The term Industry 4.0 has been quite a buzzword over the last couple of years. Used to describe the fourth industrial revolution, Industry 4.0 is the ultimate expression of the convergence between the physical and the digital worlds. Enabled by the internet and technology, it has the potential to transform the manufacturing sector. It leverages the power of data and analytics as well as automation facilitated by the democratisation of smart devices that can communicate with one another.
In many ways, Industry 4.0 is a natural progression from the third industrial revolution that was powered by electronics and information technology. As computing evolved through the 1980s and became accessible in the 1990s, organisations started realising the value of connecting disparate systems and functions. This integration led to the emergence of Enterprise Resource Planning (ERP) as a business-critical and strategic pillar for businesses.
Cut to 2021. The first two decades of the 21st Century have witnessed the meteoric rise of the internet and hardware advancement at a breakneck speed. This brings us to Industry 4.0, and the technology landscape of today looks nothing like what it did during the third industrial revolution. And while the fundamentals and strategic relevance of ERP remain unchanged, the technological innovation and changing business landscape have opened up new applications and avenues. However, for enterprises to tap new opportunities in the era of Industry 4.0, they also need to revisit their approach to ERP. What does this involve and what are the implications for traditional sectors like manufacturing?
- Improve demand forecasting
Economic uncertainty, fluctuating sales, and changing consumer preferences add multiple layers of complexities to the demand forecasting function. This has massive implications on the input procurement end where a single out-of-stock input can stall the entire batch, and overstocking can lead to increased input cost or high levels of wastage in the case of time-sensitive inputs. The ability of an ERP connected with a powerful analytics engine can use historical data to predict demand more accurately. This brings order to an otherwise chaotic and unpredictable function and lends it a high degree of flexibility and accuracy.
- Optimise production process
Current market conditions require manufacturers to be fast and responsive in terms of production and output. This calls for businesses to manage their production processes more effectively. A well-integrated ERP that connects various functions such as supply chain and inventory with a smart factory can go a long way in controlling the production schedule. Besides being responsive to market conditions, optimising the production process enables companies to implement new revenue models by tapping into emerging opportunities in a timely manner.
- Enhance asset utilisation
As machines and shop floors become smarter with sensors and machine-to-machine (M2M) communication capabilities, their ability to transmit data in real-time can give companies a unique edge. Connected to a centralised enterprise-wide system, operators can now monitor operations more effectively. This enables the deployment of automated issues detection and response mechanisms as well as predictive maintenance capabilities. Proactive management of potential equipment failure and timely maintenance minimises downtime and enhances asset utilisation.
- Reduce production costs
A drop in sales and demand has put a squeeze on the top line of businesses. As a result, the manufacturing function with a large share of capital and operational expenditure is under tremendous pressure to maximise savings and to do more with less. An ERP that runs across the value chain and a centralised database allow business leaders to monitor critical key performance indicators (KPIs) and derive insights to help reduce cost. Besides identifying wastage of money and resources, it can also rationalise input costs, all of which help reduce the production cost and contribute to the bottom line of an organisation.
At the end of the day, the success of a business or its ability to respond to an evolving operational landscape depends on the quality and pace of decision-making. With large variables to balance and external dependencies, this becomes even more critical for the manufacturing sector.
Upgrading the ERP for an Industry 4.0 environment helps organisations gain better and real-time visibility into the various operational aspects of their operations. This enables a more informed analysis and well-timed decision-making across the organisation and the value chain from the top floor to the shop floor, and from supply chain vendors to customers.