Developing digitized industry leaders

Digital Capability CenterSingapore

McKinsey’s Digital Capability Centers (DCC) are a global network of Industry 4.0-focused capability centers that drive the transformation of companies around the world. Offering services ranging from experiential learning and capability-building, to piloting new technologies, the DCC supports companies at every stage of their digital transformation journey.

The DCC network includes facilities in Aachen (Germany), Beijing, Chicago, Singapore and Venice (Italy). Each center was founded in partnership with a leading industry consortium, government organization, or research institution.

The Singapore facility is a collaboration with the Advanced Remanufacturing and Technology Center (ARTC) to develop digital manufacturing and industrial design expertise in Southeast Asia.

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Disruption is now a daily reality for companies, yet today’s world of rapid technological change also presents opportunities for leaders. To realize the benefits of disruptive change, even the most successful organizations must continually reinvent themselves. McKinsey’s network of digital capability centers was designed with this challenge in mind.

Dominic Barton Global Managing Partner McKinsey & Company

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Industry 4.0:A key disruptive force that will have enormous impact

~1760s ~1870s ~1960s ~2010s to now

~50 billion interconnected machines by 2030compared to 1 billion people connected today

$1.2 to $3.7 trillion value from IoT in factories from using the Internet of Things (IoT) in factories to enable real time process optimization

44% of work activitieshave the technical potential to be automated

Data, computational power and connectivityMachine-to-machine and machine-to-product connectivity will help realize mass personalization

Analytics and intelligenceAdvanced analytics will enable a shift from detection to prediction, and then to prevention

Advanced production methodsAdditive manufacturing will integrate and accelerate prototyping and manufacturing (e.g. 3D printing)

Human machine interactionUse of collaborative robots that interact with humans in the workplace

Integrated digital thread Seamless flow of information across the value chain in procurement, production and the supply chain

5

This next phase of digitization will radically transform companies across industries

Power

Oil & Gas

Mining

Consumer

Aerospace

Semi-conductor

Automotive

~45% reduction in maintenance costs

using predictive maintenance

30-50% redeployment of Full Time Employees (FTEs)digitizing oil drilling, field development and operations

3% increase in mining yield using advanced analytics

20-50% reduction in inventory-management cost through smart inventory and automated ordering

4 weeks shorter LTA cycle and 2-3% higher revenue using advanced analytics to forecast demand for aircraft components

90% redeployment of operator FTE 30-50% production ramp-up through automated real-time dispatching

Decreased machine downtime and 10-20% reduction in quality cost using real-time data analytics

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To capture the opportunity, companies need to reinvent their operating model

Key elements of Adaptive Operating Model

Harness disruptive Industry 4.0 technologies through digital transformation along the value chain

1.

Redefine core activities and business models to capture the impact of Industry 4.0 technologies

2.

Evolve into agile organizations able to react in the face of rapid change

3.

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Companies need to adapt their technical, management and people systems to the new digital environment

Technical SystemsLeverage disruptive technologies, i.e., data and connectivity, advanced analytics, additive manufacturing and human-robot collaboration along the value chain to:

� Speed up existing processes including decision making

� Increase accuracy of decisions and processes

� Increase flexibility through dynamic optimization of processes in real-time

Digital � Securely connect machines,

products, suppliers and customers

� Acquire, integrate and visualize data in an insightful way

� Use collected data to redesign processes, products and customers’ experiences

Management Systems � Revise KPI structures to

enforce revised processes

� Leverage granularity of insights for fact-based performance dialogue

� Evolve daily roles: from data collection to managing actions

� Develop the critical capability to become an agile organization

People Systems � Encourage disruption

and “learn fast, fail fast,” with leadership from top management

� Empower people to take charge of KPIs and base decisions on data

� Build capability across the organization, both around new skills (e.g., data scientists) and dual skill profiles

8

Companies face multiple challenges along the digital transformation journey of companies have made real

progress in implementing Industry 4.0 in 2016

of Asian companies feel less prepared for Industry 4.0, compared to 30% in the US, and Germany

