Digital Marketplaces Unleashed
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That is why, I will give examples in this article of how digitization is already changing how we work in the process industry, as well as share insights about both the opportunities and challenges for the future.
46.2 Industry 4.0 Shaping Our World
The intelligent merging of virtual and physical worlds is not only the basis of the smart factory of tomorrow, it is already becoming a part of our everyday lives. Autonomous cars, exercise clothing with sensors that analyze the wearer’s posture, refrigerators which sound the alarm when a food item needs replenishing, as I have in my home already – these are just a few examples of how the Internet of Things raises the real world to a virtual level. Connected and mobile everyday items are becoming smart devices and creating a world we used to only imagine. Besides being able to drive itself, the car of the future will be able to find a parking spot, entertain us and do mandate tasks like scheduling appointments. Sensors inside the car can already track eye and head movements of the person behind the wheel and send a warning if the driver seems distracted. The passenger in the car will be able to reserve a hotel room by eye contact, simply by gazing at the hotel as they pass by and giving a voice command.
And that’s just the start. In this attractive mass market, creativity in terms of the Internet of Things knows almost no bounds. According to Andrew McAfee and Erik Brynjolfsson, economists at the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts, USA, the digital revolution is only just beginning. Their 2014 bestseller, “The Second Machine Age,” took Silicon Valley by storm and spread like wildfire from there. The message: The second machine age will transform the world equaled only by the Industrial Revolution before it.
The reason is Moore’s Law, attributed to visionary Gordon Moore, an Intel co‐founder. He predicted already in 1965 that microchip performance would double every year until 1975. Amazingly, this law still applies to this day – except that the doubling now takes about 18 months rather than twelve, more than 40 years after 1975. What’s more, Moore’s Law applies in many areas of digital technology, not just microprocessors, where I have spent a large part of my early career: storage capacity, data transmission speeds, supercomputer energy efficiency – all these areas show more or less exponential growth.
In the smart factory of tomorrow everyone and everything communicates with each other. Consider the possibility that every part in a production factory, and entire factories can be interconnected. Measurement, monitoring, control and data processing units, which are fundamental elements of industrial control systems, connect via the Internet and interact creating an enormous network of valuable information. What experts call, “cyberphysical systems”, or systems which combine both physical and virtual worlds, are transforming industry.
Connected production does not end in the smart factory. The entire value chain across different organizational structures – from ordering to product delivery – can be digitized. A digital interconnected supply chain furthermore involves harmonizing all internal decision taking structures and rules, processes before and after production, as well as integrating suppliers, logistics service providers and customers in the company’s own value‐adding processes. As I argued in my PhD, indeed this expedited information flow is the key to competitive supply networks – Industry 4.0 will only take it to hyper speed!
This way, digital connectedness enables highly efficient and highly flexible production. Real‐time integration of customers’ preferences allows a wide variety of product versions to be created. Industrial manufacture and information technology grow ever closer together. Better connectivity with customers, business partners and service providers is an increasingly important part of that process, which supports being a reliable supplier for customers. For instance, Hoffmann Group, a world leading system partner for quality tools, is working on the implementation of these strong and partner‐like relationships to its customers and partners to provide agile and customized solutions in real‐time. Already about six years ago, Hoffmann Group presented its so‐called 360° Tooling Platform which lies at the heart of its Industry 4.0 strategy. This comprehensive service platform includes Tool Concept, a service providing CAD data of tools and helping customers to detect the best treatment for their components online. Another example is the Hoffmann eScanner, which empowers customers to automatically order a product at their production site. Through scanning a barcode on a tool, repeat orders are translated automatically into the order management system, which makes the order process for customers faster and very user friendly.
Machine manufacturers can already monitor their machines digitally in the future across national borders and continents. Parts heading for breakdown due to wear and tear or damage will be replaced before downtime occurs. The machine manufacturer simply sends digital product information to a local factory, which manufactures the spare part with 3D printing or has informed a supplier that a critical tool must arrive before the machine breaks.
Through various industry, expectations are very high all over the world and when it comes down to it, the possibilities are endless. Entirely new vistas – and certainly completely new business models – open up when everything in production is linked together in one huge network: An agricultural machinery manufacturer equips farm machinery, such as combine harvesters and tractors, with sensors that record data about the field as well as the machine’s current position and fill level. This data is transmitted automatically to a control panel, which helps facilitating more efficient planning of how to use the specific machine. A precision toolmaker has developed a system to warn users of possible problems, for example if a drill is nearing breaking point. The information helps to pinpoint when the tool needs to be replaced. Airplane turbines are equipped with sensors which collect extensive data during every flight. The information provides a much better basis for evaluating turbine performance and doing maintenance when the airplane really needs it instead of the normal scheduled maintenance. Another benefit: existing turbines can be optimized to save fuel. The data is also used to further improve the performance and efficiency of the next turbine generation. In the end, customers benefit from longer machine lifetimes, fuel savings and reduced maintenance costs.
