whitin the Digital Operations pillar, also provide operations
intelligence used in decision-making with fewer constraints from assumption-based simulations. Therefore, the
digital twin improves the accuracy of projections by relying more on data from sensor-enabled operations than
hypotheses or assumptions.
Modern manufacturing processes and products are increasingly being outfitted with sensors and feedback
mechanisms. These enable manufacturers to capture data which are then input into the digital operations layer
where the data is analyzed, modeled, and simulated.
Risk reduction and improved
outcomes arise from the ability to
make better-informed decisions
based on actual operational data.
Because the volume and accuracy
of the data are more reliable than
fully assumption-based insight,
manufacturers are able to enact
change with lower risk.
Modeling and simulation enable
manufacturers to evaluate and
prepare for a wide variety of
scenarios and, therefore, improve
their ability to respond quickly
to change.
The Introduction to this chapter
mentioned customer service
innovations enabled by the digital
connections powering UPS Package
Flow Technologies. Similarly,
improved digital modeling can
also provide manufacturers with
a clearer view of the potential of
new processes and technologies —
perhaps well beyond the goals of
the original hypothesis.
Digital Operations (continued)
Through this modeling and simulation, manufacturers are able to:
Reduce Risk and
Improve Outcomes
Increase Operational Speed and
Responsiveness into the Operation
Support Innovation and Improve
Return on Investment
7DX Initiatives and Investments
Introduction
Digital Operations
Industrial IoT and Production of the Future
Conclusions and Takeaways
Chapter 2:
The Look of Production of the Future
The Value Chain’s Role
To progress in the modern operating environment, manufacturers must digitally
connect their extended ecosystem both upstream and downstream in the value chain.
The technology exists. The challenge lies in designing effective processes and aligning
disparate systems while overcoming internal resistance to sharing sensitive data outside
of company walls.
Strategic Partnerships
Digital operations is all about turning operational data into intelligent and actionable insight that can be used to
drive value for the manufacturer and its customers. Manufacturers must first look to optimize the quality and utility
of their existing data while continuously supplementing the data they already have.
Value chain partners have ownership of a tremendous amount of data about the operation that can add value
to parties up and down the chain. The following provides a short list of data that can help to form the basics of
smarter operations.
The Value Chain’s Role
All of this data is relevant to understanding the health of the manufacturing operation and can be valuable in the
modeling process used to determine the best way to drive operational improvements. However, data sharing must be
a two-way street. Value chain partners must collaborate in both directions in order to drive a partnership with trust and
transparency. Not only can strategic value chain partners help drive digital operations proficiency, they should also be
looked upon as key players in building the other pillars of smart operations shown in Figure 2, such as instrumented
operations and integrated operations.
The bottom line is that any manufacturer thinking of developing a strategy for production of the future must consider
the role of their value chain partners, and must work with them to align operations and provide data-driven visibility
across the operation.
Offer real-time asset
locations, shipment status,
inventory location and
quantities, frequency and
volume of shipments.
Capture manufacturing
process data, capacity
and production planning.
Provide demand-driven
data, inventory quantity
and location, through-
put, fulfillment rates
and returns.
Track material purchase
history such as quantity,
frequency, spend,
capacity and quality.
Logistics partners Third-party distribution partners Suppliers
Third-party contract
manufacturing partners
8DX Initiatives and Investments
Introduction
Digital Operations
The Value Chain’s Role
Conclusions and Takeaways
Chapter 2:
The Look of Production of the Future Industrial IoT and Production of the Future
The Industrial Internet of Things (IIoT) refers to the increasing use of sensors, communication and analytics across the
operational environment. This includes sensors on operational equipment, throughout the warehouse, on products,
across the logistics environment, and essentially all aspects of the operation where data can be collected through the
use of sensors.
Manufacturers must consider how the disparate sensor applications are best connected, and must have a plan for
analyzing the data and applying the insights to benefit the operation — the true definition of Digital Transformation.
Many manufacturers have been investing in the instrumentation of their operations for several years now with greater
than 87% having some instrumentation of their operation (Figure 3).
Industrial IoT and Production of the Future
Using IoT and sensors with analytics to improve factory performance — which statement best
describes your organizations investment strategy for each of the following solution areas?
We do not plan any additional investment this year
We will be researching or evaluating this solution
We plan to purchase this solution
We plan to upgrade or enhance this solution
We have a home grown system
We do not have this solution nor are we evaluating
Making Investments in IIoT
31.6%
23.5%
13.5%
8.8%
9.9%
12.7%
Figure 3
Investing in IIoT introduces several benefits that are often unattainable without its deployment.
• Operational visibility. One of the most visible benefits of IIoT is the ability to capture real-time operational data,
thus gaining visibility into how well operational processes are performing.
• Quality control. IIoT can provide visibility to production processes so that if something falls outside of control
limits, the operation can take corrective action.
• Predictive maintenance. Combining real-time operational data with analytics enables manufacturers to identify
asset performance risk and proactively make necessary repairs.
• Productivity and efficiency gains. Insight into the operation through IIoT can help manufacturers identify
opportunities for productivity and efficiency gains across the operation.
