In collaboration with McKinsey & Company

Global Lighthouse Network: Reimagining Operations for Growth

WHITE PAPER MARCH 2021 Images: Getty images

Contents

Foreword 3

Executive summary 4

1 Catch the digital shift: The Global Lighthouse Network expands 5

1.1 New lighthouses bring diversity 6

1.2 Lighthouses are deploying a variety of use cases 9

1.3 Lighthouses are role models, driving impact beyond productivity 13

2 Global disruptions trigger unique growth opportunities 14

2.1 Aftershocks will continue to resonate 15

2.2 Lighthouses show the way ahead 15

3 Lighthouses drive sustainable growth 16

3.1 Innovating business models 18

3.2 Unlocking capacity 20

3.3 Realizing sustainable growth 22

4 Taking Fourth Industrial Revolution innovations to scale 26

4.1 Embracing agility to scale 28

4.2 Investing in workforce development 32

5 Call to action: Extend the light further 34

5.1 Extending the light’s reach 35

5.2 Inspiring other companies striving to deploy Fourth Industrial 36 Revolution technologies

5.3 A call for applications 36

Contributors 37

© 2021 World Economic Forum. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system.

Global Lighthouse Network: Reimagining Operations for Growth 2 Foreword

The Fourth Industrial Revolution is accelerating as a market transformation towards rapidly delivered combination of forces that include global disruptions tailored products, are finding that their preferences and instabilities, supply chain breakdowns and are being met by innovative competitors in this heightened customer demand for digital-first redefined marketplace. experiences. Amid the challenges that these forces impose, leading manufacturers are revising their It is companies like this that comprise the Global growth strategies, which can serve as beacons Lighthouse Network: organizations with the for others. In many respects, the Fourth Industrial courage to invest in new ideas, new approaches Revolution is now building upon the achievements and altogether new methods that are collectively Francisco Betti of the past decade, when organizations sought transforming the very nature of operations. Despite Head of Shaping the Future to improve productivity and minimize cost. But in growing complexities and disruptions, these of Advanced Manufacturing today’s increasingly complex environment in which companies continue to show signs of sustained and Production, World customers demand one-to-one, personalized strength, keeping the momentum on profit while Economic Forum experiences, productivity improvements are table remaining responsible corporate citizens. They are stakes; the ongoing revolution demands that realizing productivity improvements, gaining market companies achieve growth beyond productivity to share, redefining customer centricity and ushering in remain competitive. a cleaner future in which boosted productivity and sustainability measures are not mutually exclusive Lighthouses have always held a storied place in but intrinsically intertwined. the history of maritime tradition. These aids to navigation have served as guides and beacons, These pioneering companies stand as beacons ensuring the access so crucial to commercial and leaders. Not only are they surviving; they are and industrial growth in untapped territory. thriving as they engage the full power of the Fourth Their powerful beams pierce the densest fog, Industrial Revolution to drive growth in ways and Enno de Boer enabling passage and empowering progress. at levels unseen before. These companies make Partner, McKinsey When the World Economic Forum began the clear that growth is possible with little or no capital & Company, USA Global Lighthouse Network initiative in 2018 in expenditure, proving false the notion that Fourth collaboration with McKinsey & Company, leading- Industrial Revolution investment is fruitless. They edge manufacturers were illuminating exciting have written a new growth narrative, with digital possibilities that lay ahead for the future of industry. as the pen. Whether ahead of the digital curve To be sure, though, in the wake of global market or lagging behind, no company is immune to the disruption certainly akin to the stormiest of seas, the digital revolution that COVID-19 is accelerating. lighthouse is now an even more compelling image. Organizations unwilling or unable to respond quickly Recent global events are changing the very nature face perilous waters indeed. of navigation, and powerful beacons are more essential than ever. The fog is getting thicker and Today’s disruptions, despite their challenges, are only the brightest lights can shine through. a powerful invitation to re-envision growth. The lighthouse companies described in this White Paper This is a time of unparalleled industry have responded, and they illuminate the future of transformation; the future belongs to those manufacturing – indeed, of industry writ large. They companies willing to embrace disruption are the leaders, and their ranks are growing to form and capture new opportunities. Ever more a dynamic collaborative. Read on, learn about their manufacturing companies are showing that it stories and imagine a future in which this network is possible to unlock unprecedented capacity, of beacons continues to grow. After all, their light realize entirely new revenue streams and gain is both an inspiration and an invitation. There is market share. Workers are finding that new strength in numbers: as the Global Lighthouse skills can expand capabilities and the chance Network grows, the collective light grows brighter, to collaborate in new ways using state-of-the- reaching further to an expansive future. art technology. Consumers, who are driving the

Global Lighthouse Network: Reimagining Operations for Growth 3 Executive summary

Lighthouses Digital innovation is no longer optional. Global Accordingly, these forerunners are discovering, are driving disruptions and instabilities impose a pressing need furthermore, that this growth need not come at the business-model and opportunity for quantitative and qualitative expense of environmental responsibility – in other innovation through growth amid shifts in supply, demand and words, growth (including higher productivity) and Fourth Industrial customer expectations for digital-first experiences. eco-efficiency are not mutually exclusive. In fact, the Companies must find pathways to extend value opposite is taking place: productivity improvements Revolution through novel customer experiences to remain often drive resource efficiency gains and are tied to technologies, and competitive; indeed, scalable technology that environmentally-conscious impact. This conveys ushering in new supports business goals is a requirement to the dual benefits of cost-reduction coupled with levels of customer- become an industry-leading digital organization. increased sustainability. centric value. The Global Lighthouse Network welcomes 15 new Implementing Fourth Industrial Revolution lighthouses to an inspiring group of organizations technologies at scale is key to long-term growth. that exhibit the essential characteristics of the But what is the secret to scaling? The great majority Fourth Industrial Revolution. Lighthouses show the of companies remain in pilot purgatory, held way amid these challenges, demonstrating how back by outdated working modes or insufficient digitally infused operations go beyond productivity innovation. How have lighthouses successfully gains to create a base for sustainable, profitable scaled the Fourth Industrial Revolution? The answer growth. Through efforts that deploy Fourth is twofold: agility and workforce development. Industrial Revolution technologies at scale, they are creating new revenue streams. Their use of flexible First, these companies have fully embraced agile production systems yields increased speed to ways of working. This has enabled them to scale market through customizable product development, Fourth Industrial Revolution technologies quickly which is informed by a better understanding across their production network and value chains. of customer demands; meanwhile, it boosts By transforming their operations to maximize productivity of both assets and people. flexibility and adaptability, lighthouses allow for innovative thinking and dynamic approaches. This It is now clear that lighthouses are driving business- supports close attunement to shifts in supply, model innovation through Fourth Industrial demand and customer expectations. Revolution technologies, and ushering in new levels of customer-centric value. By shifting to models that Second, lighthouses take a keen interest in leverage greater transparency into customer needs, workforce development. Training, reskilling and advanced companies are implementing new use upskilling – teaching new skills for future jobs – cases, such as those enabling mass customization keeps their workforces prepared and optimized with unprecedented speed to market. Through in a Fourth Industrial Revolution environment. these efforts, they are positioning themselves at They keep people at the centre of their Fourth the forefront of a competitive marketplace where Industrial Revolution transformation with a focus on customers are looking for individualized products inclusive growth, thus ensuring operators have the tailored to specific preferences. opportunity to realize their full potential to build the innovative, creative future at the heart of reimagined While conventional wisdom might presume this industry. This workforce engagement is essential kind of transformation would come at exorbitant to successful scaling. Scaling is a team effort, and cost, lighthouses are showing the opposite. They people are the team. are achieving growth and higher productivity rates by unlocking capacity through Fourth Industrial The Global Lighthouse Network comprises a steadily Revolution technologies, with little to no capital increasing group of leaders – beacons that can expenditure. By coupling state-of-the-art digital inspire other companies striving to deploy Fourth tools with flexible production systems, they achieve Industrial Revolution technologies across their entire measurable growth without the costly physical operations. By embracing agile working modes facility expansion and infrastructure investment such to scale across the production network and value growth might have required in the past. Put simply, chains, as well as prioritizing workforce development leading companies are discovering new ways to for scaling, lighthouses demonstrate what is achieve growth without a larger footprint. possible as they achieve sustainable growth. Other companies willing to make similarly bold, courageous decisions can become beacons themselves.

