What's next for Manufacturing
[MUSIC] >> Hello and welcome. I'm Caglayan Arkan, Vice President of Manufacturing at Microsoft. It's such a great pleasure to be at the digital edition of Hannover Messe. A week full of amazing content, virtual roundtables, videos, lots of demos, remarks of customers, partners, and experts, lots of insights. The pandemic prevented us from gathering last year. I'm excited to be back, although I must admit I'm still missing the real Hannover Messe, the in-person, the buzz, the energy.
I even miss the fatigue during, really, in those five very, very long days. But hopefully, we'll get back to it and we'll get to the in-person, the touch, and looking forward to it. Talking about the pandemic, it was a major disruption for manufacturers and supply chains. It was almost like a slap in the face as I characterize it. Lack of visibility into operations, you can't have your people in the shop floor running stuff, you don't see your suppliers, you don't even know if they're healthy financially, if they're operational, etc., and it was a major moment for all of us.
Perhaps a silver lining to it all, we are now seeing accelerated investment in digitalization, manufacturing, and supply chains because no one wants to be caught in the next disruption, the next crisis the way we did. Everyone is standing up digital twins, creating digital manufacturing capabilities, enabling remote operations, etc., and we're in the middle of it then, for the most part, this is today's conversation.
But we'll do it in the context of the Global Lighthouse Network and look at the art of possible from that perspective in terms of the whole program that is being driven by the World Economic Forum, McKinsey & Company, and we are privileged to be part of it. I'll just pick up one example, Johnson & Johnson setting the bar on innovation, speed to market, sustainability with multiple Lighthouse plants as part of this program. We had the great privilege of hearing from Alex Gorsky, J&J's Chairman and CEO, and Microsoft's very own Satya Nadella kicking off the recent Lighthouse Network and sharing learnings, and emphasizing the importance of digital to build resiliency.
Why don't I pause here and play an excerpt from this amazing conversation from these two leaders, and note that the full-on-demand replay will be available at the Microsoft Cloud for manufacturing, and we'll talk more about that later. Let's play the video. >> I think this pandemic has really forced all companies across every industry to transform with a real sense of urgency including and especially this manufacturing and supply chain side of things. What must organizations do to accelerate their digital transformation out of the pandemic? If you look forward, on that other side, what are you seeing? A new frontiers for technology advancements, for manufacturing and supply chains. You've got such a unique perch.
What do you think will the world really require from tech to succeed? >> Now, that's a fantastic question, Alex. I mean, one of the things that I look back even in the last year, in the first phase, we became, I'll call digital first responders to all the first responders out there. Whether it was in health care, retail, critical manufacturing because all of them have to still continue to be productive, doing the things to support both the economic activity and the daily lives of our societies. We learned a ton, or even education.
I mean, who would have thought that the entire world is going to go to remote education in a period of a month. We learned a lot. I even shudder to think, Alex, what the world would've looked like, but for perhaps the current paradigm of technology.
In our case, let's say, the Cloud. Without the Cloud, I don't know how Microsoft would have functioned, but let alone how the world that we saw would have functioned. I feel that resiliency driven by digital technology is now become paramount, like the next tail event, none of us can predict what that is. But one thing is for sure, that the way we will have resilience is by having this digital capability because it's, in some sense, the malleable resource. Now, the interesting thing though is, what is this next phase of digital transformation? I sometimes talk about it as is the second wave of digital transformation.
It's really structurally changing industry. Like in physical retail, there's no going back from curbside pickup or contactless shopping, or in health care, no outpatient visit will start without an AI triage tool to telemedicine and then an outpatient visit. But same thing in manufacturing too.
One of the things that we're learning is, let's say, even what you were doing. One of the things I learned in J&J's, you're putting all these IoT capabilities right in the plant which you've done for a long time. But you know what? You're even doing it for all the manufacturing capability you're sourcing now outside so that you can have the digital footprint of that outsource capacity so that you can manage quality.
