Digitisation high on the manufacturing industry’s agenda

Source: Agoria Online (08/06/2016); Text: Freek Couttenier.

Following Agoria Flanders’ outstanding event on ‘Digitising manufacturing and new business models’, we met up with professors Ann Vereecke and Robert Boute from Vlerick Business School. Digitisation is also a hot topic at the number one business school in the Benelux. High time for an interview.

Over the past two years, digitisation suddenly seems to have shot up the manufacturing industry's agenda. Why is this, in your opinion?

Robert Boute: “A whole range of technologies have gained momentum at approximately the same time. But the most important thing is to find the right combinations and integrate digitisation. A lot of companies focus specifically on this issue.”

Ann Vereecke: “The momentum does not stem from a single technological breakthrough. According to the Gartner Hype Cycle, technological innovations often experience major hype in the initial stages, followed by a period of unfulfilled expectations. Several key digital technologies have now passed through this phase and are gradually reaching a phase of productivity. The pieces of the puzzle are now falling into place.”

Does this apply to the manufacturing industry to the same extent?

Ann Vereecke: “Another factor also plays a role in the manufacturing industry. In the past, a lot of the production was delocalised. However, as wages are also rising in many low-wage countries, companies are now wondering whether to bring activities back to the west, but this time with far-reaching automation.”

Robert Boute: “As a result of this new wave of automation, companies pass a ‘tipping point’ and start doing new business here. Last week Adidas announced it would be opening a new factory in Germany. This ‘speed factory’ will allow it to respond more quickly and work on the basis of full customisation. The China model is under pressure as it does not allow for such rapid custom deliveries. This is also the dynamic which we are seeing at the Flemish company Ridley Bikes.”

Ann Vereecke: “Customisation in itself is nothing new, of course, and the same goes for robotics. However, the combination with e-commerce has played a role here. People have got used to being served quickly, with customised solutions.”

Robert Boute, Professor of Operations & Supply Chain Management: “It's not just trendy start-ups using digitisation to make a quantum leap: established companies are doing it too”

Is it the start-ups that are changing course here initially, or is it also established production companies?

Robert Boute: “This role is not just reserved for start-ups. Just think of the ‘industrial internet consortium’, a group of traditional companies with a strong focus on digitisation. For example, General Electric aims to become one of the top 10 software companies. So it's not just trendy start-ups, but also established companies which are using digitisation to make a quantum leap.”

Ann Vereecke: “Digitisation also covers a lot of areas: take the use of 3D printing, for example. Many companies are experimenting with this under the radar. It won't take long for the results to surface.”

Digitisation can also give rise to new business models. Is this something you are also seeing in the manufacturing industry?

Ann Vereecke: “It's still a bit early for that. However, companies are realising they will need to change their approach and that new players are going to make an entrance. The entry thresholds aren't anywhere near as high as they used to be. Established companies are also noticing what is happening and want to adapt accordingly by offering innovative products or services, but also by examining the new business models and seeing how they could earn money in this way. It's all very well copying Uber, but you still have to be able to make a profit by doing so.”

Robert Boute: “Big data also plays a major role, above all the algorithms which are applied to the data and allow better decisions to be made. By using data far more effectively, we can boost our performance hugely compared with that of our competitors. Is that a new business model? No, but it is certainly something which deserves our full attention. Companies are also realising this.”

Ann Vereecke: “Alongside the far-reaching optimisation of existing processes, we are also seeing quite a few established companies that want to introduce genuinely new products, services or models. The question is how to fit them into their existing organisation. Should they apply in-depth changes to their own organisation or acquire a start-up? We are seeing examples of different strategies, often in combination with each other.”

How do you think our Flemish companies are doing?

Robert Boute: “There are various companies focusing on the ‘factory of the future’. Just think of brilliant examples such as Van de Wiele, Ontex, IVC etc. At the same time, not all companies have made it so far down the digitisation and smart production route. Major investments are required and for many companies, this is the barrier which stops them from having the courage to switch to smart manufacturing. ‘Data capturing’, for example, which involves monitoring everything with sensors and then exploiting this data, is certainly not cheap.”

Ann Vereecke: “The same applies to advanced production technologies such as 3D printing. We have analysed this at Vlerick. You're not going to get wildly enthusiastic about the total supply chain cost of 3D in comparison to traditional working methods. But waiting isn't a good idea either. A lot of companies are experimenting and conducting pilots. It's a question of time before others pick up on this.”

Robert Boute: “Initiatives such as yours (Agoria and Sirris), to prepare companies for this development, can only be welcomed.”

Can companies learn from the way in which start-ups tackle these matters?

Ann Vereecke: “Start-ups have a different approach and in practice, I don't yet see this being applied by large companies.”

Robert Boute: “The technology is still changing at a fast pace. Should we wait, or take the plunge right now? Companies which can already conduct trials and tests today will be able to change course quickly when the breakthrough comes.”

Is digitisation something which our CEOs ought to getting involved in themselves?

Ann Vereecke: “CEOs certainly do need insights into what is going on: they must know what digitisation is, what the potential is and how to get started. We are now seeing a generation which is used to dealing with digitisation and living with it. Of course, understanding the technology behind it is something else.”

Robert Boute: “One of the pillars of Vlerick Business School is ‘digital transformation’, which involves explaining every aspect of digitisation. One of these aspects is digital transformation in manufacturing, in the supply chain. We are trying to build up new knowledge in this area, so we can provide companies with support.”

Is there sufficient knowledge and potential in Flanders to take full advantage of digitisation?

Ann Vereecke: “Yes and no. Why should Flanders have fewer opportunities in this area than Germany, France or the Netherlands, for example? Of course, wonderful examples can be found among our Flemish companies. We should certainly be proud of this and build on our strengths. But at the same time I also see a major risk, which is the shortage of technically trained people at all levels. More than anything, the digital factory will require a great deal of knowledge. What was once our strength is now in danger of becoming a real problem.”

Robert Boute: “We must have the courage to present digitisation as a positive story, not just for the shareholders but also for society as a whole. New technologies are often associated with the loss of jobs, but we should really be focusing more on the possibilities.”

Ann Vereecke: “Digitisation will bring us new activities and different types of jobs. This is clearly a positive development.”

What could the government do to support digitisation?

Robert Boute: “It should continue to encourage close collaboration between knowledge institutions and companies. The Fraunhofer Institutes are great examples of this, and other good examples can be found in the Netherlands. Although we certainly have initiatives in Flanders, things could be improved.”

What about the education sector? Should computational thinking be introduced there?

Robert Boute: “Just because a lot of technology is available today in all kinds of apps which make life easier doesn't mean we don't need the knowledge behind the technology any more. On the contrary, in fact. Learning to think analytically and digitally is very important.”

Ann Vereecke: “The education sector can play an important role in conveying a positive image of technology. This already happens a great deal, but it would be possible to step up a gear in this respect as well.”

Finally, do you have any good tips for manufacturing companies which are keen to follow the digitisation trend?

Ann Vereecke: “Companies shouldn't digitise just for the sake of it. Just doing a project here and there without a clear strategy won't get them where they want to be. It's a question of integration.”

Robert Boute: “It's wrong to think that digitisation is something for other sectors but not for your own company or sector. Not everything will be usable from the outset and the Adidas ‘speed factory’ will sometimes prove too ambitious. But try to stay up to date, pick up on things, launch pilots. And make sure you stay open and respond to good ideas.”

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