“We can see the computer age everywhere, but in the productivity statistics.”
Robert Solow, Economist, 1987
It’s a lazy day for me in Singapore. I spent a jet-lagged day reading by the pool. I dragged The Rise and Fall of American Growth by Robert J. Gordon to the Far East and digested 700 pages of economic analysis while enjoying the sun.
I know. Admittedly, I am a geek. Reading the old fashioned way is a joy for me.
As I closed the book, and prepared to go to bed, my mind raced. I struggled with a hard, cold fact. The impact on Total Factor Productivity from the Second Industrial Revolution–fueled primarily by two inventions: the combustion engine and electricity–stretched 50 years from 1920 to 1970. But the surge in Total Factor Productivity (TFP) growth from the Third Industrial Revolution–associated with computers and digitization–was much shorter in duration, lasting only 20 years during the period of 1994-2004. The Third Industrial Revolution was much shorter and smaller in impact. This resonated. Born in 1954, and a baby-boomer, I experienced both of these periods.
I read Chapter 17 in the book on the difference in productivity impact of the two industrial revolutions many, many times. It is worth the read. Gordon’s reason for the difference? His belief is that there was less follow-on innovation from the Third Industrial Revolution. The impact of the Third Industrial Revolution was more limiting in its effect on the sphere of human activity. The effect was primarily on office productivity and entertainment, but not on manufacturing. The period of 2004-2014 had a .4% TFP annualized growth rate down from 1.03% for the period of 1994-2004. Gordon writes, “The problem created by the computer age is not mass unemployment, but the gradual disappearance of good, steady, middle-level jobs that have been lost not just to robots and algorithms but also to globalization and outsourcing to other countries using low wages.”
As I turned down my bed, I was amused by the coverage of the primary election results of South Carolina and Nevada on CNN. (Watching CNN in global travel is a bit comical.) As I watched Donald Trump take the stage (I have to admit, his hair is a non-starter for me.), and thank South Carolina and promise to Make America Great Again, I thought of the work of the German government on “Industrie 4.0.” The vision of industry 4.0 was presented in 2013. I thought, “at least Germany has a vision.” Six design principles form the core of the mission:
- Interoperability: the ability for plant equipment (i.e., workpiece carriers, assembly stations and products), humans and Smart Factories to connect and communicate with each other via the Internet of Things and the Internet of Services
- Virtualization: a virtual copy of the Smart Factory created by linking sensor data (from monitoring physical processes) with virtual plant models and simulation analytics
- Decentralization: the ability of cyber-physical systems within Smart Factories to make decisions on their own
- Real-Time Capability: the capability to collect and analyze data and provide the derived insights immediately
- Service Orientation: offering of services (of cyber-physical systems, humans or Smart Factories) via the Internet of Services
- Modularity: flexible adaptation of Smart Factories to changing requirements by replacing or expanding individual modules
By definition, the networks and process definitions in the German vision are currently limited to a single factory, but there is a recognition of the need by the committees to interconnect multiple factories across geographical regions. The focus is on building 6C systems: connection (sensors with networks), cloud (computing and data on demand), cyber (models and memory), content/context (meaning and correlation), community (sharing and collaboration), and customization (personalization and value).
Let me start by giving the Germans congratulations. Their answer to the fall in growth and decline in productivity is so much more attractive to me than United States politicians’ promises.
However, I don’t think even the German vision goes far enough. Globally, why is there not a vision for Supply Chain 4.0? Or better still a vision for Value Networks 4.0? For me it would enable the use of digital innovation to drive greater value in value networks. It would improve the interoperability between and among networks. The impact would be outside-in, from the customer’s customer to the supplier’s supplier, and the signals would be real-time and bidirectional, with a focus on sensing and minimizing waste.
Stuck today, nine out of ten companies struggle to improve performance at the intersection of operating margin and inventory turns. Despite a focus on projects, continuous improvement programs, and functional process design, supply chain leaders are unable to drive improvement in both of these important metrics. Corporate investments are in operational (transactional processing) and productivity systems (email and office systems). Overall, companies lag in the understanding of the potential of new forms of analytics. We are very early in our journey to define the digital supply chain and extend the concepts to building a digital, outside-in value network(s).
Let me give you some examples. Today’s supply chains do not sense. They respond. The processes are largely batch and out of step with markets. Currently employees within companies hard-code master data. While supply chain leaders talk about being customer-centric, they cannot see and use customer data. In fact, only 12% of companies can easily get to total cost data. Digital innovation has transformed the office and marketing, but not the supply chain. This is my mission. My goal? Drive change to change the equation.
If this is you, I want to invite you to join us to define digital value chain transformation. In this spirit, this year Supply Chain Insights will be hosting a small Shaman’s Circle meeting at Amelia Island, FL on April 17-19 to brainstorm how new forms of technologies can redefine value network visibility. We are also putting the final touches on the agenda for the Supply Chain Insights Global Summit on September 8-9 in Scottsdale, AZ. (The registration is live on the website for the global summit and the agenda will be live in March. The registration for the Shaman’s Circle is by invitation only. Let me know if you would like to come to the April event and brainstorm with other industry leaders on what a network of networks could look like.)
I would love to get your thoughts.
Lora Cecere is the Founder of Supply Chain Insights. She is trying to redefine the industry analyst model to make it friendlier and more useful for supply chain leaders. Lora has written the books Supply Chain Metrics That Matter and Bricks Matter, and is currently working on her third book, Leadership Matters. She also actively blogs on her Supply Chain Insights website, at the Supply Chain Shaman blog, and for Forbes. When not writing or running her company, Lora is training for a triathlon, taking classes for her DBA degree in research, knitting and quilting for her new granddaughter, and doing tendu (s) and Dégagé (s) to dome her feet for pointe work at the ballet barre. Lora thinks that we are never too old to learn or to push for supply chain excellence.