Sharing information across company borders in industry 4.0

Voigt, Kai-Ingo; Müller, Julian; Veile, Johannes; Schmidt, Marie-Christin Conference Paper Sharing information across company borders in industry 4.0 Provided in Cooperation with: Hamburg University of Technology (TUHH), Institute of Business Logistics and General Management Suggested Citation: Voigt, Kai-Ingo; Müller, Julian; Veile, Johannes; Schmidt, Marie-Christin (2019) : Sharing information across company borders in industry 4.0, In: Kersten, Wolfgang Blecker, Thorsten Ringle, Christian M. (Ed.): Artificial Intelligence and Digital Transformation in Supply Chain Management: Innovative Approaches for Supply Chains. Proceedings of the Hamburg International Conference of Logistics (HICL), Vol. 27, ISBN 978-3-7502-4947-9, epubli GmbH, Berlin, pp. 57-85, https://doi.org/10.15480/882.2465 This Version is available at: https://hdl.handle.net/10419/209369 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-sa/4.0/ Proceedings of the Hamburg International Conference of Logistics (HICL) – 27 Kai-Ingo Voigt, Julian M. Müller, Johannes W. Veile and Marie-Christin Schmidt Sharing Information Across Company Borders in Industry 4.0 Published in: Artificial Intelligence and Digital Transformation in Supply Chain Management Wolfgang Kersten, Thorsten Blecker and Christian M. Ringle (Eds.) September 2019, epubli CC-BY-SA4.0 Keywords: Industry 4.0, Industrial Internet of Things, Supply Chain Management, Information Sharing First received: 19.May.2019 Revised: 19.June.2019 Accepted: 26.June.2019 Sharing Information Across Company Borders in Industry 4.0 Kai-Ingo Voigt1, Julian M. Müller2, Johannes W. Veile1, Marie-Christin Schmidt1 1 – Friedrich Alexander University Erlangen-Nürnberg 2 – Salzburg University of Applied Sciences Purpose: Industry 4.0's potentials can only unfold exhaustively if information is shared across company boarders and along supply chains. Exchanging information, however, implies several challenges for companies. This holds especially true if it is transmitted automatically and digitally, as promoted by the concept of Industry 4.0. In response to these challenges, this paper analyzes how information sharing changes in Industry 4.0 contexts. Methodology: Expert interviews with 17 representatives from supply chain management departments of German industrial enterprises provide the study's database. Hereby, the renowned SCOR-model serves as a theoretical foundation to classify the insights gained during the interviews. Findings: The types of information shared in supply chains, changes in the way information is shared, and initiatives to intensify information exchange in Industry 4.0 contexts are identified. These findings are analyzed against the background of the SCOR-dimensions plan, source, make, deliver and return. Originality: Information sharing, a vital basis for intended horizontal and vertical integration within the concept of Industry 4.0 has scarcely been investigated in extant literature. 58 Kai-Ingo Voigt et al. Introduction Industry 4.0 refers to the horizontal and vertical digitization and interconnection of industrial value creation. It provokes numerous potentials, which constitute the base for future competitiveness of manufacturing companies (Kagermann et al., 2013; Lasi et al., 2014). A fruitful horizontal and vertical interconnection requires adequate information sharing across company borders and along supply chains. This causes several concerns and thus reluctant behavior of all relevant supply chain actors, especially small and medium-sized enterprises (SMEs) (Kagermann et al., 2013; Müller et al., 2017; Voigt et al., 2019). So far, academia and corporate practice have regarded and analyzed Industry 4.0 mainly within a company's boundaries. Despite Industry 4.0's supply chain spanning and interconnecting nature, until recently research studies predominantly have focused on company-internal and technical aspects (Birkel et al., 2019; Müller et al., 2018a). Information sharing in supply chains within an Industry 4.0 context and resulting potentials are still not sufficiently permeated and properly understood. However, predicted potentials of intelligent and interconnected value-adding processes can only be exploited entirely if supply chain partners share information virtually, interconnected by digital means (Kagermann et al., 2013; Lasi et al., 2014). Further, sharing information is fundamental to cross-company cooperation in the context of Industry 4.0. For these reasons, analyzing the topic is of utmost importance. Motivated by the research gap along with its practical implications, this paper's research question is: How does information sharing between companies and along supply chains change in an Industry 4.0 context? Sharing Information Across Company Borders in Industry 4.0 59 It contributes to the current state of research by analyzing the types of information shared along supply chains, changes in the way information is shared, and initiatives to intensify information