Digital Transformation and SMEs
Dr B K Mukhopadhyay
(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)
Dr. Boidurjo Rick Mukhopadhyay
(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)
It was back in 2011 at the Hanover fair, the German group of scientists Acatech presented the term "Industrie 4.0", a synonym of the fourth industrial revolution. When understood in simple terms, the fourth industrial revolution is an introduction of modern ICT in production. Further, in 2013, the working group "ArbeitskreisIndustrie4.0" comprising industry researchers, presented their report of recommendations for the introduction of Industry 4.0 to the government following which German associations such as BITKOM, VDMA, and ZVEI created the "Platform Industrie 4.0" that subsequently influenced the countries' political strategies and industrial development focus. Since then, industry 4.0 has expanded globally and really quick. Industry 4.0 combines production, information technology, the internet, and moves towards a digital-physical system in manufacturing. According to PwC, companies deploying Industry 4.0 initiatives expect to see a 2.9% increase in revenue and a 3.6% reduction in costs by 2020.
Today, we have machines diagnosing their own problems, dealing with a vast amount of data, and alerting us with potential challenges with their capacity of 'predictive analysis'. Systems can sense when problems are arising or say, particular machinery needs to be fixed, which can potentially empower managers to solve potential issues before it's too late and too big.
A McKinsey report focusing on Industry 4.0 applications show that an African gold mine identified a problem with the oxygen levels during leaching, this increased their yield by 3.7% which is saving $20 million annually. Also, evidently, the predictive nature of today's technology and intelligent systems does not simply ask reactive questions such as 'what has happened?' but more proactive questions such as 'what is going to happen', and, 'what can be done to prevent it from happening?'. This has resultantly created a disruptive impact on industries at the same time, good and bad.
SMEs, Industry 4.0, and National Strategies
Whether it is about procuring products at a warehouse to getting them ready to ship, there are robots at an affordable cost that can support manufacturers at all scale. In the Organization for Economic Cooperation and Development (OECD) countries, SMEs remain the heavy performers for these economies and also help towards the building an ecosystem of entrepreneurship, capability building, and new industries. In the OECD area, SMEs are the predominant business type that accounts for about 99% of all firms while providing for about 70% of jobs and generating between 50 -60% of value-added.
Similarly, in emerging economies, SMEs contribute up to 45% of total employment and 33% of GDP. SMEs make up more than 96% of Asian businesses, which provided two out of every three private-sector jobs on the continent. However, not all these countries have the right state and local level support strategies to retain the benefits of the fourth industrial revolution.
Industry 4.0 has also reached the emerging countries and across several industries that have already shaped the new political strategies and trade relations. For example, China making full use of Industry 4.0 to continue dominating its place as the world's manufacturing home and logistics influencer, but also subsequently entering other areas of international affairs with the optimum use of the 4.0 aspects across intelligence, agile, automation, and cloud systems.
For example, for its 'Made in China' 2025 strategy, the state has pinpointed ten industries within which leading Chinese global companies are set to dominate, these companies are into high-end automation, robotics, artificial intelligence,and robotics (FAZ 2019).
India also has her own 'Make in India' initiatives to boost several industrial sectors and key players, e.g., the automobile industry where components of Industry 4.0, as well as the Internet of Things, could significantly boost the nature of operations and domestic manufacturing at the global standard. Also, Thailand wants to be recognized for the innovative and value-based industry so their focus has been very much on robotics, mechatronics, artificial intelligence, Internet of Things, with their "Thailand 4.0" in place.
SMEs capability building for adopting smart technologies
However, most SMEs lack either a concrete model or support system to incorporate introducing a massive dose of technologies all at one point, from the Internet of Things (IoT) to Big Data analytics and these shape up the logistics and procurement strategies. Actually, while these technologies can almost immediately start making processes and systems more proactive and efficient, the support system that needs to be built first needs to identify what kind of smart and intelligent systems could an SME absorb given its innovation absorption capacity. Each case would vary.
Majority of the time if we look at SMEs in the media or food & beverage industry using industry 4.0, it's largely about creating adapted design solutions for production or procurement systems. While SMEs may not always have the resource capacities, both human and financial, to systematically investigate the challenges and potential of introducing Industry 4.0, many SMEs work on developing smart manufacturing concepts, automated logistics systems that is either AI managed or/and cloud-based. One thing that can be done fairly quickly, however, is to establish a culture of continuous improvement.
Ever since local sourcing became a buzz, large corporations are working closely with local suppliers and manufacturers in some cases. For example, Amazon works with suppliers who rely on local farmers in the US to bring organic, fresh farm products to Amazon fresh till-less grocery stores. At the same time, we need to realize how much pressure does that put on small farms to produce and supply at a level that they have never operated before.
The ability to maintain delivery under this pressure requires a resilient supply chain to begin, and also investments in updated farm techs and automated tools with the know-how made available fast and cheap. While claims of big companies saying 'we have built a digital factory for your convenience'with offering hassle-free shopping experience either in person or online – getting the supplies there, however, especially in the food production industry still faces paramount challenges that are not only supply chain-related but also production-based.
How industry 4.0 could benefit in-house resources management
Industry 4.0 can help these challenges at both systems and product levels. For example, with intelligent and cloud-based systems, firms can do better resource planning. This would ensure better resource management, using the right volume of materials in stock and ensuring there are no over orders based on projected capacity as estimated. This would address the potential cash flow issue. When orders are satisfied with the flexibility to cope with at capacity levels, confidence is also built between B2B and B2C. Another example, setting up electronic-customer relationship management (e-CRM) system with an ERP that helps suppliers read sales trends, project order volume, and liaise with clients – all at the same time.
Finally in this context, for SMEs to remain competitive, the ability to tailor products according to customer needs and customize quickly while also making available high version numbers at low batch sizes is now a prerequisite. This is where automated manufacturing processes come in, a setting where individual and customer-specific products are fabricated according to mass customisation requirements. Another way that industry 4.0 could support SMEs.
Following the way big e-tails manage their operations, SMEs can also develop cost-effective omnichannel that could allow B2B project collaborations, share networks online for developing future potential, besides the required bit which is to notify customers of the progress of their orders (which is now old). Smart systems also save time-consuming admin tasks, such as maintaining accounts and Gannt charts for operations, so the SME managers can find time to focus a lot more on the actual business and design future strategies.
Also, speaking of omnichannel as above, Industry 4.0 allow SMEs to start rolling out optimised processes by creating a digital platform to grow their business. Alibaba and Taobao have done it in China benefitting millions of small businesses, and so did Myntra or Flipkart in India. There are wider gains too, not only creating new jobs but newer forms of partnership that improve the market growth.
Integrating Industry 4.0 with SMEs operations also helps with compliance requirements, for example, while food manufacturers are required to prove provenance, aerospace demands evidence of tolerances and QA levels, these are aspects that consumers today care about. Customers expect traceability and to be able to say/ share that they associate only with firms that are ethical and believe in sustainability - these being buzzwords today. A digital system helps SMEs track and trace materials whilst fulfilling compliance requests automatically. It's much more organized, methodically arranged, and can also be shared easily when required.
Cut to credits, in 2022 it is now a given that comprehensive digitisation plans are already integrated into the corporate strategy for large corporations, but at the same time, SMEs as they remain the backbone of the economy find it hard to put the Industry 4.0 paradigms into practice. It is therefore recommended to enable platforms during trade expos and industry meetings to discuss how specific concepts and adapted designs for smaller companies could be developed in a cost-effective way within a short time span. A digital transformation strategy offers opportunities for SMEs growth and maintaining competitiveness that has a wider impact on trade relations and creating new internationalisation opportunities.