China’s factories want to digitize: Here’s what they need to do

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Since opening its doors to trade and investment in the 1980s, China has built a global reputation as an exporting powerhouse on the back of low-cost, labor-intensive manufacturing.

But the government has plans to change all this. In its comprehensive “Made in China” policy, China’s State Council set forth an ambitious plan to join the ranks of the world’s leaders in technology and innovation over the next three decades.

By 2025, China aspires to join the group of more advanced global manufacturing companies by focusing on productivity improvements, as well as stepping up on innovation and digitization.

By 2035, it hopes to further raise its position relative to this group of global manufacturing leaders by developing breakthrough innovations and creating pioneering technologies.

And by 2045, if all goes according to plan, China will have taken its place as a top player among the most technologically advanced nations in the world, with best-in-class companies and strong ecosystems across leading technologies.

Pretty ambitious plans, for sure. But this all seems like a long way off in the future. What about today? What do Chinese manufacturers need to do now to make them more innovative, more efficient, and more globally competitive?

Industry 4.0

There’s a lot of buzz in Chinese manufacturing circles these days around “smart operations” or “digital operations,” an approach to manufacturing that has also been referred to recently as “Industry 4.0.” Industry 4.0 describes the collection of manufacturing approaches and technologies that promise to turn traditional manufacturers into “smart manufacturers.”

Despite the buzz, there’s a considerable gap between what manufacturers say about the potential benefits of Industry 4.0, and the reality they face on the ground. In a survey we conducted in 2016, when we asked Chinese manufacturers whether they were optimistic that Industry 4.0 (or “Made in China 2025”) would increase their competitiveness, 76 percent told us they were. By contrast, only 57 percent and 50 percent of US and German manufacturers, respectively, shared the same level of optimism toward Industry 4.0 as Chinese manufacturers.

Optimism is one thing, but being ready is another. When we asked Chinese manufacturers whether they felt prepared for Industry 4.0, only 43 percent said they thought they were, and only 6 percent indicated they had a clear plan.

So what should they do?

First, go lean, local, and clean

For all the talk about AI, robots, IoT, and the cloud, manufacturers in China should know this: before you digitize your operations, make sure you first go lean. Lean manufacturing practices are the foundation of any world-class manufacturing system.

On top of that, you can add the digitization tools, systems, and ways of working. But it makes no sense to automate a manufacturing process that hasn’t been optimized. Connecting your outmoded manufacturing systems with digital technologies is just automating inefficiencies.

Here are a few things manufacturers in China need to focus on as they make the transition to a manufacturing system that is both lean and smart:

1. Focus on changing mind-sets and behaviors

There are plenty of new tools and techniques available to manufacturers that seek to go lean. But as in the past, tools alone are not a magic bullet. Lean manufacturing is about identifying and getting rid of waste and variability. If the people on the factory floor don’t have the right mind-sets or training to see waste or variability and act on it, then advanced tools won’t help.

This is not a trivial task: our research shows that a successful lean transformation starts with commitment from all levels of the organization, from the C-suite, all the way to the front line. It also relies on a clearly articulated vision, and targeted communications throughout the organization that stimulate action and dialogue.

Roles need to be clearly defined, and vital skills such as problem-solving, the ability to inspire, and effective role-modeling, need to be developed. The human resources department needs to be heavily involved in aligning career paths and processes with the vision, and to ensure superior performance management.

When successful, the right mind-sets and behaviors are self-reinforcing. Employees are motivated, the bottom line improves, and change lasts.

2. Develop a “fit-for-China” solution

Because of China’s much lower labor costs and much higher level of labor-intensive manufacturing processes, simply importing solutions from more advanced manufacturing markets like Germany won’t work. Chinese manufacturers will need to develop tailored, “fit-for-China” solutions.

Chinese manufacturers need to figure out how to leverage labor cost advantages and introduce automation onto the factory floor that ensures they are both more efficient and that they continue to maintain their cost advantage relative to competitors.

3. Conduct a “clean sheet redesign” of the factory floor

When designing a new Made in China 2025 solution, the task in China is particularly challenging. Process engineers with experience setting up and running smart and automated production lines are scarce.