exchange in Industry 4.0 The study is of qualitative-empirical nature and bases on 17 expert interviews. These were conducted with supply chain representatives from a heterogeneous set of German industrial companies. The SCOR-model is applied to found the study theoretically and to classify the insights obtained from the empirical data. The remainder of the paper is structured as follows. First, the theoretical fundament is outlined, which depicts Industry 4.0, supplier integration, and the Supply Chain Operations Reference (SCOR) Model. Hereafter, the methodology, dealing with research design, data sample, and analysis is presented. Subsequently, the results are illustrated, interpreted and discussed using the SCOR-Model as a theoretical framework. The paper concludes with theoretical and managerial implications and indicates proposals for future research. Theoretical background 2.1 Industry 4.0 Industry 4.0 implies a transformation of future industrial value creation based on the ongoing digitization and wide-ranging interconnection. This development is characterized by a horizontal and vertical digital integration of value creation actors (Kagermann et al., 2013; Lasi et al., 2014). 60 Kai-Ingo Voigt et al. It is widely agreed upon that, the global economy is on the edge of a fourth industrial revolution, heralding a paradigm shift of industrial value creation. Main technological drivers for this development are cyber-physical systems and the Internet of Things. This is why the term "Industrial Internet of Things" is frequently used synonymously to Industry 4.0 (Kagermann et al., 2013; Müller & Voigt, 2018). Given future intelligent, digitally interconnected systems in industrial value creation, products, people, machines, and facilities are enabled to communicate and cooperate in real-time. Following its extensive implications for industrial value creation, Industry 4.0 paves the way for companies to create new business models (Müller et al., 2018b; Voigt et al., 2017). According to Platform Industry 4.0 (2017), Industry 4.0 is "a new level of organization and control of the entire value chain across the life cycle of products". As it aims at horizontally and vertically interconnecting value creation, digitalization and interconnection efforts do not only cover single corporate functions, but also individual companies, their internal value creation processes, just like global value chains (Kagermann et al., 2013). 2.2 Supplier integration Representing a form of vertical cooperation, the concept of "supplier integration", as part of supply chain management, refers to strategic and operational cooperation efforts along the supply chain. These relate to both suppliers and customers and aim at generating and securing competitive advantages (Helmold & Terry, 2016; Schoenherr & Swink, 2012; Wiengarten et al., 2016). Main prerequisite for a successful supplier integration is sys- Sharing Information Across Company Borders in Industry 4.0 61 tematic and strategic collaboration within a company and between different companies, interlinking internal processes with external suppliers (Fazli & Afshar, 2014; Zhao et al., 2011). The overall strategic goal of supplier integration is contributing to a company's value creation, by managing the supplier network in an efficient manner, securing demand, and decreasing supply chain costs (Helmold & Terry, 2016). In order to fulfill this objective, supplier integration intends to adequately and properly set up value creation processes, cross-company handling practices, cooperation efforts, and integration strategies, hereby sharing both chances and risks along the value creation chain (So & Sun, 2010; Zhao et al., 2015). Supplier integration requires financial resources, people, systems, and facilities to be coordinated and harmonized on operational, tactical, and strategical levels (Stevens, 1989). The concept can draw on numerous tools, among others, IT applications related to planning and e-business systems (So & Sun, 2010). 2.3 Related work In the era of Industry 4.0, industrial value creation faces major obstacles, such as shortening product development and product life cycles. These in turn require fast, flexible and efficient value creation processes, which emphasizes the importance of supplier integration in the context of Industry 4.0 (Hofbauer et al., 2016). Integrating suppliers and cooperating across company boarders encompasses major challenges. Especially in the digital era, it requires an indispensable willingness to cooperate and a great candor both from buyers and 62 Kai-Ingo Voigt et al. suppliers, among others (Birkel et al., 2019; Kiel et al., 2017). These characteristics, however, contradict traditional approaches to conduct interactions, exchanges, and processes within present supply chains, like aggressive price negotiations. In addition, supplier integration in the digital era asks for comprehensive technological equipment and facilities, as well as, for adequately reshaping interfaces (Kiel et al., 2017; Müller