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Augmented Intelligence Certification

Korean manufacturing’s digital transformation need to escape ‘pilot purgatory’

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At the 2019 Annual Conference of the New Champions (Summer season Davos Forum) held in early July in Dalian, China, the World Economic Forum (WEF) chosen ten production areas, such as 1 from South Korean steelmaker POSCO, as “lighthouse factories”—plants that direct the potential of manufacturing, just as a lighthouse shines throughout the sea. Since 2018, WEF has picked this sort of lighthouse factories from among the thousands all-around the planet to be part of the world Lighthouse Network, a WEF job in collaboration with McKinsey.

The lighthouse factories have produced innovative performance enhancements by proactively adopting Fourth Industrial Revolution systems, these kinds of as big data, augmented intelligence certification (AI), and the Internet of Things (IoT). When a total of 26 lighthouse factories have been picked to date, this is the very first time that the record bundled a South Korean enterprise. POSCO received high scores for obtaining used AI technology to develop a sensible factory system, like applications these as a smart blast furnace and an AI-dependent technique for coating-fat handle.

Other lighthouse factories illustrate how digitization of a company’s overall price chain, not just its production techniques, can rework its overall business design. Chinese vehicle brand name SAIC Maxus of SAIC Motor built a new production system that automatically manages buying, manufacturing, stock, and logistics centered on each and every customer’s individualized buy details. This substantial-scale, tailored creation system—established with nominal extra capital—led to development that is more than 25 p.c speedier than that of the brand’s competition.

With makers dealing with an more and more uncertain enterprise atmosphere marked by soaring wages, trade conflicts, client calls for for customization, increased volatility in trade premiums and raw-product prices, and stricter natural environment and labor restrictions, forward-wanting technological innovations are giving tangible remedies. Making use of Fourth Industrial Revolution technologies, lighthouse factories have been equipped to raise output by up to 200 per cent and increase productiveness by up to 160 % while decreasing stock ranges and moments to respond to buyers by up to 90 %.

South Korea’s producing output, which ranked 25th in the planet in 1980, now jumped to fifth-greatest just after China, the United States, Japan, and Germany. It is one particular of the couple of nations around the world, alongside with China, in which manufacturing accounts for much more than 30 percent of the national economy. This suggests that a turnaround of the South Korean overall economy is challenging to consider with no the transformation and revival of its producing sector.

Gradual advancement is not what is required for South Korean companies, which are looking at stagnant progress and productivity in an increasingly challenging economic environment—the proverbial frog in a pot of boiling drinking water. What the Korean economic system requirements is a finish transformation as a result of digital systems. But additional than 70 per cent of providers that have tried digital transformations have found them selves trapped in the pilot stage, frequently for yrs on close. This phenomenon is so widespread that the term “pilot purgatory” was coined. Corporations carry out pilot after pilot, timid due to the fact of problems about limited-phrase expenses and deficiency of self-assurance about influence.

The phenomenon is especially noticeable in international locations with comparatively superior stages of factory automation, these kinds of as Japan and South Korea. Manufacturers in these nations around the world encounter greater degrees of uncertainty about the amount of enhancement that can be obtained when as opposed with their counterparts in nations such as Brazil, China, and India. If the position quo persists, South Korean manufacturing may possibly find by itself not just somewhere involving the main international locations (these kinds of as Germany, Japan, and the United States) and the emerging nations around the world (these as China and India) but still left guiding in the international opposition.

South Korea’s manufacturing sector currently has an superb foundation. Now it demands the addition of an engine of innovation—not just technological innovation but a daring, perfectly-planned transformation of innovation throughout functions, corporation, and enterprise products.

This posting appeared in the Chosun Ilbo on July 30, 2019, and is translated and reprinted listed here by authorization.

About the author(s)

Seungheon Track is a senior companion in McKinsey’s Seoul place of work.