Close to 80% of companies globally spend

of their capex on Industry 4.0

42%

>50%

<20%

Technical system

Management system

People system

Elements of digital transformation Key challenges faced by companies

� Uncertainty about insourcing versus outsourcing

� Lack of strategy to decide which technologies to prioritize

� Lack of a clear business case to justify investments in technologies

� Difficulty with data integration and ownership that hamper integrated performance management

� Cybersecurity concerns with third-party providers

� Lack of coordination across different organizational units to implement digital strategy

� Lack of courage to push through radical transformation initiatives

� Lack of necessary talent and capabilities, e.g., data scientists

McKinsey interviewed over 300 manufacturers and suppliers in four key markets (United States, Germany, Japan, China) and found that:

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McKinsey’s Industry 4.0-focused Digital Capability Centers (DCCs) will help companies prepare for their digital journey

Digital Capability CenterAachen

Digital Capability CenterChicago

Digital Capability CenterBeijing

Digital Capability CenterVenice

Digital Capability CenterSingapore

Key features

� Realistic production environment of a digitized gearbox manufacturer

� Digital showcases on Industry 4.0 technologies with opportunity to pilot tools

� Experiential capability-building workshops covering technical, management and people systems, as well as digital enablers

Additional partnerships

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DCC Singapore is a realistic production environment, simulating the digital thread of a gearbox manufacturer

Translate orders into unique RFID tags that dictate product parameters to use in production, from material to delivery

Customer specific orders

Product development Procurement

Use advanced analytics to evolve key design parameters

Combine design thinking and design-to-value to create a unique value proposition

Create value through digitized workflow and advanced analytics

E-procurement (e-sourcing, e-auction, e-catalogue)

Collaborative platform and supplier screening tools

Headquartered in Singapore, with

8 plants worldwide

$2 billion revenue

8,000 employees

70% Industrial

(wind, industrial, oil & gas, power)

DCC Singapore: Introducing GearboxCo.

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Suppliers Production (incl. planning) Customer service

Field data drives continuous improvement

Dynamic network configuration and real-time material tracking

Digital warehouse with automated guided vehicles, pick-up, and inventory optimization

Mass personalization without waste

Process re-invention through advanced analytics

Advanced production methods

Human-machine interaction

Real-time access to product usage and condition data

Track failure information back to key drivers

Predictive replenishment

Industrial

30% Automotive

Automotive

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The DCC offers a series of workshops on Industry 4.0’s latest technologies and how to evaluate their potential for your company

Half-day workshops for CEOs

� Showcase Industry 4.0 concepts and understand the potential impact that can be achieved as a company moves from a lean state to an Industry 4.0 state

� Build awareness of Industry 4.0 technologies and key success factors for digital transformation

� Explore avenues to identify potential at your own premises and measure Return on Investment (ROI)

1-day workshops for CXOs

What is the technology about

How relevant is it - what is the business case

How to implement it on a real-life example

How to scale up across lines and multiple sites

How to ensure sustainability

Key take-aways from deep-dive workshops

1.

2.

3.

4.

5.

What does Industry 4.0 look like in a real-life example

How relevant are selected key technologies to your industry

How can a diagnostic help identify the productivity / business model potential for your company

Key take-aways from CEO and CXO workshops

1.

2.

3.

� Deep-dive experiential workshops for industry practitioners on key Industry 4.0 themes (e.g., predictive maintenance, digital supply chain, IoT etc.)

� Understand what the technology is about, how it is relevant and how it can be implemented

Deep-dive workshops (1 day or more)

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Digital showcases on four key themes

Predictive MaintenanceLearn about identifying the right maintenance strategy and begin on the journey towards predictive maintenance through condition monitoring and advanced analytics, to uncover complex insights about machine health, behavior and remaining useful life.

Digital Performance ManagementLearn how you can enable OEE improvement through faster, real-time performance management and problem solving through digitization, with real-time visualization of performance and health information on a digital platform and big-data based generation of productivity losses.