Global Lighthouse Network: Reimagining Operations for Growth 4 1 Catch the digital shift: The Global Lighthouse Network expands

Global Lighthouse Network: Reimagining Operations for Growth 5 The Global Aiming to close the gap between frontrunners Lighthouses are identified through a Lighthouse Network and laggards while accelerating the widespread comprehensive and independent selection is a community adoption of advanced manufacturing technologies, process that has assessed more than 1,000 of manufacturers the World Economic Forum, in collaboration companies from various industry sectors across with McKinsey & Company, launched the Global the globe on the bases of objective results and using Fourth Lighthouse Network in 2018. The network use cases. Final selection is delegated to an Industrial Revolution comprises a community of manufacturers showing independent panel of world-leading 4IR experts. technologies to leadership in using Fourth Industrial Revolution Global Lighthouse Network members today are transform factories, (4IR) technologies to transform factories, actively engaged on a cross-industry learning value chains and value chains and business models to generate journey that finds its core value in developing and business models. compelling financial, operational and environmental sharing insights on top use cases, roadmaps and returns. The Global Lighthouse Network welcomes organizational approaches to deploy advanced 15 new lighthouses as of the date of this White technologies at scale while supporting the Paper, bringing the total to 69 lighthouses across transition to a more human-centred, inclusive different industry sectors (Figure 1). and sustainable future of operations.

1.1 New lighthouses bring diversity

The scope and variety of sectors (Figure 2) energy production or biopharmaceuticals, they are represented within the Global Lighthouse Network, committing to the same principles to succeed in including among its newest members, makes clear scaling, leading to sustainable growth. Furthermore, that the decisions, shifts and strategies that enable because the network represents manufacturing companies to succeed in scaling 4IR innovations locations and value chains of all sizes, from plants are relevant in both traditional manufacturing and exceeding 10,000 employees to others with other sectors. These strategies are not sector 100 or fewer, it demonstrates that the adoption specific. Whether companies are focused on of 4IR technologies is critical and achievable for customized consumer goods, advanced electronics, manufacturers large and small.

Global Lighthouse Network: Reimagining Operations for Growth 6 FIGURE 1 Global Lighthouse Network: 69 lighthouses

An expert panel has added 15 new lighthouses, bringing the total to 69 lighthouses identified across various industry sectors.

6

5 3 14

13 15 4 31 10 2 7 12 30 23 24 33 1 3 34 9 29 36 25 8 37 38 23 24 39 11 25 26

New lighthouse

Existing lighthouse

1 5 9 13 Ericsson Siemens Tata Steel Wistron Electronics, USA Industrial automation products, Germany Steel products, India Electronics, China

2 6 10 14 Procter & Gamble Johnson & Johnson Consumer Health Foxconn Tsingtao Brewery Consumer goods, USA Self-care products, Sweden Electronics, China Consumer goods, China

3 7 11 15 Procter & Gamble STAR Refinery HP Inc. Bosch Consumer goods, France Oil and gas, Turkey Electronics, Singapore Automotive, China

4 8 12 Henkel ReNew Power Midea Consumer goods, Spain Renewable energy, India Home appliances, China

Note: Details on previously selected lighthouses are available in World Economic Forum, “Four Durable Shifts for a Great Reset in Manufacturing”, White Paper, 2020.

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 7 FIGURE 2 Global Lighthouse Network: A diverse network in all industry sectors

Consumer packaged goods

Alibaba Henkel Henkel Procter & Gamble Procter & Gamble Apparel, China Consumer goods, Germany Consumer goods, Spain Consumer goods, Czech Republic Consumer goods, China

Procter & Gamble Procter & Gamble Tsingtao Brewery Unilever Unilever Consumer goods, USA Consumer goods, France Consumer goods, China Consumer goods, China Consumer goods, United Arab Emirates

Process industries

Baoshan Iron & Steel DCP Midstream MODEC Petkim Petrosea Steel products, China Oil and gas, USA Oil and gas, Brazil Chemicals, Turkey Mining, Indonesia

POSCO ReNew Power Saudi Aramco Saudi Aramco STAR Refinery Steel products, South Korea Renewable energy, India Gas treatment, Saudi Arabia Oil and gas, Saudi Arabia Oil and gas, Turkey

Tata Steel (2 lighthouses) Tata Steel Steel products, India Steel products, Netherlands

Advanced industries

AGCO Arçelik BMW Group Bosch (2 lighthouses) Danfoss Agricultural equipment, Germany Home appliances, Romania Automotive, Germany Automotive, China Industrial equipment, China

Ericsson Fast Radius with UPS Ford Otosan FOTON Cummins Foxconn Electronics, USA Additive manufacturing, USA Automotive, Turkey Automotive, China Electronics, China

Foxconn Industrial Internet Groupe Renault Groupe Renault (2 lighthouses) Haier Haier Electronics, China Automotive, Brazil Automotive, France Appliances, China Home appliances, China

Hitachi HP Inc. Infineon Micron Micron Industrial equipment, Japan Electronics, Singapore Semiconductors, Singapore Semiconductors, Singapore Semiconductors, Taiwan, China

Midea (2 lighthouses) Nokia Phoenix Contact Rold SAIC Maxus Home appliances, China Electronics, Finland Industrial automation, Germany Electrical components, Italy Automotive, China

Sandvik Coromant Schneider Electric Schneider Electric Schneider Electric Siemens Industrial tools, Sweden Electrical components, Indonesia Electrical components, France Electrical components, USA Industrial automation products, China

Siemens Weichai Wistron Industrial automation products, Germany Industrial machinery, China Electronics, China

Pharmaceuticals and medical products

Bayer GE Healthcare GSK Johnson & Johnson Johnson & Johnson Division pharmaceuticals, Italy Medical devices, Japan Pharmaceuticals, UK Consumer Health DePuy Synthes Self-care products, Sweden Medical devices, Ireland

Johnson & Johnson Johnson & Johnson Janssen Johnson & Johnson Vision Care Novo Nordisk Zymergen DePuy Synthes Pharmaceuticals, Ireland Medical devices, USA Pharmaceuticals, Denmark Biotechnology, USA Medical devices, China

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 8 1.2 Lighthouses are deploying a variety of use cases

Lighthouses are deploying 110 use cases. While connecting the value chain end to end (E2E) (Figure some focus within the context of individual 4). A variety of use cases are also evident in the manufacturing sites (Figure 3), others focus on newest lighthouses (Figure 5).

FIGURE 3 Lighthouse use cases: Within manufacturing sites

Digital Digital Digital Digital quality Digitally assembly and maintenance performance management enabled machines management sustainability

Additive manufacturing for Analytics platform for deviation Analytics platform for remote AI-enabled safety management Digital twin of sustainability process tools root-cause identification production optimization AI-powered optical inspection Energy optimization by predictive Advanced industrial internet of Cost optimization of heavy Analytics platform for yield analytics things (IIoT) process optimization operations through sensor management and root-cause Automated in-line optical analysis analysis inspection to replace end- IIoT real-time energy data Artificial intelligence (AI)-guided product manual inspections aggregation and reporting machine optimization Digitally enabled pipeline leak Digital dashboards to monitor dashboard prevention and detection overall equipment effectiveness Digital quality audit AI-powered material handling performance Sensor-based data collection for system Machine alarm aggregation, Digital work instructions and energy management prioritization and analytics Digital recruitment platform quality functions AI-powered process control enabled problem-solving tailored to shop floor Digitally enabled batch release Collaborative robotics and Predictive maintenance Digital tools to enhance a automation aggregating data based on connected workforce Digitized standard procedures for historical and sensor data line operations with integrated Cycle time optimization through Digital twin for remote production workflow big-data analytics on lines Real-time pipeline cost optimization programmable logic controllers optimization based on edge Field quality failures aggregation, (PLCs) sensors Digitally enabled man-machine prioritization and advanced matching analytics-enabled problem- Digital engineering Remote assistance using solving augmented reality Enterprise manufacturing Digital lean tools (e.g. eKanban) intelligence system to upgrade Internet of things (IoT)- Unmanned vehicles for operations management enabled manufacturing quality Digital twin for flexible production inspection management Integration platform to connect Digitally enabled flexible machine-level data with Mixed reality glasses to guide manufacturing enterprise software operators in the end-of-line inspection Digitally enabled modular Real-time asset performance production configuration monitoring and visualization Quality improvement by predictive analytics Digitally enabled variable Sensor-based manufacture key takt time performance indicator reporting Scanning to replace and improve performance for high-cost Light-guided assembly sequence coordinate measuring machines (CMM) Mixed reality to enable digital training

