In this lesson, we will discuss disruptive changes that have been caused by the revolution in digital technologies and how that is affecting operations management. So the German government put out a document which talked about how automation and new technologies together are creating what they called Industry 4.0. The idea here is that it's a collection of technologies that are partly automation and partly the digitization of manufacturing factories. The notion of 4.0, comes from the fact that this is supposed to be the fourth industrial revolution. So, to be able to understand why this is the fourth, let's look at the four stages of industrialization. When we look at industrialization, industrialization is supposed to have begun with the advent of steam power and mechanization. So this was the first industrial revolution, this was the 1800s that primarily we are concerned about. The second stage of industrial revolution is the advent of electricity and the advent of mass production. This is where we started looking at having assembly lines of cars being made, the Model T at Ford, for example. This is when truly we started thinking about industrial capacity and industrial production. The next big step in industrialization is what's called the Third Industrial Revolution, and this is starting somewhere around the late 70s and probably into the late 90s where computers became increasingly a part of manufacturing, control operations and automation became more robotic, and where it was computer controlled. Finally, we are now supposedly in a phase called the Fourth Industrial Revolution, hence the term Industry 4.0. Now what distinguishes this from the previous phase is we still have computers, we still have robots, but now we talk in terms of what are called cyber-physical systems. What do we mean by cyber-physical systems? These are machines which have a large number of sensors, are instrumented, and can talk to each other. Since everything is digitized, we have data availability now instead of blueprints. We have information coming in about the health and condition of machinery. We have information coming in about demand. All of that put together is then used to create products and services, and this is what's called the Fourth Industrial Revolution. The term industrial revolution is itself misleading because revolutions are often things that happened over short periods of time. It is expected that what we are looking at now, which is this prevalence of a cyber-physical infrastructure, will continue for a long period of time. Because technology is evolving constantly, the notion of revolution is hard yet it helps us crystallize this notion that now everything is data-driven and everything is digitized. So what do we mean by digitization? So, inherently, digitization is the idea of converting all forms of information into a digital form. So, for example, if I have a song, I can sample that song at a very rapid interval, measure certain characteristics of the sound and then save that and then I reproduce it, and because it has been sampled so fast the human ear is unable to recognize that this is snapshots in time that you are hearing and not continuous music. This is the form of digitization where we are coming up with discretization, we are looking at discrete points in time and then we are quantizing whatever information there is at that point in time. We can do this with video, we can do it with images. So now, instead of having blueprints, I can have digital information that allows me to recreate a blueprint. Now, the term digitization itself means the conversion of analog information into digital information, but digitization is used more broadly. In fact, if you look for the term digitization, you will see a lot of semantic arguments about should it be digitization or digitalization and is digitalization different from digital transformation? Some of these arguments are interesting if you like those kinds of semantic arguments but inherently, our concern is about this notion that we now have information that can be easily transmitted back and forth via electronic means and can be recreated as required. So, what is the effect of this digitization or digital transformation on the supply chain? So when we think in terms of the supply chain, we have instead of the old way of thinking where we had assets that were owned by a company and that company then had to worry about managing those assets, we now have assets that are scattered everywhere and those assets are being used to help the customers. So inherently, at the center of our universe now is the customer instead of the customer being at the end of a long chain or a long supply chain. So, we now have the customer at the center of our universe, we try and get information from the customer and use it for the different parts of what constitutes a supply chain. On the one hand we have sourcing, in between we have manufacturing, and then finally we have delivery or logistics. However now, each of these core functions of a supply chain are digitized. So when we think in terms of digital sourcing, all the information about inventory is now maintained in the form of digital records, and those digital records can be available to not only the company that owns the inventory, but may be available to the suppliers of that inventory and may also be visible to the customers. Because of this, there now is the ability for customers to figure out where they should source it out of inventory that might be present in a variety of different locations. That same inventory, because it's visible to our supplier, allows our supplier to decide when they should produce more as they see the depletion of inventory. Because of this availability of information about inventory as well as about different products, it is now possible to have e-commerce. It's along with e-commerce, we can have auctions which allow companies to now build on business when they see that inventory is low, they can try and provide you with inventories through auction mechanisms. If I end up with too much inventory, I can auction off some of this inventory to somebody else who might be in need of this. We are able to create what are called supplier portals through which we communicate with our suppliers. So the fact that we have digital information, that we can transmit information about parts and processes in a digital