German manufacturing companies plan to invest an annual €40 billion in digital applications up to 2020 in order to increase their production efficiency, which recent studies expect to surge by up to 18 % in five years. This will clearly be transferred to BASF and the need to be prepared for higher automatized, efficient and customer centric solutions – system and organizational wise – will be a result. Regarding agile digitization, across all sectors, the automotive industry has made the most headway. Hoffmann Group, also being a leading supplier for the automotive industry offering a benchmark delivery reliability of 99 % today, is for instance already paving the way for a better connected and digitized automotive industry. This will be driven by a high level of real‐time data transparency, automated warehouses and through an efficient network collaboration by integrating customers, partners and service providers. The capability to reliably commit to customers, strongly benefits the just‐in‐time production in the automotive sector. Companies like Hoffmann with these capabilities allow digitization in the automotive industry to be brought to the next level. The latest automotive market studies show the new challenges that digitization poses for carmakers in the coming years. The number of cars connected to the internet is predicted to rise more than six‐fold from 23 million now to 152 million by 2020. The automotive industry also expects the number of machine‐to‐machine internet connections in the sector to reach 1.8 billion by 2022. That leads me to the point that not only the chemical industry or BASF, as the biggest automotive supplier in our industry, must be well equipped with new technologies and solutions to react to these kind of changing mark
et trends.
Besides introducing new opportunities and business models, digitization is also changing the way we do business. In the Harvard Business Review, economist Michael S. Porter and CEO of Parametric Technology Corporation James E. Heppelmann predicted that digitization will revolutionize job roles and corporate structures. Jim and I discussed, that this means rethinking basically everything we do – starting with strategy. Porter and Heppelmann believe in the emergence of restructured departments and organization forms involving new collaborations, where IT and research and development divisions are integrated and cooperation is much higher. IT departments, traditionally focused on the company’s internal IT structure and management of utilized software tools, has to play a more central role in future, as it does at BASF. Porter and Heppelmann expect that IT hardware and software will be designed and built into the actual products as well as the entire information technology architecture. My first experiences with this were at IBM in the early 2000s, when we were already doing exactly that in the business, I was leading.
According to a study undertaken by the German Fraunhofer Institute of Labor Economics and Organization (IAO) and the German professional IT association Bitkom, networking of product development, production, logistics, and customers in the chemical industry between 2013 and 2025 could boost its value creation by 30 %, which is quite a sum when you consider an annual turnover of around 190 billion euros. It is therefore hardly surprising that more and more chemical companies or other industry player are striving to harvest the potential “fruits” of Industry 4.0. One of the most important areas is the avoidance of unplanned production stoppages. Networked sensors in machines and equipment, systematic evaluation of machine data with special software, and utilization of mathematical models provide information, for example about the potential failure of a process pump, way before it will actually happen. However, utilization of data has so much more to offer than just improved predictive maintenance processes. If it proves possible to transfer existing production data into mathematical models of the process, companies could seize new competitive advantages: Products could be manufactured exactly to customers’ specifications, using precisely the stipulated amounts of raw materials and energy.
There is another driving force for digitization in chemical factories: The current trend towards high‐value specialty chemicals is lowering production volumes and requiring frequent product changes. This means flexible planning and production is needed, which in turn demands highly networked, adaptive, and self‐configuring production processes, which follow a joint decision and customer centric approach aligned with all internal organizational parts.
46.3 The Digital Transformation of BASF
As the world’s leading chemical company, the opportunities Industry 4.0 offers to boost BASF’s competitiveness are enormous. As its digital journey has progressed, it’s no longer only about optimizing the company’s existing internal IT architecture to increase efficiency. The ability to respond and connect with customers and partners more reliably, much faster and more flexibly is increasing at a tremendous rate. Overall, we see that technological progress is changing the role IT and its experts play at BASF. It hasn’t been simply about IT tools for over 5 years, it involves close collaboration across all divisions of our business including logistics, engineering, production, procurement, supply chain, marketing and sales. Networked production and distribution creates more transparency in our value chains, production processes and about our customer requirements, which is crucial to leverage the competitive benefits available now and for the future. Diverse examples show as to how BASF has been able to put Industry 4.0 into practice so far.