Real-time locating system (RTLS) for key manufacturing components

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 9 FIGURE 4 Lighthouses use cases: Connecting the value chain end to end

Supply network E2E product E2E planning E2E delivery Customer connectivity development connectivity

Agile buying through price Advanced analytics for Advanced analytics to optimize Asset utilization and yard Connected devices to track and prediction performance management across the manufacturing and management for logistics measure consumer behaviours the idea to market distribution footprint Aggregate demand across E2E Available to promise (ATP) based Connected devices to track and supplier network Big-data/Al-enabled product Analytics for dynamic warehouse on real-time constraints measure product performance design and testing resource planning and scheduling Analytics-driven procurement Digital-enabled picking and Customer analytics enabled by supported by spend intelligence Crowdsourcing and competitions Closed-loop planning transport radio frequency identification and automated spend cube to develop digital solutions (RFID) Digital integrated business Digital logistics control tower AI to accelerate the scaling of Digital thread implementation planning Customer end-user interface to digital applications across sites through product development Digital track and trace configure and order a product, life cycles Dynamic network optimization and track delivery AI-powered contract review for Dynamic delivery optimization decision-making Product development using Dynamic production scheduling Delivery to customers wherever robotics with digital twin No-touch order management they are through new delivery Digital supplier performance solutions management Rapid outsourced prototyping Dynamic simulation for Predictive maintenance in fleet warehousing design assets Digital twin of customer system Digitally enabled automatic Testing automation material call-off system E2E real-time supply chain Robotics-enabled logistics GPS-based map and customer Virtual-reality-supported visibility platform execution location Digitally enabled negotiation prototyping No-touch master planning Uberization of transport Market insights generated by Joint data analytics with original 3D printing for rapid design (allocation to the plants) advanced analytics equipment manufacturer for prototyping 3D printing process optimization Predictive demand forecasting Mass customization and 3D simulations/digital twin for business-to-consumer online Part traceability from unique product design and testing Predictive inventory ordering digital tag based on surface replenishment scanning Online communities for customer Production planning optimized by insights Should-cost modelling to support advanced analytics make versus buy decisions Smart/intelligent packaging Real-time inventory management Supplier and materials quality (internal/extremal) tracking Real-time sales and operations Supplier material delivery by planning eKanban

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 10 FIGURE 5 New lighthouses: Next-generation use cases

Site Change story Use case Impact

Bosch As a role model of manufacturing excellence Digital shift performance management 8% Direct productivity Suzhou, China within the group, Bosch Suzhou deployed a digital transformation strategy in manufacturing and Digitally enabled automatic material call-off system 35% Production stock logistics, reducing manufacturing costs by 15% while improving quality by 10%. Customer end-user interface to configure and order 10% Logistics cost

Smart quality management allocation 6% Maintenance cost

Cycle time and changeover optimization by machine vision 10% Machine productivity

Ericsson Faced with increasing demand for 5G radios, 5G collaborative robotics and automation 120% Output per employee Lewisville, USA Ericsson built a US-based, 5G-enabled digital native factory to stay close to its customers. 5G robotics-enabled logistics execution 65% Manual material handling Leveraging agile ways of working and a robust IIoT architecture, the team was able to deploy 25 use 5G sensor-based data collection for energy management 97% CO2 emissions cases in 12 months and, as a result, increased output per employee by 120%, and reduced lead Artificial-Intelligence-powered optical inspection 5% Throughput time by 75% and inventory by 50%. Digital twin for remote production optimization 8% Efficiency

Foxconn Confronted with fast-growing demand and labour Digitally enabled man-machine matching 200% Labour productivity Chengdu, China skill scarcity, Foxconn Chengdu adopted mixed reality, artificial intelligence and IoT technologies to Artificial-intelligence-powered optical inspection 92% Manual inspection increase labour efficiency by 200% and improve overall equipment effectiveness by 17%. Predictive maintenance aggregating historical and sensor data 17% Overall equipment effectiveness

IoT-enabled manufacturing quality management 99% Quality alert time

Production planning optimized by advanced analytics 25% Inventory

Henkel To drive further improvements in productivity and Energy optimization by predictive analytics 10% CO2 emissions Montornès, Spain boost the company’s sustainability, Henkel built on its digital backbone to scale Fourth Industrial Digital tools to enhance a connected workforce 20% Changeover time Revolution technologies linking its cyber and physical systems across the Montornès plant, Artificial-intelligence-powered process control 20% Unscheduled downtime reducing its costs by 15% and accelerating its time to market by 30% while improving its carbon Robotics-enabled logistics execution 16% Inventory footprint by 10%. Digital track and trace 30% Speed to market

HP Inc. Facing an increase in product complexity and labour Automated in-line optical inspection 70% Labour efficiency Singapore shortages leading to quality and cost challenges, along with a move at the country level to focus Collaborative robotics and automation 10% Manufacturing cost on higher-value manufacturing, HP Singapore embarked on its Fourth Industrial Revolution journey Real-time asset performance monitoring and visualization 10% Reduction in yield loss to transform its factory from being manual, labour- intensive and reactive to being highly digitized, Analytics platform for remote production optimization 70% Outgoing quality automated and driven by artificial intelligence, improving its manufacturing costs by 20%, and its Additive manufacturing (3D printing) 40% Lead time productivity and quality by 70%.

Johnson & Johnson In a highly regulated healthcare and fast-moving 3D simulations/digital twin for product design and testing 25% Speed to market Consumer Health consumer goods environment, J&J Consumer Helsingborg, Sweden Health addressed customer needs through Collaborative robotics and automation 16% Gross profit improvement increased agility using digital twins, robotics and high-tech tracking and tracing to enable 7% Sensor-based data collection for energy management 18% CO2 emissions product volume growth, with 25% accelerated time to market and 20% cost of goods sold Digital track and trace 15% Cost of goods sold reduction. It made further investments in connecting green tech through Fourth Industrial Digitally enabled batch release 90% Labour cost Revolution technologies to become Johnson

& Johnson’s first ever CO2-neutral facility.

Midea To expand its e-commerce presence and Agile buying through price prediction 5% Raw material cost Shunde, China overseas market share, Midea invested in digital procurement, flexible automation, digital quality, Robotics-enabled logistics execution 53% Lead time smart logistics and digital sales to improve product

cost by 6%, order lead times by 56% and CO2 Artificial-intelligence-powered optical inspection 15% Customer complaints emissions by 9.6%. Lights-off logistics 40% Loading efficiency

End-to-end real-time supply chain visibility platform 40% Channel inventory

Procter & Gamble P&G Amiens, a plant with a steady history of Digital twin for remote production optimization 6% Inventory Amiens, France transforming operations to manufacture new products, embraced Fourth Industrial Revolution Connecting machine-level data with enterprise software 30% Customer complaints technologies to accommodate a consistent volume increase of 30% over three years through digital Analytics for dynamic warehouse resource planning 9.8% On-time delivery twin technology as well as digital operations management and warehouse optimization, leading Digital engineering 25% Capacity to 6% lower inventory levels, 10% improvement in overall equipment effectiveness, and 40% scrap Advanced analytics to optimize logistics 40% Packaging materials waste reduction.

Global Lighthouse Network: Reimagining Operations for Growth 11 Site Change story Use case Impact

Procter & Gamble A shift in consumer trends meant more complex Digital twin for flexible production 900% Speed to market Lima, USA packaging and an increased number of products that had to be outsourced. To reverse the tide, 3D simulations/digital twin for product design and testing 70% Product development P&G Lima invested in supply chain flexibility, leveraging digital twins, advanced analytics and Robotics-enabled logistics execution 100% Productivity robotic automation, resulting in an acceleration of speed-to-market for new products by a factor 10, Production planning optimized by advanced analytics 95% Demand/supply sync an increase in labour productivity by 5% year over year, and in plant performance that was two times Robotics-enabled logistics execution 50% Plant-to-warehouse costs better than competitors in avoiding stock outs during the year.