et al., 2018a). Given that many suppliers are among small and medium-sized companies, particular problems arise, e.g., as for raising resources for the required technologies (Birkel et al., 2019). However, the challenges of how to establish new ways of interaction and cooperation along the supply chain and how to strengthen suppliers' positions remain unsolved (National Research Council, 2000). Several changes are accompanied by further integrating suppliers. On a strategic level, cooperating with suppliers, conducting common activities, and sharing capabilities paves the way for gaining and securing competitive advantages and for creating new business models (Rink & Wagner, 2007; Voigt et al., 2018). On an operational level, a further supplier integration helps to reduce costs, inventory levels, and lead times, amongst others (Giménez & Ventura, 2003). An increased cost competitiveness, a greater product individualization, a shortening of product development and product life cycles and associated fast, flexible, and efficient production processes within Industry 4.0 increase the importance of supplier integration (Kagermann et al., 2013). Despite the importance of horizontal and vertical integration within the concept of Industry 4.0, research investigating Industry 4.0 from a supply chain management perspective remains scarce in extant literature (Birkel Sharing Information Across Company Borders in Industry 4.0 63 et al., 2019; Müller et al., 2017). The variety of data types to be exchanged, different standards used across supply chains, and different interfaces that are used represent further challenges for information sharing in Industry 4.0 (Kiel et al., 2017). Adding to technical challenges, aspects such as a lack of trust hinder cross-company information sharing and collaboration. This is especially true of SMEs, who fear that they will not benefit from information sharing, but have to make large efforts to make it possible (Müller et al., 2018a). Although there is literature on information sharing regardless of Industry 4.0 in extant literature, as shown in the previous section, this literature is only partially applicable to Industry 4.0. This is since information sharing in Industry 4.0 shall be achieved horizontally and vertically and in real-time, which will influence information sharing, innovation, and communication processes (Kagermann et al., 2013; Lasi et al., 2014). 2.4 The Supply Chain Operations Reference (SCOR) Model The process approach for supply chain integration manifests itself in the Supply Chain Operations Reference Model (SCOR) by the Supply Chain Council, suggesting that businesses should be managed on the basis of key processes (Stewart, 1997). The Supply Chain Operations Reference Model (SCOR) was developed by two American management consultancies to support companies in the area of supply chain management. It was published on the Supply Chain Council in 1996, which bases on a merger of the aforementioned two consultancies in cooperation with further international companies. The SCOR 70 Kai-Ingo Voigt et al. Plan Source Make Deliver Return Not assigned Information on product, price, conditions, etc. (4) 2 1 1 Certificates and qualifications (3) 3 Forecasts (3) 2 1 Supplier performance (2) 2 Legal documents and reclamations (2) 2 Offers (1) 1 Information about upstream Supply Chain stages (1) 1 Production data (1) 1 Table 3 outlines, how often the interviewees get in contact with their suppliers for exchanging information. Sharing Information Across Company Borders in Industry 4.0 71 Table 3: Current frequency of exchange Plan Source Make Deliver Return Not assigned Depending on the situation (4) 1 1 1 1 Depending on the supplier (3) 2 1 Several times a day (2) 1 1 Daily (5) 1 1 2 1 Several times a week (1) 1 Several times a month (1) 1 Monthly (1) 1 The second part of the results reveals changes as for buyer-supplier information sharing in an Industry 4.0 context. Table 4 shows the ways information is exchanged in a short to medium termed Industry 4.0 context, categorized in accordance to the SCOR model. 72 Kai-Ingo Voigt et al. Table 4: Ways of exchanging information in an Industry 4.0 context Plan Source Make Deliver Return Not assigned Networks and platforms (13) 1 2 4 1 5 EDI Interface (3) 1 1 1 Real-time exchange (3) 1 1 1 Big Data (2) 1 1 Table 5 describes the changes in information exchange, which will occur in the next 5 to 10 years that all aim at creating a more intense way of exchanging information. Table 5: Changes aiming at a more intense information exchange Plan Source Make Deliver Return Not assigned Simplified sharing of information (4) 2 1 1 Sharing Information Across Company Borders in Industry 4.0 73 Plan Source Make Deliver Return Not assigned Further supplier integration (2) 2 Matching production data (2) 1 1 Feedback processes (1) 1 Forecasts (1) 1 Interpretation and discussion using the SCORmodel 5.1 Plan From the sample experts' point of view, quality represents a decisive procurement goal and must take