Digitization reached the warehouse long ago. BASF warehouses in both France and Poland were early adopters on the digital automation front. In the French facility high‐bay forklifts, robots, cranes and conveyer belts for boxes and pallets work together in perfect harmony. In the high‐bay warehouse in Poland, forklifts and pallets steer themselves to their destination, and goods are automatically wrapped, labeled and put in storage. These automated warehouses are the prelude to the smart factory of the future.
At BASF, we have been driving supply chain digitization forward since 2008 by developing and implementing business processes and digital solutions to improve production planning at our factories all over the world. More precise and flexible production planning and processes enable a more rapid response to fluctuating customer requirements. They also give central visibility into production planning and make fine planning processes more transparent.
46.3.1 Smart Supply Chain
The “smart supply chain” is another big topic here. It is about digital solutions that forge closer automated ties between BASF, its customers, 3rd party providers and suppliers – in essence the competitive supply network, I described in my PhD dissertation, referred to the above. The idea is called horizontal integration, which defines the integration of automated planning based on customer demand across BASF’s businesses as well as with external customers and suppliers. A cloud planning platform allows BASF to exchange key data in near real‐time with the customer. Where a customer chooses to share procure and production plans, this information can be used to automatically compute and plan replenishment. The planning should be fully automatized and without human intervention, except in cases for exception management and monitoring of the models. Demand and supply plans are shared with upstream partners and customers in real‐time allowing us orchestrate the end‐to‐end value chain. This increases reliability and service levels, thereby improving customer satisfaction and loyalty which in turn can position BASF to become the customer’s supplier of choice. Horizontal integration is an opportunity for supply networks to not only contribute to cost reduction due to improved inventory management, but more importantly to a shorter cash‐to‐cash cycle and improved effectiveness for the customer, thereby leading to an increased EBIT impact.
Digitization has also reached the global world of shipping containers. A sensor in a container records factors such as temperature, fluctuations and humidity and transmits the information in real‐time leveraging mobile networks. The information is then passed to control centers which can act in real time as required. Performance features go beyond those of conventional track & trace systems because the new system reports details of what goes on during transportation and provides a basis for analysis and action. A customer receives the data before the container even arrives. This lets the customer know about anything that happened on route or during loading or unloading – for example, heavy impacts – and indicates the condition of the load in the container. The sensor also helps us show that the content of the container was maintained at proper temperatures without variation, which is critical for example, in temperature‐sensitive pharmaceutical goods. BASF could provide guarantees to its customers, giving us a competitive edge.
Digitization also involves new digital business models. They arise when the technological opportunities of a digital world are used to harness new business potential. A BASF example from agriculture is called Maglis™. Maglis connects data, people and technology in a smarter way. It is linking information like local weather, soil conditions and crop growth stage predictions as a basis for generating crop protection recommendations. With the aid of apps linked to a database and available on mobile devices, users – farmers in this instance – have insights at their fingertips telling them when to use which crop protection product, what to use it for and how to use it. This promotes efficient, sustainable application of the products, helps farmers to understand their operation better and thus increases productivity. Farmers can also view information on all the BASF products that are relevant to their needs, which in an ideal scenario would help to build business and leverage BASF’s portfolio. Additional
ly, BASF aims to increase efficiency in consulting and sales, expands its expertise and offers holistic solutions to their customers. The same principle can be applied in other business areas and for other customers, including the automotive industry, construction chemicals and food ingredients.
46.3.2 IT, the Great Enabler, Repackaged in Digital Approaches
Digitization has many opportunities to offer, none of which would be possible without smart IT solutions. For example, BASF’s Supply Chain Early Warning System uses big data analysis for enterprise resource planning. We could predict future sales volumes more accurately and accelerate the logistics response to any changes. Thanks to innovative IT solutions like this, BASF is more agile and can, in the end, more reliably commit to customers. Through being better capable to fulfill customer’s needs, customer satisfaction and loyalty will be increased, with all the benefits that follow. Additionally, a customer centric steering across different businesses is key.
Gathering information from value‐added processes and chains and the ubiquitous real‐time availability of that information allows companies to become faster, customer centric and – hence – more cost‐effective. In the smart factory, parts and products have their own identity. Production processes self‐improve on a permanent basis through continuous synchronization with factories. This only works if a suitably designed system delivers the necessary data across different businesses’ value chains. A highly flexible but standardized application architecture is needed to support such automation, besides finding a common steering unit, which gathers these data in order to better predict, plan, commit and deliver reliably to customers.