ReNew Power Facing exponential asset growth and rising Analytics platform for wind turbine optimization 1.35% Yield Hubli, India competitiveness from new entrants, ReNew Power, India’s largest renewables company, developed Predictive maintenance for solar module 40% Solar panel efficiency loss Fourth Industrial Revolution technologies, such due to dust deposition as proprietary advanced analytics and machine learning solutions, to increase the yield of its wind Image analytics to detect defects 16% Downtime and solar assets by 2.2%, reduce downtime by 31% without incurring any additional capital Predictive maintenance for wind turbine 30% Unplanned maintenance expenditure, and improve employee productivity by 31%. Analytics platform for solar plant optimization 0.10% Yield

Siemens To achieve its productivity goals, this site Robotics-enabled logistics execution 50% Labour efficiency Amberg, Germany implemented a structured lean digital factory approach, deploying smart robotics, artificial- Digital engineering 30% Engineering effort intelligence-powered process controls and predictive maintenance algorithms to achieve 140% Artificial-intelligence-powered process control 20% Work-in-progress factory output at double product complexity without an increase in electricity or a change in resources. Predictive maintenance aggregating historical 13% Overall equipment effectiveness and sensor data

Analytics platform for remote quality optimization 13% Process quality improvement

STAR Refinery To maintain a competitive edge within the European Connecting machine-level data with enterprise software 67% Workforce efficiency Izmir, Turkey refinery industry, Izmir STAR Refinery was designed and built to be “the technologically most advanced Real-time asset performance monitoring and visualization 2% Overall equipment effectiveness refinery in the world”. Leveraging more than $70 million investments in advanced technologies (e.g. Digital twin for production optimization 23% Light catalytic gas oil yield asset digital performance management, digital twin, machine learning) and organizational capabilities, Digital twin of sustainability 3% Annual tons CO2 STAR was able to increase diesel and jet yield by 10% while reducing maintenance costs by 20%. Analytics platform for remote production optimization 2% Diesel yield

Tata Steel Facing operational KPI stagnation and an Agile buying through price prediction 4% Procurement cost Jamshedpur, India impending loss of captive raw material advantage, Tata Steel Jamshedpur’s 110-year-old plant with Digitally enabled negotiations 20% Full-time equivalent productivity deeply rooted cultural and technology legacies deployed multiple Fourth Industrial Revolution Production planning optimized by advanced analytics 21% Cost to serve technologies, such as machine learning and advanced analytics in procurement to save 4% Artificial-intelligence-guided machine 50% Fugitive emissions on raw material costs, and prescriptive analytics performance optimization in production and logistics planning to reduce the cost of serving customers by 21%. IoT-enabled safety management 100% Workforce safety coverage

Tsingtao Brewery Facing growing consumer expectations for Mass customization and business-to-consumer 99.5% Minimum order size Qingdao, China personalized, differentiated and diverse beers, online ordering Tsingtao Brewery rethought its use of smart digital technologies across its value chain to enable its Digital-enabled flexible manufacturing 50% Lead time 118-year-old factory to meet consumer needs, reducing customized order and new product Predictive demand forecasting 6% Overall equipment effectiveness development lead times by 50%. As a result, it increased its share of customized beers to 33% Big data/artificial-intelligence-enabled product 50% R&D cycle time and revenue by 14%. design and testing

Digital tracking and tracing 29% Material reuse

Wistron In response to high-mix and low-volume business Full robotics-enabled logistics integration 20% Whole pipeline stock level Kunshan, China challenges, Wistron leveraged artificial intelligence, IoT and flexible automation technologies to Digital tools to enhance a connected workforce 15% Line balance optimization improve labour, asset and energy productivity, not only in production and logistics, but also in Digital supplier performance management 63% Material handling efficiency supplier management, as a result improving its manufacturing costs by 26%, while reducing its Digital dashboards to monitor overall equipment 5% Overall equipment effectiveness energy consumption by 49%. effectiveness performance

Energy optimization by predictive analytics 49% Energy consumption

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 12 1.3 Lighthouses are role models, driving impact beyond productivity

A detailed look at the successful lighthouse the leaders realize reductions in CO2 emissions, cases reveals that the organizations achieving waste and water consumption, and improvements growth from investments in technology are also in energy efficiency. Their greater agility leads realizing improvements in other areas (Figure to inventory and lead time reductions and to 6). They report increases in factory output and changeover shortening; accordingly, both speed- overall equipment effectiveness (OEE), as well to-market and design iteration accelerate. Finally, as decreases in product costs, operating costs customization initiatives result in lot size reduction. and quality costs. Regarding their sustainability,

FIGURE 6 Lighthouses: Going beyond productivity and building more agile and customer-focused organizations

Key performance indicator (KPI) improvements Impact range observed 100% Factory output increase 2-140%

Overall equipment effectiveness increase 2-35%

Lead time reduction 10-99%

Growth Changeover shortening 20-90%

Lot size reduction 40-99%

Speed-to-market increase 10-89%

Design iteration time reduction 2-98%

Productivity increase 4-250%

Product cost reduction 4-70%

Cost Operating cost reduction 3-92%

Quality cost reduction 2-99%

Inventory reduction 5-80%

Waste reduction 4-50%

Water consumption reduction 5-75% Sustainability Energy efficiency 1-58%

CO2 emissions reduction 8-97%

Source: World Economic Forum and McKinsey & Company. Factory End-to-end

Global Lighthouse Network: Reimagining Operations for Growth 13 2 Global disruptions trigger unique growth opportunities

Global Lighthouse Network: Reimagining Operations for Growth 14 The past year’s shocks to global markets due to take decisive action can capitalize on this to the health crisis have imposed massive moment, and manufacturers are no exception. The disruption. While the challenges are many and time is now to achieve not only quantitative but struggles abound, it is nonetheless true that these also qualitative growth, such as raising the bar for changes to the status quo present tremendous customer experiences and increasing capabilities opportunities to grow and gain market share. to react with agility to a dynamic market. Companies across the industrial landscape willing

2.1 Aftershocks will continue to resonate

Market uncertainty will remain high. This variability analytics. Without the transparency provided by will continue to be present in demand, supply and accurate, timely data and analysis, manufacturers customer expectations. Remaining competitive will tend to be reactionary and lagging in their demands speed and adaptability; companies decisions while pressure is imposed on inventory must find pathways to extend value. To do management. Meanwhile, pre-pandemic supply this, they need scalable technology and flexible chains struggle to provide raw materials, production systems. resulting in supply fluctuations that affect finished goods inventories. All of this stress exists in a Consumption spikes have led to unexpected marketplace where consumers have many options, demand. This in turn strains production lines as gravitate towards customization and expect companies try to keep up. Managing these spikes consistently high levels of service. requires nimbleness afforded by quality data

2.2 Lighthouses show the way ahead

Digital innovation is no longer optional. Thriving companies have engaged scalable Companies that achieve 4IR innovation at scale technology that supports business goals, which – those with the capability and agility to adapt is now a requirement to become an industry- – are positioned to thrive under these changing, leading digital organization. Their reimagination high-pressure conditions, while others fall further of operations is leading to a return on their behind, widening the gap between frontrunners investment in resilience as they find themselves and the rest. Lighthouses have made the capable of matching supply to demand amid courageous decisions to engage the full power continued system shocks. Some are stepping and potential of the 4IR. This enables them to act into the void left behind by other companies that on the opportunity that disruption presents, and disappoint customers or that bear the burden of fuel the growth that sets them apart. immense inventory costs.

Global Lighthouse Network: Reimagining Operations for Growth 15 3 Lighthouses drive sustainable growth

Global Lighthouse Network: Reimagining Operations for Growth 16 Lighthouses Lighthouses are demonstrating how digitally while boosting revenues. Meanwhile, Johnson are demonstrating infused operations go beyond productivity & Johnson Vision Care has created a hyper- how digitally improvements to create sustainable, profitable personalized E2E user experience through infused operations growth. To be sure, the productivity gains mobile- and web-based platform applications that are there, resulting from digital machines and connects patients to professional, retailer and go beyond management applications driving output increases manufacturer and leverages advanced analytics to productivity at the factory level. Looking past productivity, two customize orders, resulting in a double-digit new improvements to ways to drive growth stand out: by adopting new customer conversion rate. create sustainable, business models and unlocking capacity in the profitable growth. people and production processes. Unlocking capacity

New business models Lighthouses are unlocking capacity to drive growth and profitability as every additional throughput By deploying 4IR technologies at scale (Figure accessed by 4IR technologies contributes 7), lighthouses are creating new revenue streams to what can be produced and sold. These through new business models. Their flexible measures optimize resources and infrastructure production systems allow customizable product while enabling workers to realize their potential development informed by a better understanding equipped with powerful digital applications – all of customer demands. Put simply, these without massive capital investment or negative companies are more in touch with what their environmental impact. customers want, even as these desires change – and they have built the capability to respond Novo Nordisk has coupled digital scheduling rapidly and gain market share in the void left by and work-management apps with production others that cannot. line optimization, automated OEE monitoring and digital performance management to release Alibaba Xunxi’s sophisticated consumer capacity. At Bosch, digital shift performance intelligence system couples with an array of digital management and a digitally enabled automatic tools to deliver efficient, highly customizable material call-off system, along with cycle time and design and production, reducing the minimum changeover optimization powered by machine order quantity by 98% (compared to the industry vision, have improved worker and machine average). Tsingtao Brewery has used digital tools capacity while boosting quality and reducing to enable consumers to order small amounts costs. Procter & Gamble has used digital twins of highly customized products, and to reduce and advanced analytics at its Lima, USA site to new product development lead time by half increase speed to market tenfold.