• Innovation. It may be difficult to envision new thinking or abilities that may arise from enhanced connectivity
and robust data. However, manufacturers should always assume innovation will be a byproduct of those new
operating processes and should be ready to capitalize in a timely fashion.
Source: IDC Manufacturing Vertical Insights Survey, IDC, 2016
9DX Initiatives and Investments
Introduction
Digital Operations
The Value Chain’s Role
Conclusions and Takeaways
Chapter 2:
The Look of Production of the Future
Shipment tracking
Inventory visibility
Improved customer service
Overall supply chain visibility or traceability
Customer engagement
Machine maintenance
Field service maintenance
Something else
43.9%
41.5%
36.5%
31.7%
24.2%
16.6%
16.2%
8.8%
What kind of benets have you seen from IoT deployments in your supply chain?
Benets of IoT Deployments in the Value Chain
Industrial IoT and Production of the Future
IIoT is much more than simply deployment of sensors throughout an operation.
Both of the following ecosystems must be considered:
• The technology ecosystem. The end-to-end IIoT technology stack required to deliver an IIoT deployment.
Any IIoT initiative must take this into account to ensure that the project delivers on the expected value.
• The value chain ecosystem. Production of the future requires a holistic perspective of the value chain
ecosystem. There is a significant opportunity to collaboratively design and deploy business processes, enabled
by modern technology, that extend to all participants in the value chain.
Figure 4 shows the areas where providers along the manufacturing supply chain said they’ve benefited from IoT
deployments. As in the case of the UPS innovations mentioned earlier, it’s fair to assume that some of the benefits
being realized by value chain partners occurred above and beyond the original objective to connect and optimize
a supply chain.
Industrial IoT and Production of the Future (continued)
Figure 4
Source: IDC Supply Chain Survey, IDC, 2016
Benefits of IoT Deployments
in the Value Chain
What kind of benefits have you
seen from IoT deployments in
your supply chain?
10
DX Initiatives and Investments
Introduction
Digital Operations
The Value Chain’s RoleChapter 2:
The Look of Production of the Future
Conclusions and Key Takeaways
Industrial IoT and Production of the Future
It is clear that manufacturers are investing human and financial capital in order to
advance toward more digitally transformed, or smarter, operations. The decisions are
weighty and, understandably, will not happen quickly for most companies. But they
must take action now. Standing on the sidelines these days may as well be
moving backwards.
These thought-starters may help:
• Invite value chain partners to the table early in DX discussion to benefit from the knowledge, expertise and fresh
perspective they can offer.
• Tap into existing technology and infrastructure, whether in-house or through the value chain, to enhance
manufacturing operations in less time and with less capital outlay. For example, UPS offers a range of shipping
and visibility solutions that mirror some of the same benefits of having a more digitally connected supply chain.
• Make a plan for drawing in specialized talent and skills from outside the company’s walls or even outside the
industrial sphere. For example, UPS has based a relationship with CNC Machining and 3D printing company Fast
Radius. While on the surface the connection may not be clear, the benefits are vast. UPS customers gain access
to on-demand, commercial-grade 3D printing services in combination with multimodal logistics services. At the
same time, both companies gain valuable industry knowledge and business development opportunities.
• Take a long-term view of the benefits of DX investment. To consider only the efficiencies to be gained in DX
implementation risks leaving breakthrough innovation on the table and limits return-on-investment.
Conclusions and Key Takeaways
11
DX Initiatives and Investments
Introduction
Digital Operations
The Value Chain’s RoleChapter 2:
The Look of Production of the Future
Conclusions and Key Takeaways
Industrial IoT and Production of the Future
Read Chapter One
Coming Soon:
Chapter 3 | The Role of Additive Manufacturing in Production of the Future
Chapter 4 | Production of the Future – Conclusions and Guidance
Learn more about the ways UPS can help you progress toward Digital Transformation.
INSTRUMENTED OPERATIONS
INTEGRATED OPERATIONS
AUTOMATED OPERATIONS
DIGITAL OPERATIONS
UPS Logistics Supporting Smarter Operations
Corporate Strategy & Innovation
• Supply chain consultation to help
identify short-term and long-term
steps toward smarter operations
• Financial and insurance products
from UPS Capital to enable growth
and investment while mitigating risk
Operations
• Advanced operating capabilities
through contract warehousing,
distribution and field stocking
locations
• Order intake, processing,
shipment and delivery
• On-demand Additive Manufacturing
(3D Printing) services
• Package Engineering
Inbound/Outbound Logistics
• Integrated global transportation
network: ground, air, ocean, rail
• Multimodal visibility into inbound
and outbound UPS shipments
• Trade Management and Customs
Compliance
• Global Freight Forwarding
Post-Sales Services & Solutions
• Returns solutions to streamline
customer experience and better
manage inventory utilization and
costs
• Test, repair and refurbishment
services
• Critical MRO order fulfillment
• 27,000 drop-off and pick-up sites
Conclusions and Key Takeaways (continued)
Smarter Operations: Preparing for Production of the Future
This series explores the role of modern digital technology in the evolution of manufacturing production, defined here as the value chain of internal and external contributors to the manufacture and delivery of products. Each chapter is designed to help operators visualize how they can build-out production of the future, and how to leverage help from the value chain to make faster progress.
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