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Korean manufacturing’s digital transformation must escape ‘pilot purgatory’

At the 2019 Yearly Conference of the New Champions (Summer time Davos Discussion board) held in early July in Dalian, China, the Environment Economic Discussion board (WEF) chosen 10 manufacturing areas, together with 1 from South Korean steelmaker POSCO, as “lighthouse factories”—plants that guide the long run of manufacturing, just as a lighthouse shines across the sea. Since 2018, WEF has selected this sort of lighthouse factories from amongst 1000’s close to the globe to join the worldwide Lighthouse Community, a WEF project in collaboration with McKinsey.

The lighthouse factories have built innovative overall performance enhancements by proactively adopting Fourth Industrial Revolution systems, these kinds of as big data, artificial intelligence (AI), and the Internet of Things course (IoT course). Whilst a full of 26 lighthouse factories have been chosen to date, this is the 1st time that the list integrated a South Korean company. POSCO received substantial scores for acquiring used AI know-how to establish a good manufacturing unit platform, such as programs these as a sensible blast furnace and an AI-based mostly method for coating-bodyweight management.

Other lighthouse factories illustrate how digitization of a company’s entire worth chain, not just its producing strategies, can change its all round small business model. Chinese vehicle manufacturer SAIC Maxus of SAIC Motor designed a new manufacturing system that quickly manages getting, generation, stock, and logistics primarily based on each and every customer’s personalised purchase info. This significant-scale, customized generation system—established with small additional capital—led to growth that is additional than 25 per cent speedier than that of the brand’s competition.

With brands experiencing an progressively uncertain company atmosphere marked by climbing wages, trade conflicts, buyer requires for customization, improved volatility in trade rates and raw-material charges, and stricter ecosystem and labor rules, ahead-hunting technological improvements are supplying tangible answers. Making use of Fourth Industrial Revolution systems, lighthouse factories have been able to enhance output by up to 200 percent and maximize productivity by up to 160 p.c when reducing stock ranges and instances to answer to consumers by up to 90 p.c.

South Korea’s manufacturing output, which ranked 25th in the globe in 1980, now jumped to fifth-most significant right after China, the United States, Japan, and Germany. It is one particular of the couple countries, alongside with China, in which production accounts for more than 30 percent of the nationwide economic system. This implies that a turnaround of the South Korean overall economy is tough to think about with out the transformation and revival of its manufacturing sector.

Gradual enhancement is not what is necessary for South Korean manufacturers, which are seeing stagnant development and efficiency in an more and more hard economic environment—the proverbial frog in a pot of boiling h2o. What the Korean financial system demands is a complete transformation as a result of digital technologies. But far more than 70 per cent of organizations that have tried digital transformations have found them selves trapped in the pilot stage, usually for years on conclusion. This phenomenon is so widespread that the phrase “pilot purgatory” was coined. Businesses carry out pilot soon after pilot, timid due to the fact of fears about small-expression expenses and absence of assurance about effects.

The phenomenon is significantly visible in international locations with comparatively significant stages of manufacturing unit automation, this kind of as Japan and South Korea. Producers in these nations facial area greater ranges of uncertainty about the stage of enhancement that can be reached when when compared with their counterparts in nations these as Brazil, China, and India. If the position quo persists, South Korean production might uncover itself not just somewhere in between the foremost nations (these kinds of as Germany, Japan, and the United States) and the rising nations (this sort of as China and India) but left at the rear of in the world level of competition.

South Korea’s production sector now has an excellent basis. Now it demands the addition of an engine of innovation—not just technological innovation but a daring, properly-prepared transformation of innovation throughout operations, business, and small business products.

This post appeared in the Chosun Ilbo on July 30, 2019, and is translated and reprinted right here by permission.

About the creator(s)

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