precedence over other objectives. Beyond that, further goals include efficiency gains and cost reductions. Both customers and suppliers can be involved in the product development process. Cooperating with customers helps to integrate customer-specific 74 Kai-Ingo Voigt et al. requirements at an early stage and to test products in collaborative innovation centers during the development. In the same manner, integrating suppliers improves the product development process, e.g., as supplier requirements and capacities can be considered from the very beginning. Innovation platforms ease interactions between various actors and therefore improve value creation, especially against the background of shorter production cycles. A more precise planning of requirements basing on extensive data use can smooth out demand fluctuations. Pilot projects in corporate practice already apply first approaches that take advantage of comprehensive data to reduce inefficiencies caused by demand fluctuations. Collecting and evaluating different forms of data, such as historical, macroeconomic, and point of sale data, enable a targeted identification of development indications. This paves the way for precise demand forecasts, which counteracts operational inefficiencies. A data release and transparent data exchange between suppliers and customers simplifies negotiations of delivery conditions on a data-based level, for example, regarding future suppliers' and buyers' expectations. In turn, this allows a potential supplier to analyze whether the requested demand developments can be met in the future. Company representatives can imagine sharing and releasing data with close suppliers within cross-company cooperation. This simplifies planning and ordering processes for customers. However, the results underline that a very good relationship of trust is required and data security is to be guaranteed as a prerequisite. Sharing Information Across Company Borders in Industry 4.0 75 Price negotiations are an essential part of buyer-supplier discussions and pricing entails further optimization potentials in buyer-supplier relationships in the context of Industry 4.0. By analyzing both historical and present customer data, it is possible to determine which product attributes add the most value for customers. Knowing individual customers' willingness to pay, customer-specific and value-based pricing can be carried out, that allows to optimize margins. Industry 4.0 can optimize supplier selection and cooperation as well. Apart from this, further potential of Industry 4.0 bases on a automation, traceability, and inter-connecting functional processes. 5.2 Source Basing on a dataand fact-based planning, the development towards Industry 4.0 offers great benefits for procurement activities. Applying technological solutions, such as cloud systems, big data operations, sensor systems, chips and associated system integration leads to a comprehensive interconnection alongside a high degree of process automation and increased efficiency. New solutions are required for inventory management in operative purchasing to be able to meet future requirements for flexible delivery of complex products. In the future, real-time data, a further automation of warehouse logistics, and augmented reality could potentially help in this manner. By equipping incoming and outgoing goods with sensors, movements and locations can be mapped in real time, for example using big data and cloud systems. With regard to the analysis of raw materials' usability, the experts see great potential in processing a large amount of data using Big 76 Kai-Ingo Voigt et al. Data analyses. In addition, goods could autonomously be transported to their destination by means of drones and robots. Using augmented reality, warehouse employees could manage a warehouse both more efficiently and effectively. These solutions may reduce lead times, which ultimately leads to increased customer satisfaction. Information transparency and data release play an important role for future cross-company value creation. This enables suppliers to carry out early, precise, and efficient production planning, which could have a positive effect on the customers' willingness to pay. Automation of basic and simple procurement processes is particularly desirable. Complex goods, that are of high value, individualized special products, products ordered in large quantities, and transport specifications, should still be negotiated by experienced human buyers. Anyways, the process can be streamlined and simplified through data sharing, while customers and suppliers must agree on the nature and extent of data release and exchange. 