I mean that ability to use computation at the edge to really make manufacturing more efficient or what Unilever was able to do, Alex, was make sure that they have digital twins for 140 odd plants of theirs so that they can do complete lights out manufacturing. I mean, it's just so, again, raise digital technology. The other thing perhaps I've seen is first line workers in manufacturing learning these new tools like Power Platform or what have you. Think of it like Excel change knowledge work. Now, we have these low-code no-code tools that are enabling domain experts to do automation at the edge so that they can continue to drive productivity. Amazing amount of digital technology adoption to overcome the constraints of the pandemic is I think what's going to be a dramatic shift.
You started the entire conversation by saying consumer expectations have changed. Everybody's going to expect more personalized services and products. Same thing with employees, and so that's I think what's going to be really transformative going forward.
>> Exceptional learning. Two amazing leaders leading the way when it comes to digital manufacturing and supply chains. To accelerate the transformation we just heard about, Microsoft is investing in what we call industry practice scenarios across the entire manufacturing and supply chain like the whole value. Continuum from the employees, of course, transforming the workforce and bringing them along into the digital era from industrial, engaging customers in new ways. Pandemic taught us online is here to stay. Building agile factories as in digital manufacturing, digital twins, remote operations, creating resilience supply chains, all the way to autonomous and sustainable supply chains, and, of course, unlocking innovation, and revisiting design and engineering, and innovating at service levels.
All of these are part of Microsoft's portfolio together with the Partner Ecosystem. What we've announced recently is that Microsoft Cloud for manufacturing is going to bring this all together. It's now a new Cloud, it's not a separate Cloud, is just a way of us bringing it all together, together with the partner ecosystem, making it friction-free, making it real, moving from a technology-out discussion and relationship to a business value in, a customer in type of relationship. We are going to be public preview by end of June, and then we're going to bring it to life together with our partners and customers, and one use case after another, one workflow after another, one scenario after another. Again, it's all about value extraction and business value and it's all about time to that value. That's the discussion, that's most of our Hannover Messe content across all of the demos, and roundtables, and keynotes.
Today, on that very same note, let's look at more deeply at the lessons learned through what World Economic Forum and McKinsey & Company had been driving in the case of Global Lighthouse manufacturing. I love Global Lighthouse Network and engaging many factors. My special guest today is Enno de Boer, my friend and partner in crime, and Partner at McKinsey & Company, and he leads the firm's global work in digital manufacturing, works very, very closely with the World Economic Forum driving that Lighthouse program. Enno, welcome.
>> Thank you, Caglayan. It's great to be here today and to talk about the Global Lighthouse Network. There are now 69 Lighthouse on our platform. They are spending across several industries across all geographies. It's quite amazing what they are bringing on and how they are resetting the industries in terms of agility, speed to market, resilience, but also eco-efficiency.
When we had our Lighthouse live event, we talked to many of the CEOs of these Lighthouses, and what is interesting is that manufacturing has become really a competitive advantage for these organizations, even more through the pandemic that we're going through, and it's not anymore, manufacturing is about cost reduction. It's really about how do you can with that drive sustainable growth. We did a recent study about 50 Lighthouses, and we found that 93 percent of these Lighthouses are driving revenue growth through digital. They are doing this either through increasing the output in their factories, in their supply chains or by enabling new business models.
We also learned that over 51 percent are driving sustainability and having an incredible impact on sustainability. A lot of progress we are seeing at the Lighthouse network. Glad to be here and talking to you in a little bit more depths about it. >> The numbers you talk to, Enno, are just fascinating.
I know for every Lighthouse, you just focus on the outcome, the value driven by way of applying digital capabilities to that particular use case. I remember the days, I think it was three years ago when you first published that report with the first 11 Lighthouses. It's fascinating to see the pace with which they grow, it's fascinating to see the momentum in terms of all these manufacturers coming on board and saying they want to be audited to be the next Lighthouse. It's fascinating to see J&J again with five plants and moving all the way to sustainable operations and making progress. But I'm equally excited if not more, that we're now seeing scaling out. We're going from one plant and one Lighthouse, actually that Lighthouse lighting up.
