“Lighthouse” manufacturers lead the way—can the rest of the world keep up?

Here is an excerpt from an article Written by Enno de Boer, Helena Leurent, and Adrian Widmermfor the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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Manufacturing leaders are sprinting ahead with digital and analytics, and changing the rules of the game. A broad scale-up of innovation across the value chain is needed to ensure more winners share the spoils.

The long-anticipated Fourth Industrial Revolution is no longer some far-off horizon. Early-adopting “lighthouse” factories are implementing advanced manufacturing and AI-driven technology, at scale, and seeing significant gains. What insights can the leaders share to accelerate digital scale-up broadly? What is needed to ensure these benefits spread across regions and sectors?

Some answers to these questions are addressed in the paper, Fourth Industrial Revolution: Beacons of Technology and Innovation in Manufacturing, by the World Economic Forum, in collaboration with McKinsey & Company. The team identifies top-performing factories and explores insights from these “lighthouses”—16 of the world’s most advanced sites implementing technologies of the Fourth Industrial Revolution, selected from a survey of over 1,000 manufacturing sites globally. The rest of this article, extracted from the full report, summarizes the key findings.

Emitting powerful light that pierces fog and darkness, lighthouses are key to maritime navigation. With this research, we seek out manufacturers across a broad range of industries who are leading the way in Fourth Industrial Revolution innovation. Connected within the framework of the World Economic Forum’s platform, these model factories, which have been recognized as Fourth Industrial Revolution “lighthouses,” are starting a unique learning journey that will benefit the production ecosystem.

Manufacturing has experienced a decade of productivity stagnation and demand fragmentation; thus innovation is long overdue. Where Fourth Industrial Revolution innovation has been taken to scale beyond the pilot phase, unprecedented increases in efficiency have occurred, with minimal displacement of workers. However, most companies appear to be stuck in “pilot purgatory.”

By contrast, this select group of manufacturing sites represent the leading edge of technology adoption at scale. These sites serve as beacons for the world, exemplifying the type of production approach that can drive the next engine of global economic growth. They demonstrate how forward-thinking engagement of technology can create a better, cleaner world through new levels of efficiency in manufacturing. Likewise, they illustrate how Fourth Industrial Technology at scale can transform the nature of work itself by upskilling and engaging human workers with minimal displacement.

Lighthouses serve as real-world evidence to dispel widespread myths and misunderstandings posing obstacles to innovative technology adoption at scale; in addition, these beacons shed light on the characteristics, differentiators, and success factors that realize optimal scaling.

Seeing the light: a radical leap forward for Fourth Industrial Revolution front-runners

Three technological megatrends—connectivity, intelligence, and flexible automation—are the principal drivers of a Fourth Industrial Revolution paradigm shift in production:

  • Connectivity—Creates links between discreet network nodes, increasing visibility
  • Flexible automation—Incorporates response mechanisms, automation, and remote movement
  • Intelligence—Automates event recognition and translation for decision making

Technology adoption at scale can have a radical impact upon organizations. A close look at one of these three megatrends can make clear just how powerful this effect can be. For example, a McKinsey Global Institute analysis projects a remarkable gap between companies that adopt and absorb artificial intelligence (AI) within the first 5-7 years and those that follow or lag behind. The analysis suggests that “front-runners” in AI adoption can anticipate a cumulative 122% cash flow change, while “followers” will see a significantly lower impact of only 10% cash flow change. This shows the importance of early technology adoption, since companies waiting risk missing a large share of the benefits.

Company leaders who move to implementation early, rather than waiting for decreased technology and transition costs, will realize the greatest benefit. Thus, the largest factor here is related to the competitive advantage of front-runners, which by far outweighs the higher transition costs and capital expenditure related to the early adoption.

Faster AI adoption and absorption by front-runners can create larger economic gains.

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Here is a direct link to the complete article.

 

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