Archive: November, 2018

Industry 4.0

The fourth industrial revolution, or Industry 4.0 for short, is a label used for the next paradigm shift in manufacturing. To be more precise it refers to the current trend of automation and data exchange in manufacturing technologies. It includes some familiar terms like cloud computing and the Internet of Things (IoT) but some less memorable ones like cyber-physical systems and cognitive computing.

The term has been around for some time having originated from a high-tech strategy developed by the German government which was widely publicised in 2011. Given procurement and supply chain are at the centre of manufacturing then it’s a concept the profession should embrace.

A number of concepts developed in manufacturing have been successfully applied to services, for example, kaizen and lean. I think Industry 4.0 is no exception.

Industry 4.0 has four design principles, namely:

  • Interconnection – the ability of machines, devices, sensors, and people to connect and communicate with each other via the IoT
  • Information transparency – interconnectivity enables large amounts of data to be gathered providing the opportunity of perfect information
  • Technical assistance – includes systems to aggregate and visualise information which can be used for making better decisions more quickly. It also includes the ability of cyber physical systems to support humans by conducting a range of tasks that are human do not want to do like those that are routine
  • Decentralised decisions – the ability of cyber physical systems to make decisions on their own and to perform their tasks as autonomously as possible

From these principles we can see that the key procurement processes of source to contract (S2C) and purchase to pay (P2P) are going to be largely automated. Indeed, supplier selection and demand management for categories of spend that are deemed low risk like stationery and IT peripherals will be fully automated.

Those procurement and supply chain processes that are typically done by more junior staff, such as on-boarding suppliers or expediting purchase orders, are going to be replaced by computers in Industry 4.0. This may worry those starting their careers and those looking to develop teams. Fortunately, there are two mitigating factors. First, someone needs to set the rules such as the level of acceptable risk and then provide oversight. Second, Moravec’s paradox still applies in Industry 4.0, which means tasks that require high-level reasoning will be done by computer while those that require emotional intelligence , like managing relationships with internal stakeholders and suppliers, will remain with the humans.