The environment and more plants coming into the picture and customers just doing more because the value extraction will be when you go global with it, that is when you achieve billions of dollars of savings or free cashflow or quality improvements or top-line revenue as you said, for the 93 percent of the participants. What are some of the insights of the learnings, some of the examples that you can share with us, Enno, from the 69 Lighthouse operations that we are now looking at? >> Let me talk first about the importance of the Lighthouse network and why is it so important and why are we already in the fourth year on this? It's really these Lighthouses create a window into the future of operations, in the future of production. When we started it, we felt there needed to be a place where people could go and see and learn from. Similar to the lean days when everyone would travel to Japan and then come back and apply their own learnings and develop their own production system. Now, we are seeing a new digital production system evolving and we've a little bit created the Japan of digital manufacture with the Lighthouse platform, I would say.
It's really interesting how all of these are opening their doors and allowing others to learn from how to create impact at scale, but also how to do the journey and how to take the workforce along. Why is it so exciting to be part of this program? I think, first of all, we have created this community of front runners, and we've created a little bit of a formal effect. People are feeling of missing out, they want to be part of the network because the peers are learning faster with exchanging, but also a lot of CEOs have used our platform and also the Lighthouse ambition to set their own internal envision and say look, "I want that my organization makes progress on the journey, I want to create my own Lighthouse." That becomes somehow a milestone on their digital journey, and then once they're achieving that milestone, they celebrate, and we have many Lighthouses that you talked about Johnson & Johnson, they have now five Lighthouses on the platform. Others have two, three.
Companies are bringing more Lighthouses on. They are setting more milestones. I think that's very exciting. What are we learning from these Lighthouses to your question? I think a couple of things. First of all, if we look at the 15 new Lighthouses, they have created, in many dimensions, impact at scale.
Let me give you a couple of examples. First of all, we celebrated the Bosch Wuxi factory as a new lighthouse on the platform. That sign was known in the Bosch network as one of the role models in the lean transformation. Now, I get a lot of questions on, is lean and it's digital transformation is this going hand in hand? I think this is a learning and an example of how this goes hand in hand, how digital tools enabling organizations that are at the forefront of lean to go the next step.
Another good example is Erickson. They went all in. They said like, ''Look, we want to create something special in the US, in Dallas Texas, we want to create the first 5G Lighthouse.'' They brought in Modernized Cloud-Based Architecture actually with Azure, they use that and they took that and that enabled them to bring on new use cases faster than anyone else.
They also used agile methodology to work in sprints with minimum viable product. Within a couple of months, after nine month, they were able to bring 25 use cases to life, and with that drive fundamental impact, 120 percent productivity increase, 70 percent faster product delivery times, and 50 percent less inventories. These impacts you cannot achieve without digital. Really exciting stuff. Another example is Foxconn. Foxconn, known as one of the leading electronics manufacturers.
Now they were able in their lighthouse to triple their labor productivity and that's already from a good state only possible with artificial intelligence, mixed reality, IoT, so bringing the best of digital technologies to augment their operators to get more productivity and then lastly but not least, J&J are very excited to have now their fifth Lighthouse on the platform and that one is the first one that is totally CO_2 neutral in Helsingborg in Sweden. I think that's an exciting example. I could go on and on Caglayan but I think everyone of our 69 Lighthouses has very specific learnings.
Learnings on how they create impact at scale but also on how they go through their journey. >> Yeah, brilliant, fantastic examples Enno, and I'm so proud of us in terms of we heard it from Alex and Satya as to how J&J and Microsoft are looking at one another for this journey together. We just announced our strategic partnership with Foxconn only recently and I'll pick on Erickson a little bit more. For one, it is a Greenfield digital factory but our partnership and what we bring to the table as the Microsoft ecosystem and digital manufacturing and supply chains is not limited to Greenfield. Actually, Erickson is probably the only Greenfield implementation that we have, but it's the Brownfield that is our reality.
