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The Impact of Industry 4.0 on the Supply Chain

Published on 12/16/2016 | Strategy

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Maximiliano Vargas

Keynote speaker, professor, researcher, author, candidate Ph.D. in Industrial Engineering, research Area Industry 4.0. He is currently Visiting Professor of specialization at the Catholic University of Parana Brazil in Project Management, where he teaches courses in management, risks, scope, time, quality and costs. In addition, he is a senior consultant in Industry 4.0 (Smart City, Smart Factory, Smart Industry), engineering megaprojects management. Professional with over 28 years of operations and 76 technical certifications and management. I have an extensive history of professional consulting in organizational excellence and use of Information Communications Technology; eg Business Management and units, software and hardware industries, development partners and development of people.



Disruptive innovations are currently changing the landscape of many industries and their business models. Because of increasingly digitalized processes and an exponential growth of sensible data, supply chains are also impacted by the fourth industrial revolution. The strategic management requires a more transparent understanding of the currently available and interrelated technologies and concepts. Since the supply chain will obviously undergo an organizational change, a theoretical framework is necessary to understand which activity is impacted from a holistic management perspective. In this paper, the term “Industry 4.0” is defined and its seven characteristic and interrelated features are highlighted. Furthermore, related technologies and concepts are validated to determine their contribution to the future development of the industrial revolution. Out of initially 49, the 15 most relevant technologies and concepts are identified through a conceptual analysis. A theoretical framework is proposed to evaluate key technologies and concepts with respect to their impact on the supply chain. According to Cachon (2012), three interesting hypothesis are stated, concluding on the impact of Industry 4.0 from a structural, technological and organizational perspective. All results are based on a structured literature review.

Industry 4.0 on the Supply Chain

First, the development of steam machines drastically changed the production processes. Electrical drives, combustion engines and the innovative assembly line production systems then initiated the second industrial revolution. The third industrial revolution was mainly characterized by the enormous automation of the production processes (Bauernhansl, ten Hompel and Vogel-Heuser, 2014), which is the basis for the ongoing fourth industrial revolution, where we face complex systems of hardware, datacenters and software components in one single product (Brettel, et al., 2014). Traditional barriers for products and their value proposition are extremely extended and therefore, existent value chains and the respective supply chains are to be rethought (Porter and Heppelmann, 2015).

As an early example, General Electric started a billion-dollar-project in 2011 to install sensors in their production machinery and to invest in product-embedded software (Iansiti and Lakhani, 2015). Whilst many more companies are already investigating how to react to the current trend of implementing “Industry 4.0” technologies and concepts, recent research with re- spect to this term is highly diverse and limited to the operational implementation of technologies and concepts on the production process-level (Herman, Pentek and Otto, 2015).

Visualizes the fact that most scientific papers and articles with respect to “Industry 4.0” can be allocated to cluster A. Here, the research is focusing exploratory questions on how “Industry 4.0” technologies and concepts can be implemented within the company’s supply chain on the process-level (Bauernhansl, ten Hompel and Vogel-Heuser, 2014; Parlikad and McFarlane, 2010).

The confirmatory research in cluster B adds quantitative methods to the analysis and provides implementation models for specific technologies (Mohanarajah, et al., 2015). This paper can be allocated to cluster C, as it widens the horizon of the currently explorative research to the management-level. Based on a structured literature review, a theoretical framework is developed and applied to understand the impact of the fourth industrial revolution on the supply chain from a holistic management perspective. This qualitative analysis will be the basis for further quantitative research in cluster D, where the hypotheses in this paper can be validated in expert interviews and questionnaires.

All research results given in this analyze are based on a structured literature review executed according to Baker (2000) and Cooper (1988). This review includes high-rated international journals which were published since The Impact of Industry 4.0 on the Supply Chain 2010. The following journals were selected according to the VHB-ranking of Hennig-Thurau (Walsh and Schrader, 2014) and their relevancy with respect to the scientific topic: Management Science, Operations Research, Journal of Management Studies, Organization Science, M&SOM, Transportation Science, Information Systems Research. Other scientific databases like EBSCOHOST were added to sources of the literature review, as currently most of the relevant published articles with respect to “Industry 4.0” can be found in scientific magazines and lower-rated journals. Studies published by companies (e.g. consulting firms like Roland Berger) or research institutes were validated as well and bring up interesting hypotheses and results, especially in the German literature. The key words were chosen according to the research topic and the included technologies and methods described within this paper. Articles and studies identified by a keyword- search were first validated by their title, their abstract and then by their content with respect to their relevance. In total, 674 published articles, scientific papers and books were reviewed throughout this analysis.

Management Approach

A management approach is proposed that supports the companies to understand which organizational changes are to be expected for their respective supply chain.

First, the strategists must make the term “Industry 4.0” and its characteristic features more transparent and communicate a common definition to all company members. At this stage, it is important for all executive members The Impact of Industry 4.0 on the Supply Chain of a company to know which levers can be tackled to enable and to streamline the innovation adoption process in the organization and in the supply chain. Helps the organizations by stating a definition of the term “Industry 4.0” and highlighting its characterizing features.

Second, relevant technologies and concepts have to be identified, clustered and analyzed by the corporate management according to their relevancy for the company. Brings up a mind-map of all currently discussed technologies and concepts with respect to the research field of “Industry 4.0”. These are clustered into four dimensions and allocated to the earlier described characteristic features. A conceptual selection process is developed and applied to evaluate the relevancy of all technologies and concepts according to the characterizing features of the term “Industry 4.0”. The strategic management of a company may apply the same approach to identify respectively relevant technologies and structures within workshops.

Third, the management needs to evaluate how their supply chain will be impacted by the relevant technologies, i.e. which challenges and potentials are to be expected with respect to the primary supply chain activities. A theoretical framework that allows the evaluation of the impact of each relevant technology with respect to their impact on the supply chain from a holistic management perspective. At the end, three main hypotheses are proposed after executing the analysis for all relevant technologies and concepts.

Impact of Industry 4.0 on the Supply Chain

The Impact of Industry 4.0 on the Supply Chain is a theoretical framework to assess challenges to and potentials of the supply chain management arising from the fourth industrial revolution. The vertical dimension reflects the supply chain according to MEYR and WAGNER (2004 cited in Kannegiesser, 2008, p. 14) with the categories procurement, production, distribution and sales.

Herewith, core activities in the supply chain are captured. The horizontal dimension is oriented towards the model of LEAVITT (1965, pp. 1144-1170), who has developed a theory with respect to organizational changes and finds answers to the following question: By which variables is the innovation adoption process in a company impacted? According to this theory, every organization consists of four interactive and highly interdependent components: people, task, structure and technology. It is the interaction between these four variables that determines the success of organizational changes.

While the variable “people” obviously refers to the human domain within an organization, this framework includes all human-related issues, from hiring and education of the personnel to the interaction of the organization in social systems out of the borders of the own The Impact of Industry 4.0 on the Supply Chain supply chain. According to LEAVITT, the variable “structure” means all systems of communication, systems of authority, and system of workflow within an organization. 

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