Could you give us a background on McKinsey & Company in Singapore?

Singapore has served as the birthplace for many of our innovations for the whole region: Singapore was the first location where we brought our digital labs in 2015, but also where we introduced Lunar and our Digital Capability Center (DCC), both in 2016. Singapore was also chosen as the first outpost of our Sustainability Center of Excellence outside of Europe. Underwriting our work of innovating in Singapore, for Asia is the McKinsey Innovation Campus launched 10 years ago together with the EDB.

As a leader of the Digital Capability Centers (DCC) in APAC, could you comment on the level of maturity of the chemical industry when it comes to adopting Industry 4.0?

About six years ago, when the Industry 4.0 journey started in the region, a very small portion of companies had embarked on smart transformations. Even if awareness was growing, adoption was very low. But a lot has been done since, both in Singapore and neighboring countries. The biggest breakthrough is that everyone understands digitalization and smart manufacturing is not passing hype and not reserved for large companies in Europe or the US. The pandemic has, in some cases, accelerated adoption, while in others it put some planned investments on the shelf. However, our analysis indicates that more than 70% of companies that have already kick-started their Industry 4.0 journey – like implementing a digital dashboard or using analytics for predictive maintenance – are struggling to scale. The failure to scale their proof of concept at the entire plant level or across several production lines is not particular to Singapore or the region, but it is global, and the difference in the success rates for SMEs and MNCs is small.

Industry 4.0 transformation is a journey more than a destination, but companies are well advised to identify the end goal of each step they take.

Could you talk to us about the gaps in the digitalization of supply chains?

In 2022, the visibility of what could be done in the manufacturing part of the value chain is pretty clear for most industries, and the majority of companies, including SMEs, have already made a fair bit of progress. However, some logistics service providers and what I would call “supply chain 4.0” are a couple of steps behind. The pandemic coupled with the war in Ukraine and the lockdowns in China have had a huge impact on supply chains, and some SMEs are particularly lacking the necessary systems to grapple with all of these disruptions. Together with A*STAR, McKinsey launched in 2021 a supply-chain control tower meant to show the realm of possibilities for integrated business planning, demand forecasting, and how it all flows into production plans and real-time logistics monitoring. After six months of hosting companies as part of this exercise, it was mostly the very advanced companies that understood how to put the available technical solutions to use. While many MNCs with regional HQs in Singapore are already halfway there, for many local ‘Mom and Pop’ players digitizing supply chains can be too much of a science-fiction task.

How is digital literacy playing into Industry 4.0 adoption?

The biggest challenge is for established companies that fail to attract very tech-smart talent and need to upskill their existing workforce. However, there are plenty of initiatives focused on re-skilling workers and middle management. There are 8,000 companies in the Singaporean manufacturing scene – many of which are quite small – so these players can explore creative options to fill the talent gaps, for instance by retraining their current staff.

Do you have a final message?

To summarize, manufacturing companies should consider getting the first step done and establish visibility on the shop floor by instrumenting data and using it to track performance. Then, they can move to the second step, which is to leverage analytics, create a digital twin, or go into brownfield automation. As we move to the broader supply chain, there is the possibility that whatever happens on the shop floor is insufficient and integration with either suppliers or clients can help plan production in a better way and increase resilience to shocks. Our analysis indicates that this has been the biggest push in the past two years across all sectors. Thirdly, companies are looking at carbon abatement and decarbonization; when this is realized, they can employ ways to make Sustainability 4.0 work for them: By reusing Scope 1 emissions into the production environment; by shifting to renewables to cut down on Scope 2 emissions; or by leveraging supply chain visibility to curb Scope 3 emissions.