Industry 4.0: Is PH Ready?

This article was originally published with The Manila Times on April 25, 2019.

Industry 4.0 or the Fourth Industrial revolution optimizes what the Third Industrial revolution has brought us. Computerization from Industry 3.0 brought forth an entirely new technology which is what Industry 4.0 is leveraging on. Think of Industry 4.0 as further automating those processes such that systems can communicate with each other without necessarily requiring human involvement. This is the prelude to a smart factory set to become one of the end results of an organization adopting Industry 4.0. In a nutshell, Industry 4.0 is the automation and data exchange in manufacturing technologies.

There are a number of applications comprising the framework, among which include 1) cloud computing 2) mobile technologies 3) machine to machine 4) 3D printing 5) advanced robotics 6) big data/analytics 7) internet of things 8) RFID technologies 9) cognitive computing and 10) cybersecurity. All of these applications provide efficiency to the production process of a manufacturing organization.

Two key areas on the future of production capabilities include structure of production and drivers. How complex and how can an organization scale define the structure while components such as technology and innovation (the ability to innovate), human capital (how is the current workforce looking compared to how it should look like in the future), human trade and investment (infrastructure plays a key role here), institutional framework (how is the government aligned with this), sustainability resources (how can we sustain this) and demand environment (how is the demand looking and who is our consumer base) remain to be the drivers of production.

It will be prudent to understand how the Philippines compares to other nations as far as production is concerned. In the Readiness for the Future Production report provided by the World Economic Forum in 2018, there are four country archetypes: first is the high potential (simple structure of production and favorable drivers of production) countries which have Australia, Hongkong, Norway and UAE as those belonging in this quadrant; leading (complex structure of production and favorable drivers of production) countries such as USA, Germany, Japan and Singapore; nascent (simple structure of production and unfavorable drivers of production) countries such as Indonesia and Brazil, and finally legacy (complex structure of production and unfavorable drivers of production) which has India, Mexico, Thailand and the Philippines.

The Philippines scored 6.1 out 10 in this assessment which highlights the unfavorable drivers of production and complex structure as prevalent and existing conditions in the industry.

What are the risks and challenges given how the Philippines is positioned in the assessment? The country may be squeezed between more advanced leading countries, which can then offer more advanced manufacturing, and nascent countries that can offer lowest cost of labor. We are in between Singapore and Indonesia, as an example, which could put us at a disadvantage given the leverage both countries has over us. The Philippines risks losing traditional manufacturing share to nascent countries given that they can offer cheaper labor. The country also risks being unprepared to capture advanced manufacturing share in the near future by not investing on the drivers for the future of production. This could lead to premature industrialization.

However, the risks presented also provided call to action and opportunities to mitigate such. To prepare for the future of production, there are key areas to be considered at the macro level: First, our country needs to reskill and upskill workers. Given that a lot of these processes will be automated in the future, it is wise to start thinking about reskilling and upskilling the labor force. Second, there is a need to upgrade technology platforms and seek frugal innovations. There are technological capabilities out there available already to start introducing innovations in the organization to propel readiness to what lies ahead. Third is to ensure that the fundamental building block of good governance is in place. This is where we need our government to be aligned with where technology is leading and how our industries will be impacted in the next years to come.

The country can likewise accelerate readiness and transformation by utilizing the private sector more actively in tackling macro level challenges.

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Kay Calpo Lugtu is the COO of Hungry Workhorse, a digital and culture transformation firm; Co-Founder of Caucus, Inc. and Deputy Director of Global Chamber Manila. Her advocacies include data privacy, financial literacy, and nation-building. The author may be reached at kaycalpolugtu@hotmail.com.