We are equally fast and equally impactful when it comes to our three-way partnerships with our customers. Secondly, I said I'm excited about scaling out but you're making a good point in the case of Erickson here. There's also scaling out or scaling up of use cases. It's not about just going after one use case and seeing, celebrating success in terms of "Hey, we should resolve this value improvement," it's about one use case after another.
It's typically 25, 30, if not more, just indicates one plan so that you can really change how you work, you can really change how we interact with your employees, you can really change how they operate and so that's the other point that I'd like to make. Enno, I'd like to double-click a little bit on the importance of the network and also some of the learnings and takeaways or maybe pillars of transformation that you can summarize for us so that it becomes a little bit more repeatable, more actionable for the audience here. >> Yes, so I think that the important thing is here, we are 69 Lighthouses and I think that's great, but we have 10 million factories around the world and while these Lighthouses are racing ahead, we're seeing that the majority of the manufacturers are stuck in pilot purgatory and I think that the fascinating thing about the Lighthouses and to study and learn more about them is to study how do they scale? What is their secret source to scaling? What we found is that there are six scale-up enablers that we have finding over and over again in these Lighthouses. Number one is, we talked about this. You need somewhat a modernized Cloud-Based Architecture because you want to bring several first 20 use cases, but more on and that needs to go fast. Secondly, you need to have an agile approach, you cannot work wait for perfection.
You need to bring them on with minimum viable products in releases. Thirdly, you need to have a tech ecosystem that is working with you. Most likely one partner will be not enough. You will have an entire tech ecosystem that is enabling you, that you're working with. You need to figure out how you up-skill your workforce. We, for example, learn from HP.
They were upskilling a third of their workforce and what was fascinating how they took operators and operators became technical specialists and then technical specialists became engineers. Then lastly, I would say you need to have some transformation office that makes sure that there is real value assurance and governance and that you're staying on track with your transformation. The strategy that you're setting out, that it's really executed. A lot of scale up enablers that we're finding and we're seeing that scale is the most important thing that companies need to watch out because one pilot is easy, one use case is easy.
The question is, how do you scale this across your entire network and then across your entire ecosystem with suppliers and customers you are working with. >> Brilliant points. Music to my ears I will say. I mean, HP's example on the workforce is just tremendous. This is one thing that we all need to lean in as an industry with all the players.
I love, your reference to Cloud architecture and I will say this is all aligned with Microsoft's investments. I mean, you talk about partnering ecosystem and Microsoft Cloud for manufacturing is actually going to be designed to that so that we make it friction-free. We bring every single niche or otherwise IP to bare, make it easy, make it line up every use case, line up every plan, line up supply chains one after the other so that we can make value extraction and realization easy, quick, and then scaling up obviously, very easy.
It is happening now, take action; cycles or weeks. The investment is there, actually everything that we talk about in terms of the agility and the capability is create that economic headroom for innovation. Microsoft and Microsoft's ecosystem of partners are able to invest and they'll walk to talk with you through your journeys and the rewards are in the billions. I don't know what else that we can say, what other investments we can make other than just making it happen worth and for all of you.
Stay updated on the on the Microsoft Cloud for Manufacturing again. End of June will be a public preview and then we'll build it all together with the ecosystem. I encourage everyone to watch on-demand replay of Satya and Alex keynote for the Global Lighthouse Network. Enno, I cannot thank you enough for the partnership and today's conversation for sharing the insights, the learnings, and actually offering up well for further engagement across the enterprise customers that we have in terms of manufacturing and supply chains. We're looking to more transformation, more innovation, and making the art of possible, possible in this coming year and beyond.
>> Thank you, Caglayan. Thanks to everyone for watching. Stay tuned, more to come, and reach out if you want to learn more.
>> Be Safe. Thank you. >> [MUSIC]