FIGURE 7 Lighthouses: Boosting growth with little or no capital

Lighthouses using Fourth Industrial Revolution technologies to enable growth % of lighthouses citing growth-related KPIs

Consumer packaged goods 40 60 100

Process industries 84 8 92

Advanced industries 50 3 39 92

Pharma and medical products 60 30 90

Total across all lighthouses 57 1 35 93

Increased output New revenue streams Both

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 17 3.1 Innovating business models

Leading organizations have realized that they By capturing customer preferences accurately, cannot continue to do things in the same old Tsingtao enables personalized marketing. ways. They recognize the imperative to respond The company has presented the first online to changing customer demands for customized customization platform in the industry, enabling products, even in the face of market disruptions. customized packaging for business-to-business or To achieve this, they have prioritized the innovation business-to-consumer sales channels. It achieves of business models that leverage the power of the tailored product development that targets the main 4IR. Among the greatest advantages this affords drivers of product popularity, generating a detailed them is heightened transparency into buying “fingerprint” for each product to inform product behaviours and customer choice. By keeping development based on demand. up-to-date insights on dynamic and individual customer preferences, they know what they need The flexible production model, coupled with to do to remain – or become – the company of automatic quality management, allows immediate choice. They realize the importance of having and small-batch production with rapid, flexible mass-customization capability, and they are response capabilities. Optimized supply chain innovating business models that make best use of planning and best-in-class supply chain analytics resources to deliver tailored products to market at engines reduce distribution inefficiencies and unprecedented speeds. shorten lead times. Artificial-intelligence-powered E2E planning allows Tsingtao to meet customer Tsingtao Brewery leverages 4IR technology to demands quickly and efficiently. innovate new business models to drive growth Through digital-enabled flexible manufacturing, Tsingtao Brewery is China’s second-largest brewery the company cuts lead time and production and the sixth largest in the world. Facing consumer scheduling time. More accurate demand forecasting demand for diverse, personalized types of beer, reduces product change and increases OEE. Mass Tsingtao has engaged new business models and customization and business-to-consumer online smart digital technology across the value chain ordering has cut the minimum order size by 99.5%. to optimize customer engagement, product By improving its ability to know and respond to development, production and distribution (Figure 8). customer preferences, Tsingtao has experienced genuine growth and improved brand preference.

Global Lighthouse Network: Reimagining Operations for Growth 18 FIGURE 8 Tsingtao Brewery: Leveraging Fourth Industrial Revolution technology to innovate business models and drive growth

In an age of new normal in the industry and in view of upgraded consumer needs for personalized, differentiated and diverse beer, Tsingtao Brewery has rethought how to use smart digital technologies across the value chain to empower the 117-year-old company to meet consumer needs.

Customer engagement Package tailoring Accurate capture of customer First online customization platform in preferences allowing for personalized the industry, providing customized marketing and customization packaging for B2B or B2C sales channels

Product development Granular product profiling Tailored development of products Exact fingerprint for each product to targeting main drivers of product identify taste elements that drive popularity demand to guide the development of new products

Production Flexible production model Immediate and small-batch Highly flexible production lines production with rapid and flexible allowing the production of multiple response capabilities products in one line

Automatic quality management End-to-end automatized quality monitoring, from the sourcing of raw materials to the distribution of the finished product

Distribution Optimized supply chain planning End-to-end planning using AI Reduced distribution inefficiencies technologies to meet customer and shortened lead times that demands quickly and efficiently leverage best-in-class supply chain analytics engines

Case study: Tsingtao Brewery Impact 56% 50% 20% 70% 37% decrease in decrease in increase in reduction in increase in lead time production demand product brand scheduling forecasting change preference time accuracy

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 19 3.2 Unlocking capacity

Lighthouses are achieving growth and higher loss with minimal human intervention. Meanwhile, productivity by unlocking capacity through 4IR equipment connectivity and digital performance technologies and, notably, are doing so with little boards provide workers with real-time data. to no capital expenditure. In years past, achieving Downtime is reduced by automated testing of measurable growth required substantial investment settings, while machine-learning-powered systems in physical facility expansion and infrastructure. predict the most efficient settings, track changes There is an alternative route: coupling state-of-the- and provide analysis. art digital tools with flexible production systems. Leading companies are discovering new ways to Granular planning made possible through real-time achieve growth without a larger footprint. tracking enhances scheduling, and the interpolation of machines, operators and technicians generates Novo Nordisk’s deployment of 4IR technologies an optimized production schedule. This affords the unlocked capacity through overall equipment optimal allocation and scheduling of assets and effectiveness improvements resources, avoiding buffers in planned asset uptime. It also provides real-time tracking of production Novo Nordisk has unlocked capacity through OEE progress, and offers alerts in case of deviations. improvements afforded by the deployment of 4IR With front-line employees directly involved in the technology (Figure 9). The Hillerød site has set an development of digital applications, the true power example for the rest of the company’s internal and of 4IR technology to enhance the work experience external production network. Advanced analytics, becomes apparent. best-in-class data engineering and applications to address daily shop-floor operations power this The 4IR transformation has had a wide reach, optimization. linking three data platforms across 10 information technology (IT) systems. Impacts include line OEE Digital systems help optimize performance improvement, reduced unplanned downtime and management. An OEE data collection system increased people efficiency. It has also led to new records and categorizes every type of performance digital jobs.

Global Lighthouse Network: Reimagining Operations for Growth 20 FIGURE 9 Novo Nordisk: Deploying Fourth Industrial Revolution technologies that unlocked capacity through overall equipment effectiveness improvements

Novo Nordisk’s Hillerød site set an example for its production network by unlocking capacity through Fourth Industrial Revolution technologies. Production-line optimization leveraging advanced analytics, best-in-class data engineering and specialized shop-floor apps – all coupled with a digital performance management system – enabled real-time decision-making across the production network.

Creation of a digital hourly production Advanced algorithms drove downtime schedule based on the fastest reduction by testing out the effects of repeatable cycle time: hundreds of adjustable settings on a manufacturing line – Spans machines, operators, technicians – Applying machine learning to create a – Allows for dynamic updates and statistical twin of each station and optimization predict efficient combinations of – Used for live tracking and next event settings for the stations visualization – Using an application to track changes to the machine settings, visualize the Optimal allocation and scheduling avoids optimal set-points and analyse the root unnecessary buffers in planned asset causes for changes to settings uptime.

Real-time tracking of production progress notifies deviations to plan.

– Implementation of an overall – Development by front-line employees equipment effectiveness data of digital applications on mobile collection system recording and devices targeting daily management categorizing every type of tasks, to record and effectively spot performance loss with as little human and address shop-floor issues intervention as possible – High impact applications: shift – Set-up of digital performance boards handover, escalation, process and trend-based notification systems confirmation, problem-solving, weekly for supervisors and maintenance pit stop, optimal machine settings personnel, leveraging real-time line data through equipment connectivity

Case study: Novo Nordisk Impact 10p.p. 40-85% 10-20% >10 10+ improvement decrease in increased new roles IT systems, in overall line unplanned people mastering new 3 data platforms equipment downtime efficiency digital and linked across 10 effectiveness analytics different IT capabilities systems

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 21 3.3 Realizing sustainable growth

Defying conventional wisdom that suggests at different goals, companies are increasingly environmental responsibility detracts from productivity focused on measures that aim for it explicitly, and, by extension, profitability, leading companies such as carbon and water usage reduction. This are discovering that growth (including higher combination of indirect and direct impact points productivity) and eco-efficiency are compatible. In industry in a positive direction. Use cases such as fact, measures yielding productivity improvements digitally enabled process and machine optimization, are actually driving resource efficiency gains tied predictive maintenance and production planning to environmentally conscious impact. Companies wil continue to improve eco-efficiency through discovering this compatibility and making the most resource optimization (eco-efficiency is one of the of it are realizing dual benefits simultaneously: cost four durable shifts presented in the September reduction and increased sustainability. 2020 White Paper entitled “Global Lighthouse Network: Four Durable Shifts for a Great Reset in The majority of lighthouses drive sustainability Manufacturing”); meanwhile, emissions reduction through 4IR technologies (Figure 10). While much efforts and other green-specific measures will lead of the positive sustainability impact to date has to cleaner production. resulted indirectly from 4IR transformations aimed

