Research Assistant, Textile Focus
Industry 4.0, a buzzword nowadays, generally stands for “fourth industrial revolution.” While industry 3.0 focused on automation of single machine & processes, industry 4.0 focuses on end to end digitization of all physical assets and integration into digital ecosystems with value chain partners. So, in a precise way, it can be said that industry 4.0 is the integration of data, artificial intelligence, machinery, and communication to create an efficient industrial ecosystem that is not just automated but intelligent. Big data, cloud computing, IoT, cybersecurity, simulation, etc., are the rudimentary pillar of industry 4.0 implementation. This article explores how system integration, one of the essential pillars of industry 4.0, basically vertical & horizontal integration, is vital for industry 4.0 implementation.
System Integration, Vertical and Horizontal
In the world of business growth strategy, veticle integration involves acquiring companies that bring new capabilities to the table to reduce manufacturing cost, secure access to essential supplies, respond faster to new market opportunities, and more. When it comes to production, verticle integration means that the production floor is tightly coordinated with high-level business processes such as procurement, quality control, etc. Now let’s come to the point that what is verticle integration in industry 4.0. Vertical integration in industry 4.0 aims to tie together all logical layers within the organization. In a broad sense, Industry 4.0 digitizes and integrates processes vertically across the entire organization, from product development and purchasing, through manufacturing, logistics, and service. All data about planning, operations, process efficiency, and quality management are available in real-time, supported by augmented reality, and optimized in an integrated network. A recent survey report shows that 2,000 persons from nine major industrial sectors and 26 countries, verticle integration, are highly sought after development in the next five years.
Let’s have a look at an example of a company, Zara, that implements verticle integration. While competitors like H&M and the GAP have resorted to purchasing clothing from outside suppliers, Zara didn’t. They have been able to combine the design, manufacturing, and retail parts of its supply chain to create an ultra-quick production and distribution channel that has allowed them to make and sell many more collections a year than its competitors. In fact, the flexibility that Zara’s vertical integration has provided the brand has given it a step up on competitors due to how fast it can turn out new products and go with the flow of consumer trends.
Again, horizontal integration refers to the acquisition of companies that address the same customer base with different but complementary products or services. In this way, the acquiring company can increase market share, diversify their product offerings, etc. When it comes to production, horizontal integration refers to well-integrated processes at the production-floor level. In terms of industry 4.0, Horizontal integration stretches beyond the internal operations from suppliers to customers and all key-value chain partners. It includes technologies from track and trace devices to real-time integrated planning with execution. This horizontal integration takes place on several levels. These are:
Across the entire supply chain- Industry 4.0 proposes data transparency and high levels of automated collaboration across the upstream supply and logistics chain that provisions the production processes themselves as well as the downstream chain that brings the finished products to market. Third-party suppliers and service providers must be securely but tightly incorporated horizontally into the enterprise’s production and logistics control systems.
On the production floor- always-connected machines and production units each become an object with well-defined properties within the production network. They continuously communicate their performance status and respond autonomously to dynamic production requirements. Across multiple production facilities- If an enterprise has distributed production facilities, Industry 4.0 promotes horizontal integration across plant-level Manufacturing Execution Systems. In this scenario, production facility data are shared seamlessly across the entire enterprise. Where possible, production tasks are shifted automatically among facilities to respond quickly and efficiently to production variables.
The survey report also shows how horizontal integration is forecasted to be adopted by industries in the next five years.
Let’s have a look at an example of a company, GAP Inc, that implements horizontal integration. GAP Inc. controls three different companies: Banana Republic, Old Navy, and the mentioned GAP brand. Each company has stores that sell garments designed to meet the needs of different groups. Banana Republic sells higher-cost clothing with a high-end image. GAP stores sell moderately priced clothing that targets men and women of all ages. Old Navy sells affordable clothing, especially to children and youth. Using these three companies, GAP Inc. has successfully controlled a large retailing segment in the textile sector.
Industry 4.0 brings together cutting-edge data analytics, machine learning, and artificial intelligence technologies to streamline and customize manufacturing processes. Such integration’s measurable benefits include lower production costs and the enhanced ability to cost-effectively manufacture small customized batches—all without detracting from the highest quality standards. The next article will discuss the challenges of implementing vertical & horizontal system integration and the blueprint of implementing such an integrated system.
- Industry 4.0- how to navigate digitization of manufacturing-Mckinsey&Company
- Industry 4.0 – building your digital enterprise by Reinhard Geissbauer, Jesper Vedso, Stefan Schrauf