Engineers in China have been trained to set up lines that have very high labor content. They see solutions through the eyes of an operator with two eyes and two hands. So when these same engineers have to make the transition to setting up lines with robots that can have 10 or 20 camera eyes, and 8 robotic arms, they need to go back to the drawing table, completely change their mind-set, and forget most of what they’ve been trained to do. The true promise of Industry 4.0’s potential can only be achieved through a clean-sheet approach to the redesign of an assembly line or a processing step.

Next, go digital and scale up

Now that you’ve committed to adopting a new mind-set and fit-for-China manufacturing approach that is both lean and smart, what’s next? You’re ready to start your digital transformation. Here are four things manufacturers need to think about as they make the transition to Industry 4.0 and start to digitize at scale:

1. Craft your Industry 4.0 strategy and roadmap

A global tier-one automotive supplier reviewed around 80 Industry 4.0 use cases in a first phase that lasted six weeks, guided by a strategic vision encompassing three themes: connectivity-based management (“sensor to app”), flexible automation and robotization, and intelligence (advanced analytics, machine learning, artificial intelligence). Based on maturity of technology and a projection of the economic impact, 40 use cases with a potential to bring the payback time under two years were prioritized for implementation in the next three years.

From this, a roadmap for Industry 4.0 adoption was defined with three horizons. A key success factor of this first phase is that it considers the drivers behind the current state of practices and systems. For example, the age of the plant and its equipment, the cost and availability of labor versus automation solutions, legacy IT systems, etc.

It is critical in this phase to think out of the box. As you involve your suppliers early on to discuss possible solutions, pushing them to go beyond traditional solutions makes a big difference.

2. Demonstrate impact with “lighthouses”

Once a high-tech original design manufacturer (ODM) in China had defined its Industry 4.0 vision and roadmap, it launched four “lighthouse” projects to demonstrate the transformation that can be achieved with smart manufacturing.

These “lighthouses” showcased several Industry 4.0 capabilities, including digital performance management and real-time manufacturing oversight for supervisors, as well as line and plant managers; electronic production management to enhance the readiness of production line workers and improve the availability of the right tools on the line; the introduction of digital maintenance management with a heavy focus on condition-based maintenance; and the use of automatic guided vehicles to improve material availability on the line while reducing inventory levels and increasing logistics labor efficiency.

3. Rethink how you train and deploy talent

Industry 4.0 changes the capability requirements that manufacturers will need, and will create demand for entirely new roles. Data scientists, for example, will be needed to move the organization from using data to understand “reactively” how failures or losses occur, to putting data at the core of the decision-making process, using it proactively to improve performance, and preventing future losses.

The deployment of digital experts will shift their role and importance in the organization, from being seen as just another part of the IT department and removed from the day-to-day operations, to becoming a core part of manufacturing. One of their tasks will be to ensure the integration of digital tools into all aspects of manufacturing.

At the same time, operators and managers will need to change the way that they work. Operators who have been working for years with technology behind guards, and requesting expert support when issues arise, will need to interact in the same space with co-bots, and learn how to modify the use of technology based on what is needed, and without any support.

Managers will need to change from reactively dealing with issues that arise from the previous day’s performance, or tackling large failures requiring urgent attention, to using real-time data, operational metrics, and algorithms to predict issues and act on them before they turn into avoidable losses.

4. Focus on connectivity, infrastructure, and cybersecurity

Harnessing the power of data requires connecting factory equipment to the Internet. But many Industry 4.0 attempts have stalled because of the lack of connectivity within plants. At the automotive supplier mentioned above, a team of experts came in to review the status and defined solutions to connect the equipment. Given the age of much of the equipment, and the low historical investment in technologies that would allow it to capture and process data, the experts were skeptical about the potential to step up connectivity without a costly overhaul.

Nonetheless, the team developed solutions that enabled the supplier to connect its equipment to the internet. No ethernet port? An external engineering company solved that. No readable signal? They discussed the possible connectivity options with the machine’s PLC (programmable logic controller or “industrial computer”) supplier. Concerned about costs? They pulled purchasing levers. All this resulted in a technically feasible solution at an acceptable cost.

All of this is a pretty tall order for many Chinese manufacturers: first, transforming inefficient, outmoded, labor-intensive manufacturing practices into modern, lean methods. And then, on top of that, connecting everything with the latest digital tools and technologies.

Can they pull it off?

We think manufacturers with committed leadership can. But they had better get started sooner rather than later, or risk being left behind by their competitors.

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