FIGURE 10 Productivity, growth and sustainability: Reducing resource utilization through Fourth Industrial Revolution efficiency gains

53% of lighthouses are driving sustainability through Fourth Industrial Revolution technologies

Lighthouses witnessing sustainability benefits Common use cases driving sustainability through Fourth Industrial Revolution technologies improvements across various industry sectors

Most common use cases indirectly driving sustainability Eco-efficiency shift

Digitally enabled process and machine Stricter regulations drive optimization investment in energy-saving Process and emission-reducing 8 69 77 Digitally enabled predictive maintenance industries technologies to upgrade Digitally enabled production planning production lines

More eco-conscious consumers require companies to deploy Consumer advanced analytics to maximize the 10 60 70 Digital quality management packaged goods yield from raw materials and minimize energy consumption

Consumer perceptions regarding Fleet performance management different kinds of mobility and Advanced electronics usage are beginning to 5 42 47 Digital performance management industries shape how organizations prioritize Flexible automation investments

Mindset to exceed regulatory Pharmaceuticals requirements drives the need to Smart asset optimization minimize energy consumption by and medical 10 10 20 products digitally connecting and optimizing assets and facilities

Total across all lighthouses 7 46 53 % lighthouses citing sustainability KPIs Direct influence Indirect influence

Implications towards increased sustainability Certain industry sectors, like process industries, have already done much to increase their operations’ overall sustainability. This is due to the fact that many of their Fourth Industrial Revolution implementations focus on process improvements normally aimed at enhancing yield, energy and throughput. Improving quality management in consumer packaged goods companies helps to reduce waste and therefore the overall environmental footprint. Various fleet-performance- and direct-production-related measures have been shown to reduce resource usage by generally increasing efficiency.

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 22 Henkel is scaling sustainability through its Indirect impacts include “cradle-to-pantry” traceability production network to eliminate labels and support short innovation cycles, which has eliminated product obsolescence. Pursuing its commitment to achieve a 65% carbon Meanwhile, the digital twin tracks product data and footprint reduction by 2025 at its production sites and prescribes sustainability and safety actions. Finally, drive this goal within the industry, Henkel leveraged shop-floor connectivity powers apps that reduce 4IR technology across peer networks (Figure 11). paper while supporting planning and monitoring from Its digital twin connects and benchmarks more than a distance. 30 factories worldwide, using hundreds of online efficiency systems and thousands of sensors to yield Henkel built on its digital backbone to scale 4IR more than 1 million data points per day. This real-time technologies linking cyber and physical systems data monitoring provides new benchmarking. across its Montornès plant, reducing its costs, accelerating its time to market and improving its These programmes have direct sustainability effects. carbon footprint. These efforts have also resulted in They digitized a high-energy laundry process (spray measurable impacts across operations, including drying) by incorporating it into the digital twin and reductions of waste production, total energy scaling it across the peer network. Likewise, a consumption, CO2 usage and water usage. machine-learning-powered expert system extends benefits across the peer network by prescribing optimizing actions to operators.

Global Lighthouse Network: Reimagining Operations for Growth 23 FIGURE 11 Henkel: Using Fourth Industrial Revolution technology to drive sustainability impacts and reset internal benchmarks

Following through on a commitment to reduce its carbon footprint by 65% by 2025 at its production sites and actively drive this within the industry, Henkel has leveraged Fourth Industrial Revolution technologies across peer networks and has re-baselined internal global benchmarks with real-time data access and feedback.

Digital twin Connect and benchmark >30 factories (all sites Feedback + real-time data connected worldwide) monitoring provide new benchmarking across sites – 250 online efficiency systems – 3,500 sensors deployed A cloud-based replica of the facility – >1 million data points per day recreates operations and prescribes sustainability and safety actions

Energy optimization by Digitizing high-energy process predictive analytics High-energy laundry process Machine learning leverages the peer (spray drying - the biggest network to prescribe actions to single internal energy operators to emulate optimal consumer) incorporated into actions/methods a digital twin and scaled across the peer network Expert system identifies deviations from optimal operating point

Other use cases Cradle-to-pantry traceability Shop-floor connectivity improving sustainability 2D matrix code eliminated labels No-instruction-needed apps and supported short innovation connected to digital twin, replacing cycles to reduce product paper and supporting planning and obsolescence to ZERO monitoring at a distance

Data link to digital twin tracks product data and prescribes sustainability and safety actions

Case study: Henkel Impact 70% 35% 16% 10% 4% reduction reduction in reduction in reduction in reduction in

of paper in total waste total energy CO2 usage total water shop-floor consumption usage processes

Source: World Economic Forum and McKinsey & Company; Henkel Climate Protection Strategy and Targets.

Global Lighthouse Network: Reimagining Operations for Growth 24 Johnson & Johnson used 4IR technologies to sustainability effort, showing how both innovative 4IR close the last mile of carbon emissions reduction technology and 4IR-driven agile working modes can

with a CO2-neutral plant function in concert to achieve results.

Johnson & Johnson Consumer Health in Smart energy management integrated with automated Helsingborg, Sweden coupled advanced controls systems and sensors, while production efficiency with green installations to cut energy consumption measures achieved higher productivity, improved

and become the company’s first CO2-neutral plant speed to market, reduced labour cost and lowered (Figure 12), earning government recognition. resource consumption. Robotic applications improved OEE, and digital twin product development simplified Traditional green technology initiatives included the supply chain to reduce the cost of goods. updated hardware installations; likewise, the plant engaged in a shift to renewables through biogas This approach reduced energy consumption, and sourcing, while prioritizing both municipal and nearly one-fifth of this reduction emerged directly

supplier collaboration to support sustainability. To from 4IR technologies. The plant achieved CO2

reach full decarbonization, 4IR initiatives beyond neutrality, totally eliminating CO2 emissions. This is traditional green measures were essential. These down from 5,000 tons in 2010 to 0 in 2017, and it had a direct as well as an indirect influence on the has sustained this figure since.

FIGURE 12 Johnson & Johnson: Closing the last mile of its carbon reduction effort with Fourth

Industrial Revolution technologies, leading to the plant being CO2 neutral

In an effort to reduce the environmental footprint of one of its largest self-care plants, Johnson & Johnson Consumer Health in Sweden leveraged Fourth Industrial Revolution technologies by pairing advanced controls with green installations in order to develop environmental sustainability and as a result

achieve its first ever CO2-neutral facility.

Traditional green tech initiatives Fourth Industrial Revolution tech Updated hardware installations enabling carbon neutrality – Ammonia-based and free cooling systems Direct influence: tackling carbon neutrality – Heat recovery and efficiency systems – Smart energy management integrated with – LED lighting facility’s automated system and sensors Shift to renewables through biogas sourcing Collaboration with municipality and suppliers Indirect influence: increased efficiency to support sustainability efforts of production processes to produce more with less resources

– Robotic applications led to a 14% increase in overall equipment effectiveness – Digital twin product development led to a 20% reduction in the cost of goods by simplifying the supply chain

Case study: J&J Impact 25% 18% 5,000 reduced to reduced energy energy reduction 0 consumption directly from tons from 2010 to 2017 Fourth Industrial annual CO2 Revolution technologies Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 25 4 Taking Fourth Industrial Revolution innovations to scale

Global Lighthouse Network: Reimagining Operations for Growth 26 The growth lighthouses have achieved – both The truth is, what it means to scale has “re- pre-pandemic and throughout a year of turbulence baselined”, and it has proven to be more difficult – makes clear that integrating 4IR innovations than initially thought. Market disruptions and at scale is central to long-term growth. Among upheavals have precipitated difficult reckonings as companies succeeding at this kind of growth, industrials have had their investments pressure- scaling is happening across the production network tested, and a new understanding of scale has and value chains. The majority of organizations emerged from the realization that they did not have yet to achieve this and, in fact, in the scale as much as they thought. So how have 2020 McKinsey & Company survey of global the leaders in that successful 26% escaped this manufacturers, the percentage of companies stasis and scaled successfully, even amid new that report a situation of “pilot purgatory” has levels of disruption? The secret lies with two key risen sharply to 74% in 2020 (Figure 13). elements: agility and workforce development.