fashion, allows us to now communicate with not a single but a multitude of suppliers and a multitude of customers at the same time. As far as the processing part of supply chains is concerned, we now can think in terms of smart manufacturing. New technologies such as 3D printing are changing the way we think in terms of maintaining inventories of parts. We may no longer have to produce the parts ourselves, all we may have to do is give permission to a customer who has a 3D printer to actually produce a part that we own. So no longer is there an inventory and we don't even have to worry about the process of manufacturing that part, somebody else is going to do it, all we do is give them permission to use a digital image of the part that they are trying to produce. We now have robotics. We have robots that are able to communicate with each other, robots that can sense, robots that can detect when they are doing some things wrong, when the process isn't working quite well. We have automation. We've had automation for many years now, but this is now smart automation. We have a programmable automation, we have the ability to take an automated factory and reprogram it to make a different kind of product. So there are a large number of different technologies that are available to us. Our machines are becoming smarter. They have sensors that are built into those machines so we can monitor the performance of machines and predict when the machine is likely to start making defective parts and take proactive action ahead of time. Because of the digitization of both the parts and the machines, it is possible to create simulations of the entire factory to understand what would happen if we were to use a different mode of operations for these machines. We are able to make changes to engineering drawings and see how the factory would react if we were to make such a change. Because of this, the speed at which new developments can be made, the speed at which new products can be produced, the speed at which products can be changed is rapidly increasing and that's changing the way we think in terms of operations. On the logistics end, things are becoming even more exciting. We are now able to track all our inventory, not only violates within our own premises but as it is shipped out, we can track where it is at all times. We have RFID technology that allows us to be able to figure out what's inside a package without actually opening a package. So when a truck goes into a warehouse, we can figure out what's inside the truck without anyone physically having to go in and inspect the truck. We are able to track our transportation assets. We are able to monitor our transportation assets. We are able to monitor the drivers who are part of our transportation system. We are able to keep track of inventory dynamically. One of the things we talk about when we talk about inventory management is this notion of inventory position. Inventory position is whatever inventory we have on hand plus whatever inventory we have ordered. In the old days, however, we didn't have any sense of where that on-order inventory was in the pipeline. Now we can track that so we know exactly when it is supposed to come to us and if there are to be any delays we can take corrective action about it. We can look at what kinds of capacity is available for transportation and what kind of capacity is available and try and load match. This is something that's done in service industry, for example something like Uber. Now Uber has decided to move into freight so that some of the same technologies that Uber uses dynamic pricing or surge pricing that allows it to level demand and capacity will now be available for freight. It's possible to have updates from all our transportation assets so that we know where different things are at different points in time. Finally, new technologies such as blockchain technology allows us to do track and trace so that there is verifiable evidence that the supply chain has not been tampered with. To aid in all of this, there's a whole variety of new enabling technologies that have been created. We have what we'll call the Industrial Internet of Things, which is essentially machines talking to other machines within manufacturing facilities. We then have the Internet of Things which allows us to step out of the factory and into people's homes where we can now monitor what is going on with devices within people's homes, and moreover we have devices now that are worn by humans that allow us to monitor those humans. All of this information coming out of these devices is now stored in what is known as the cloud and we now can take that information and do analysis on that information remotely and continually because the amount of compute power available to us has grown exponentially. Any of this analysis that is done can now be accessed remotely and almost continuously because of devices that we have that allow us to connect to the Cloud almost on a continual basis; this is what is known as ubiquitous connectivity. Finally, having this connectivity, having access to all this data would be pointless if we couldn't do something with that data and this is where the whole trend towards big data analytics becomes important. We are now able to do what is known as predictive analytics, which allows us to look ahead and say what kind of demand are we going to get, what kind of failures are likely to occur in our machinery? So the fact that we can predict that allows us to be proactive. We have what is known as prescriptive analytics now which allows us to figure out, if I'm running a particular machine and I see the machine drift, it tells me what changes should I make so that the machine can be brought in line with whatever the nominal was. Having these abilities now means everything that we were thinking about in terms of operations and everything that we've talked about in terms of operations is now going to require a certain amount of rethinking. It's an exciting time but it's also a time where companies are fearful because any of this set of new technologies and enabling processes could disrupt the industry that a company is in. It's time for fear, but it's also time to create a whole lot of value and so part of our module is to think in terms of how all these different technologies allow us to rethink in terms of what operations management is going to be in the future.