5.3 Make By equipping components in the production process with sensors, their actual states can be digitally mapped in real time. In connection with historical and diagnostic plant data, failure prediction models could be generated, which enable both scheduling optimal maintenance intervals and minimizing downtimes. There are concepts for generating more accurate forecasts and analyses via a comprehensive data collection in the manufacturing processes. The Virtual Plant concept promises to combine physical process data from production and data from upstream and downstream value creation stages in Sharing Information Across Company Borders in Industry 4.0 77 a digital real-time model to be able to forecast changes in production. Besides, the Virtual Plant concept offers possibilities for simulating changes concerning the processes or workplace design, and thus allows analyzing optimization potentials and ultimately reducing production costs. Using a digital twin, deviations can be simulated, analyzed, and predicted in the running production process. Interconnecting systems in the production process enable real-time monitoring of the supplier by its customer. This leads to a close and automated coordination of requirements between suppliers and manufacturers and therefore contributes to optimize value creation. Given a data disclosure, manufacturing processes will be subject to security risks in the course of the development towards Industry 4.0. System failures must be prevented, especially if data and systems are interconnected. In order to guarantee this, external competence is desired. 5.4 Deliver Regarding means of transportation, delivery times, and transport conditions can be made transparent to all partners in the value chain, using sensors and digitally mapping products. This in turn reduces waiting and processing times and has the potential to increase customer satisfaction. Besides, tracing products provides the advantage to guarantee and check their quality. A greater transparency towards customers and improved quality controls enable interconnected logistics. Instead of offering a standalone product, system solutions can be provided. Digital services, e.g., basing on the Internet of Things and cloud solutions, 78 Kai-Ingo Voigt et al. play a decisive role in this context. The combination of traditional products with innovative services may lead to smart product solutions. 5.5 Return As for the return section, currently non-automated, analogue, and inefficient processes result in insufficient or wrong information concerning recycling and disassembly. This leads to resource wastage and possibly recyclable raw materials being thrown. Technological developments, data exchange, and new forms of analyses in the context of Industry 4.0 pose the potential to reshape return processes. In addition, transaction costs can be optimized in return processes via automated orders, invoicing, and documentation processes. In this regard, returns are optimized by sharing recycling and disassembly information across the supply chain, such as manuals and certificates. Conclusion 6.1 Theoretical and Managerial Implications With regard to the "plan" process, ensuring data security and trust are key prerequisites. Although the experts see great potential in interconnected demand and procurement planning, there still seems to be certain skepticism about disclosing data, for example, to upstream value-adding stages. Following the research results at the "source" process level, skepticism as for information transparency further increases in future buyer-supplier information sharing. Among others, risks are located in either becoming dependent on a particular supplier or in facing disadvantages due to excessive Sharing Information Across Company Borders in Industry 4.0 79 data transparency. The results reveal that it remains essential to continue negotiating procurement efforts about complex and new products as well as specific material traditionally. In the case of standardized goods, however, automated purchasing processing seems conceivable, with delivery conditions and the price range being determined in advance. Suppliers and customers have to individually agree on the extent of information transparency depending on the relationship of trust. The study reveals hurdles in the "make" process stage. Comprehensive data security turns out to be very important, basing on two aspects. On the one hand, data security is about protecting data against third parties outside the supply chain. On the other hand, data security deals with stability in the generation and transmission of data. Corporate practice and managers alike can make use of the insights provided by the paper and include its managerial implications into their decisions and actions. First, the basis of successful information sharing in the future is knowledge as for technologies, processes, organizational aspects, and strategy. Managers are asked to allocate sufficient resources and provide a budget to build up knowledge either internally or with the help of external partners. Second, it becomes crucial to transform corporate culture and corporate strategy including a holistic consideration of buyers and suppliers. Thinking and acting not as a stand-alone company but as a value creation chain and ecosystem is decisive against the backdrop of further digitization and interconnection.