FIGURE 13 Scaling Fourth Industrial Revolution technologies (2017-2020): Now tougher than initially thought

Survey Question % of respondents saying they had successfully deployed multiple Fourth Industrial Revolution use cases across multiple locations (n = 402)

2017 70 30

2018 68 32

2019 56 44

2020 74 26

0 +18 Key insight Stuck in pilot purgatory Scaled Fourth Industrial Revolution technologies successfully Jump in respondents saying they are stuck in pilot purgatory

Being stuck in The 3-year trend showing Fourth Industrials have had their Industrial Revolution technology is investments pressure-tested and pilot purgatory is scaling reversed in 2020. as a result have realized they did a more common not scale as much as they thought. feeling in 2020

Source: McKinsey & Company, Annual Industry 4.0 survey of global manufacturing.

Agile ways of working are at the heart of successful technological innovation can render the completed scaling. In order for 4IR advances to reach their pilots irrelevant by the time they are finished. potential across the production network and value chains, companies must build on agile principles to Of course, agile ways of working reach their innovate and transform in an iterative manner. This full potential only with a skilled, 4IR-ready means they can collaborate and manage change workforce. The adoption of 4IR technologies has continuously – enabling them to anticipate technical introduced many changes to the tasks workers limitations and move quickly to surpass them. undertake, and companies do well when they Lighthouses are able to iterate quickly, fail fast and understand the importance of keeping human learn continuously. This plays out in the creation workers at the centre of their transformation. of minimum viable products (MVPs) in two-week Strategies like tiered pathways for upskilling sprints. Likewise, it allows for bundled use cases ensure workers remain connected, integrated that facilitate rapid transformations in several waves and directly involved in transformations – of a few months each. This agile mode is a radical moreover, they equip workers with the expertise departure from older models involving year-long needed to contribute to future innovation. pilots aspiring for perfection, wherein continued

Global Lighthouse Network: Reimagining Operations for Growth 27 4.1 Embracing agility to scale

By fully embracing agile working modes, leading respond to unexpected disruptions related to supply companies have been able to unlock new levels of issues, distribution channels or facility closures. growth and sustainability as they scale 4IR solutions Agility is a hallmark across the organization – it quickly across their production networks and value permits speed and flexibility without loss of quality. chains (Figure 14). Lighthouses have made room for innovative thinking and dynamic approaches Lighthouses are also prioritizing better transparency by prioritizing flexibility and adaptability in their and traceability across the network. By leveraging operations. As a result, they are able to remain common data models across the value chain, they closely attuned to shifts in supply, demand and are able to manage production and supply chains customer expectations. to meet their sustainability commitments while giving consumers insights into product origins,

This growth is extending beyond individual sites composition and CO2 footprint. These enable across the production network and value chains. customers to make conscious buying decisions. There is evidence of this in the more than fourfold increase in lighthouse sites from companies that Finally, by scaling digital solutions and capabilities boast multiple lighthouse sites, from just nine in rapidly across their sites, companies that rely 2018 to 36 in 2021.These firms are reimagining generally on dispersed manufacturing networks themselves – and by extension their industries – are able to implement technologies that would across production networks and supply chains. not have a positive return on investment at any single site. This also permits unlocking production By developing transparency of capabilities and bottlenecks across the network faster, and capacity across the network, along with dynamic increasing productivity at individual sites. These network scenario planning, leading organizations are companies empower themselves through the smart able to prepare for shifts in demand driven by rapidly and coordinated dissemination of 4IR technology changing customer preferences. They can introduce and working modes – thus each site’s strength and new product categories and achieve high levels agility is effectively enhanced by the strength and of customization. Likewise, this equips them to agility of the others.

Global Lighthouse Network: Reimagining Operations for Growth 28 FIGURE 14 Lighthouses: Embracing agile ways of working

Lighthouses associated with a company that boasts more than two sites in the Global Lighthouse Network 2018-2021

2018 2 1 1 5 9

2019 3 3 4 10 20

2020 4 4 5 14 27

2021 5 5 8 18 36

Process industries Pharma and medical products Consumer packaged goods Advanced industries

Source: World Economic Forum and McKinsey & Company.

Main ways companies are reimagining themselves across production networks and supply chains Key benefits derived

The transparency of capabilities, capacity …prepare for demand and mix shifts driven by across the network and dynamic network rapidly changing customer preferences (e.g. new scenario planning improve companies’ ability to… product categories, far-reaching customization) …respond to supply chain disruptions and unplanned events (e.g. plant closures, distribution channel disruption, supply issues)

Better transparency and traceability across the …manage production and supply chains to achieve network (e.g. by leveraging common data models sustainability commitments across the value chain) allow companies to… …give consumers visibility on product origin, composition,

CO2 footprint, etc., to help them make conscious buying decisions

Scaling digital solutions and capabilities rapidly …unlock production bottlenecks across the network faster across the sites enables companies that usually (e.g. to address shifts in demand) have dispersed manufacturing networks to implement …capture further productivity gains at individual sites technologies that would not have a positive return on investment on one site level and…

Recipe for growth

Global Lighthouse Network: Reimagining Operations for Growth 29 Ericsson used an agile working approach to pattern of rapid feedback with the IIoT vendor, and deliver fast value: Three use cases in 16 weeks paced the work into six sprints.

Aiming to serve local 5G radio customers Ericsson rolled out seven use cases at the MVP sustainably with production close to its consumers stage. They defined early on what would need (Figure 15), Ericsson built a greenfield 5G-enabled to be built or acquired to manage the roll-out, digital native factory in the United States in record and worked with the IIoT vendor on upskilling time. With agile working methods and a robust development combined with problem-solving and industrial internet of things (IIoT) architecture and design workshops. The company enhanced the data foundations, the team succeeded in deploying architecture to support new waves of use cases, 25 use cases within 12 months, including three which they continually deployed with smaller pools use cases in 16 weeks. The company identified of team members. These measures improved more than 80 digital use cases to transform E2E output per employee and reduced manual material operations, then built the strategy to develop or handling, while integrated environmental systems procure them. They made quick design iterations reduced energy consumption, water usage and

with a use-case-bundling roadmap, instituted a CO2 emissions.

FIGURE 15 Ericsson: Using an agile working approach to deliver fast value – 3 use cases in 16 weeks

To serve local 5G radio customers sustainably, Ericsson built a greenfield 5G- enabled digital native factory in the US in record time. With agile working methods and a robust IIoT architecture and data foundations, the team deployed 25 use cases at scale in 12 months.

Bundling of Quick design Minimum viable Scale-up use cases iterations product

Identified 80 digital use Prepared a roadmap implementation Enhanced the cases to transform detailing 25 use cases to Rolled out 7 use cases architecture to support end-to-end operations develop in the first 12 at the minimum viable new waves of use cases months product stage Built the strategy to Continually deployed develop or procure all the Instituted a rapid Defined early what was use cases with a smaller use cases feedback mechanism to be built or bought to pool of team members with the IIoT vendor manage the roll-out

Divided the work into six Upskilled development sprints based on with the vendor, combined dependencies and interim with problem-solving and deliverables design workshops

Case study: Ericsson Impact Delivered 3 use % % % cases in 16 weeks 120 75 50 25 use cases in 1 year increase in output reduction in reduction in per full-time lead time inventory equivalent Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 30 Schneider Electric scaled up 4IR use cases The rapid horizontal deployment of the 4IR across five sites spanning the globe strategy is empowered by standard IT/operational technology (OT) platforms, which help avoid Schneider Electric began deploying its 4IR strategy delays and bottlenecks in the dispersal of the across five sites in 2017 and is currently scaling digital strategy, while providing the transformation to more than 80 interconnected sites (Figure 16). roadmap. Workforce development is a key element Three current lighthouse sites and two scale-up of nearly all 4IR innovations; thus, Schneider has sites collectively exhibit a number of functional-level formed a Digital Academy focused on capability digital use cases. A digital transformation office building. By deploying this organization-wide engages both internal and external talent with an transformation at every level, from infrastructure agile working mode to deliver a transformation and technology to operating modes and upskilling, roadmap for the entire organization, facilitating the Schneider has engaged everyone in the company prioritization and development of use cases across in the 4IR journey. The company has also improved the operating network. This offers the company a labour productivity and customer on-time in-full

key enabler: a top-down 4IR global digital strategy. delivery while reducing scrap cost, CO2 emissions and total energy consumption.