Digital ProcurementLearn about solutions across the Source 2 Pay value chain that can be deployed to conduct comprehensive costs that clarify drivers and levers, improve supply market analysis and sourcing strategies, and drive more effective negotiations and supplier management.

Digital Supply ChainLearn about solutions which can be deployed across each step of the supply chain to optimize demand planning, rationalize network and transportation costs and improve warehousing and inventory policies.

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DCC Singapore will offer 20+ world-class experiential learning modules to help companies harness the powerful technological changes brought about by Industry 4.0

Digital manufacturing

Resources � Yield and throughput using advanced

analytics � Energy optimization using advanced

analytics

Processes � Application of additive manufacturing (e.g.,

3D printing) � Process and layout design using digital

twin � Batch size determination and design for

line flexibility � Line balancing and smart routing in real

time

Assets � Predictive maintenance using advanced

analytics � Remote maintenance to improve labor and

maintenance efficiency � Use of augmented reality (AR) and virtual

reality (VR) to improve maintenance efficiency

Labor � Use of wearables - visual aids, exoskeleton,

gloves, prosthetics - to enhance productivity

� Use of autonomous vehicles � Introduction of human / robot collaboration � Workforce management – resizing and

redeployment � Integrated digital performance

management

Planning and inventory � Production planning, scheduling and

demand levelling � Intelligent material storage with production

sequence-linked storage and inventory levels

Quality � Optimization of equipment working

parameters using advanced analytics to limit defect generation

� Adaptive quality assurance (QA) including new sensing and defect identification

Technical SystemsDigital Procurement

End-to-end performance management � One-stop repository and workflow for source-to-pay

value chain by category

Spend visibility � Advanced spend intelligence & automated sourcing

insights

Collaborative and advanced sourcing � Category-specific analytics solutions based on IoT

and advanced analytics based optimization engines � Cleansheet & “Should-cost analyses” for cost

estimations � Portals for cross-functional collaboration and

exchange � Supplier qualification and selection � eRFX, eCatalogs, eAuctions tools to facilitate

sourcing events with suppliers � Supplier collaboration platforms to foster supplier

collaboration and innovation

Procure to pay (PTP) � PTP process workflows and approval support � Automated compliance and claims management for

vendors, contracts, buyers

Digital outbound supply chain

Service � Demand planning through predictive analytics � Closed-loop demand and supply planning � Order to fulfilment process optimization through

automated root cause analyses � Real-time replanning of the production schedule

and replenishment

Logistics costs � Network optimization through advanced analytics � Vehicle tracking and dynamic routing based on real-

time information � Autonomous and smart vehicles

Inventory � (Semi) Automation of ware-housing with advanced

robotics solutions for improved picking and self-guiding shelf-to-picker robots

� 3D printing for slow-moving Stock Keeping Units (SKUs) and spares

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Please contact our experts to learn more about DCC Singapore

Oliver Tonby

Senior Partner and Managing Partner, Southeast Asia

Matteo Mancini

Partner and Managing Partner, Operations Practice, Southeast Asia

Tomas Koch

Senior Partner and Managing Partner,McKinsey Ventures, Asia

Alpesh Patel

Associate Partner and Director, McKinsey Innovation Campus

Michele Pani

Partner and Managing Partner, Electric Power & Natural Gas Practice, Southeast Asia

Lalith Nambirajan

Expert Associate Partner, Operations Practice, Southeast Asia

Jan P Hartmann

Associate Partner,Operations Practice, Southeast Asia

DCC_Singapore@mckinsey.com

� Impact of digitized processes on KPI structure

� Digitized performance dialogs and root-cause problem solving

� New daily roles from data collection to managing actions

� Agile organization of the digitized enterprise of the future

Management System

� IoT stack configuration, platform and tools

� Cybersecurity for integrated network � End-to-end product traceability and

automated flow

Digital Essentials

� Skills of the future and capability building

� Mindset shift to enable Industry 4.0 transformation in the workplace

People System

April 2017Copyright© McKinsey & Company, Inc.mckinsey.com

dcc_singapore@mckinsey.com