A Fundamental Change

Industry40

Industry 4.0: A Radical Shift in Mindset and Investment in Human Capital

By Dr. Denis Maier     

Industry 4.0 is not another buzzword that can be waited out like some other management trends in the past. It is real and will fundamentally change the way we produce goods and provide services, just like the other three industrial revolutions did before. A closer look at the state of American manufacturing reveals that the current course of many companies needs to be corrected to leverage the opportunities and to remain a key competitive player in the global marketplace.

What is so different about Industry 4.0?

Recent studies show that there will be a significant growth of robots in our factories. The new generation of robots is much more advanced, easier to program and costs a fraction of the previous ones. These robots will allow for further efficiencies through replacing more human tasks. There will be less and less direct tasks left for workers and the pressure to integrate higher skilled, indirect tasks like quality assurance, maintenance and logistics will grow. We are in the middle of the next industrial revolution that ideally builds on Lean Manufacturing with streamlined processes and takes it seamlessly to the next level towards more digitization.

 

So where are we with our Lean efforts? We have now more than 25 years of trying to implement Lean in manufacturing and to achieve operational excellence. While few companies had great success, the majority of manufacturing companies are not nearly where they should be at this point. Lean thinking with continuous improvement activities along a sustainable path is not really prevalent and more complex Lean tools like Total Productive Maintenance (TPM) have only been implemented rudimentary. A lack of hard and/or soft skills is often the major obstacle to succeed and sustain the efforts - a major setback for Industry 4.0.

Another layer of challenge adds the American Manufacturing Renaissance as an attempt to reverse the outsourcing trend and to encounter quality issues and rising wages especially in China. The jobs will not come back in the same way they went abroad. They will be transferred back with an increased automation level and a higher needed skill level for the remaining worker tasks.

Robots, Lean and Manufacturing Renaissance require much more qualified employees and need to be seen as integrated and gearing towards the same goals. Industry 4.0 activities in other countries clearly show that.

What are the other global players doing?

Global manufacturing is a highly concentrated market with a few dominating players. The largest 15 manufacturing countries account roughly for 85% of the global output, with the top four making up more than 50%. These four countries are the United States, China, Japan and Germany. In this quartet China is the only low-cost country. Japan and Germany are considered peers and worth looking at their efforts as high-cost countries. Both have realized that individual companies will not be able to master the next industrial revolution by themselves and to solve the resulting ramifications on employment. They understand that there is only a path forward for their societies with advanced manufacturing based on high wages and benefits, if they want to remain global manufacturing leaders. Both countries have launched similar initiatives ("Industry 4.0" in Germany where this term was first introduced; Japan is looking even further at "Society 5.0") with government as a major facilitator to approach digitization in a more holistic and sustainable way. 

Two Major Drivers for Success

Two elements define operational excellence as vital for competitiveness, namely performing on world-class level and being able to sustain this performance level. Performance in the era of the fourth industrial revolution will primarily be determined by skills on all levels of operations as all nations and companies have access to the same technologies. Sustainability will mainly be based on a motivated, trained and stable labor force that is an active part of a relentless process to continuously improve and refine processes.

Both drivers have the highest attention in Germany and Japan and they understand that without them, their efforts to master and leverage the fourth industrial will not be successful. Germany traditionally has a strong emphasis on workforce development through their well-established and very effective apprenticeship programs. Japan is the birthplace of Lean Manufacturing based on the Toyota Production System (TPS), where developing and engaging people is an essential pillar. Both countries have rather low employee turnover rates.

In stark contrast is the focus of manufacturing in the United States on these two critical drivers. America is well prepared for Industry 4.0 on the technology and IT side, but needs to be on a different path regarding human capital and solve some inherent structural problems. Yes, there are excellent manufacturing companies in the United States just like in Germany and Japan. However, the concerning part are too many companies with higher employee turnover that still see employees just as a cost factor and as exchangeable - the opposite of what is needed for Industry 4.0. The overall, rather sobering and dissatisfying status of Lean Manufacturing after more than 25 years since its dissemination, is a good indicator of what can be expected in an Industry 4.0 environment without major changes.

A Different Approach

To close the skills gap, thorough inventory of every employee has to be taken along the required hard and soft skills. Having a few highly skilled employees that carry the rest in every sense is not good enough anymore. In addition to initiatives from government, education and industry organizations, companies themselves have to take a much more profound approach to develop people - a long-term investment that is desperately needed.

Excessive turnover also needs a more serious attempt as it undermines every effort to develop a superior workforce and to sustain any gains that have been made. The major root causes are obvious: employees leave because they are not satisfied with their pay or benefits, they do not see a clear path for advancement and the culture and their leaders demonstrate every day that they are not relevant for the company’s success. Unfortunately, that has changed dramatically, not only with Lean, but more so now with Industry 4.0.

People will decide between success and failure, not technology. It is time to tackle these issues in a more rigorous way and to make some drastic mindset adjustments towards human capital that reflect the fourth industrial revolution and its implication on the workforce.

Dr. Denis Maier is a Professor of Practice in Operations at the Business School of Wake Forest University in Winston-Salem, NC. He has more than 20 years of international industry and management consulting experience in manufacturing operations and was a Group Vice President at BMW.

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