FIGURE 16 Schneider Electric: Deploying Fourth Industrial Revolution technologies across 80+ interconnected sites (from 5 sites in 2017)

Schneider has scaled Fourth Industrial Revolution technologies by applying an approach that initially established digital lighthouse sites to fuel the transformation across its wider network.

Lighthouse Scale-up sites Key enablers for scaling – Digital transformation office with Functional-level Batam, Le Vaudreuil, Lexington, Wuhan, Monterrey, co-located internal and external use cases Indonesia France USA China Mexico talent, paired with an agile way of working to deliver: End-to-end planning and - The prioritization and scheduling development of use cases across the network Digital operating model performance - A transformation roadmap management

– Top-down global digital Digital/analytics strategy (tailored, energy sustainable, connected) management – Digital Academy for capability building and development Digital – Standard IT/operational maintenance and technology (OT) platforms for scrap reduction faster horizontal deployment – Compelling change story to Automation and engage shop floor to top floor augmented operator

Case study: Schneider Electric

Impact 40% 25-40% 10-26% 40-78% 75% reduction in increase in customer reduction in total energy reduction in CO2 usage increase in labour scrap cost on-time in-full delivery consumption productivity

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 31 4.2 Investing in workforce development

Lighthouse Lighthouse organizations place a high premium on are essential to maximize the potential of the 4IR, organizations place workforce development because they know it is vital Siemens matches individual job profiles to a 4IR a high premium to engaging agile working modes and maximizing skill roadmap that lays out a tailored upskilling on workforce the power of digital transformation. Training, path for each (Figure 17). Like HP Inc. (described development reskilling and upskilling keeps their workforces below), Siemens engages in university partnerships, because they prepared and optimized in a 4IR environment. internal learning and targeted training to achieve its By keeping people at the centre of their 4IR upskilling goals. know it is vital to transformation with a focus on inclusive growth, engaging agile they enable people at every level of the company to HP Inc. used 4IR optimization to create worker working modes take part in building the innovative, creative future at upskilling opportunities and shift tasks and maximizing the heart of the 4IR’s reimagined industry. Scaling is the power of digital a team effort, and people are the team. HP Inc. Singapore’s 4IR journey focused on transformation. workforce upskilling. As increasing product Siemens developed a 4IR skill roadmap complexity met labour shortages, it faced quality matched to job profiles and cost challenges. Moreover, it wished to embrace a national movement towards higher-value To reach productivity goals, Siemens in Amberg, work. As a response, HP Inc. shifted from labour- Germany initiated a lean digital factory approach; intensive, reactive, manual work to highly digitized, factory output increased 140% despite product automated work. This reduced its manufacturing complexity that doubled. It did so without an costs while boosting both productivity and quality. increase in electricity usage or a change in resources. Amid these productivity gains, Siemens Because 4IR optimization has freed up considerable applied an upskilling programme based on task responsibilities, it has offered new space and development tailored to individual workers. opportunity for upskilling (Figure 17). For example, operators become techno-operators, able to Robotics-enabled logistics execution improved take on more complex tasks that were formerly labour efficiency, while digital engineering delegated to technical specialists, and the chain of rationalized efforts and artificial-intelligence-powered task-shifting continues. Like Siemens, HP Inc. has process controls boosted work in progress. A achieved this transformation through a combination predictive maintenance system improved OEE, and of university partnerships, internal learning and an analytics platform for remote quality optimization targeted training. raised process quality. Aware that new capabilities

Global Lighthouse Network: Reimagining Operations for Growth 32 FIGURE 17 Lighthouses: Upskilling the workforce to operate in the Fourth Industrial Revolution

As a consequence of a new way of working introduced by the Fourth Industrial Revolution, new capabilities and a workforce prepared for the changes ahead are needed. For simplification, two approaches are highlighted through Siemen’s individual and HP Inc.’s team-based framing.

Matching the Fourth Industrial Revolution Shifting tasks to upskill the workforce skill roadmap to job profiles HP Inc., Singapore Siemens, Amberg

The upskilling path is laid out according to job profile, Fourth Industrial Revolution optimization has freed taking into consideration the key technologies and up task responsibility, offering space for upskilling level of competence required

Profile (example) Task time allocation across roles Assembler Task optimized Task shifted New task

Fourth Industrial Skill Revolution skill examples segments (competency requirement) Before After

All Resilience in the digital Operators upskill into environment (understanding) techno-operators as they take on more complex tasks from technical specialists Basic Cybersecurity Knowledge (understanding) Technical specialists upskill by taking on a portion of the engineering roles and responsibilities Expert Cloud computing (knowledge only) Engineers therefore are freed up to take on advanced upskilling and data science roles

Key commonalities

University partnerships for Internal learning, with Targeted trainings to advanced learning programmes, in-house trainings, facilitated lead a digitally enabled degree assistance discussion platforms workforce

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 33 5 Call to action: Extend the light further

Global Lighthouse Network: Reimagining Operations for Growth 34 5.1 Extending the light’s reach

Since its beginnings, the Global Lighthouse Extending 4IR scaling this broadly is an aspiration Network initiative has observed iterations in 4IR – a vision for organizations that have succeeded in implementation. Leading organizations began deploying 4IR technology at scale, integrating three their 4IR journeys with use cases first deployed at categories: the production network, E2E connected scale in manufacturing. In time, this deployment value chains and support functions (Figure 18). In extended across E2E connected value chains. terms of the production network, this would mean This deployment journey has greater horizons even successful scaling across all of the company’s beyond this, however. Today, leaders are scaling manufacturing sites. E2E connected value chains 4IR technologies more broadly still, aiming to span product development, planning, delivery, the extend the transformations modelled by lighthouses supply network and customer connectivity. This across entire organizations. This is the natural scaling extends to support functions, including iteration at the core of the 4IR – that is, the logical human resources, finance and IT. progression of 4IR transformation as it continues to reach across the expansive industrial landscape.

FIGURE 18 Scaling Fourth Industrial Revolution applications across the entire company

Use case evolution is coming to a logical conclusion as Fourth Industrial Revolution technology scales across production networks, end-to-end connected value chains and support functions, thereby transforming entire companies.

End-to-end connected value chains

Category Definition

Production network All factories of the company

End-to-end connected End-to-end product development, Fourth Industrial value chains planning, delivery, supply network Revolution company and customer connectivity transformation Support functions Functional departments such Production Support as Human Resources, Finance, networks functions Information Technology

Source: World Economic Forum and McKinsey & Company.

Global Lighthouse Network: Reimagining Operations for Growth 35 5.2 Inspiring other companies striving to deploy Fourth Industrial Revolution technologies

Organizations aiming for this level of successful be the brightest beacons of all, showing the way 4IR deployment at scale are aspiring to transform for others in a redefined manufacturing landscape themselves completely at the broad company level in which people and processes realize their full and, as such, to be the true leaders in a reimagined potential through the power of 4IR engagement. future of advanced industry. These lighthouses will

5.3 A call for applications

The Global Lighthouse Network continues to grow and encourages leading organizations to consider applying to join. Excited forward-thinking companies are invited to learn more by emailing [email protected].

Global Lighthouse Network: Reimagining Operations for Growth 36 Contributors

The World Economic Forum extends its gratitude to the project team members who produced this White Paper.

Project team World Economic Forum

Francisco Betti Head of Shaping the Future of Advanced Manufacturing and Production

Yves Giraud Senior Expert, McKinsey & Company, seconded to the World Economic Forum

Franco Manna Director, Innovation, Johnson & Johnson, seconded to the World Economic Forum

Federico Torti Project Lead, Advanced Manufacturing and Production

McKinsey & Company

Enno de Boer Partner; Lead Partner, World Economic Forum Technology and Innovation for the Future of Production

Matt DeVivo Associate

Katy George Senior Partner

Dinu de Kroon Partner

Magnus Larsson Engagement Manager

Wouter Lion Associate

Jessica Menzel Junior Practice Specialist

Tyler Smith Engagement Manager

Ken Somers Partner

Thanks go to Paul Cumbo, external writer and editorial consultant, for drafting this paper.

Global Lighthouse Network: Reimagining Operations for Growth 37 The World Economic Forum, committed to improving the state of the world, is the International Organization for Public-Private Cooperation.

The Forum engages the foremost political, business and other leaders of society to shape global, regional and industry agendas.

World Economic Forum 91–93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 2744 [email protected] www.weforum.org