How to define added value in the digital age

Digitization is fundamentally changing value creation. Companies that want to survive in the market have to adapt – which is not that difficult with the right attitude

By the year 2025, Germany will be able to achieve a gross added value of up to € 78 billion through Industry 4.0 according to the Industry 4.0 Study by the Fraunhofer Institute. According to the study, two-thirds of all German companies are actively involved in the networking of their value-added chains. Is your company also involved?

Cyber-physical systems for your supply chain

Digitization in the context of value creation primarily means the exploration of the communication between machines in order to enable adaptable and self-organizing systems. This kind of system responds to the demand for information and provides it in the next step. But the necessary data first has to be generated for it to do that. So-called cyber-physical systems are used in production for this purpose. Examples of cyber-physical systems include machines, tools, workpieces or orders that can communicate intelligently and over the Internet in a real-time manner. For example mobile robots that supply assembly workstations with workpieces as soon as demand becomes apparent. These systems capture physical data along production, logistics, engineering, coordination, and management processes.

Cyber-physical systems (CPS communication) consist of a digital and a physical component. While the physical component generates data through sensors and interacts with the world through actuators, the digital component is used to communicate, interpret, and represent that data in virtual space.

The unified cloud as the linchpin

The basis for CPS communication is a dynamic infrastructure provided, for example, via a unified cloud platform. This kind of cloud solution means you can exploit the various possibilities of digital production tools for your company in a flexible, cost-effective way that suits your needs. Thanks to its modular structure, the platform also enables generation-spanning machine and service communication. As a result, your current machines can also communicate with newly purchased machines.


Machine communication via data mapping

Final communication between the machines is done via data mapping. For example, machines can communicate with machines, machines can communicate with software services and services can communicate with other software services – so they are digitally wired. Each cyber-physical system also communicates with a dashboard and databases so that live data can be viewed anywhere in the world. By connecting your machines to the cloud, you can receive real-time data on states and quantities in your production process. And by marrying order data with personal data and machine data, you can obtain a current and comprehensive understanding of the status via production controlling.


Real-time events in one click

In a manufacturing company, the production engineer is responsible for running the machines and meeting the required quantities and orders. So when the production engineer arrives at your company in the morning, the most important thing for her is to know how the night shift went. In the past she would find pieces of paper on her desk, noting that this or that did not work, or a tool was incorrect so an employee was not able to work two hours. Your production engineer would then have to laboriously investigate whether the employee could not work for two hours due to the tool being incorrect. But all of this is a thing of the past with a digital value chain.

By connecting your machines to the cloud, your production engineer can retrieve the real data from the previous night in the morning. She gets a timeline for each machine with the real-time events of the night shift. Assuming that the color red stands for a production stop, yellow for a production break and green for running production, your production engineer can easily investigate the issue of the incorrect tool. Long story short: With a digital value creation chain, you can find out in a device-independent way with the click of a button which machines are running and what order is currently being produced with what efficiency.


Forecasting & replenishment: Precise forecasts for dispatch

Even if all your machines are running smoothly, competition for the customer ultimately happens on the shelf. If you cannot replenish your chain stores and your product is out of stock on the supermarket shelf, all your previous efforts have been in vain. So you have to eliminate out-of-stock situations as far as possible. This can be a real challenge for companies. On the one hand, your chain stores expect maximum availability of the goods, and on the other hand, stockpiling a lot of goods also leads to high costs. If seasonal articles and special offers are added, forecasting future demand is very difficult. And with a complex network of production sites, suppliers, dealers, and intermediaries, this problem becomes even more challenging. But forecasting future demand should actually be the first step in your digital value creation strategy. The magic formula is forecasting & replenishment (F&R).

Forecasting & replenishment (F&R)
Forecasting (retail) is the combination and management of an unlimited number of production sites, products and forecasting models. The associated replenishment refers to the use of inventory management forecasting techniques based on tools such as demand adjustment for example for individual days of the week or seasonal profiles.

Complex forecasts of different production levels

For example, appropriate forecasting & replenishment solutions combine innovative forecasting techniques with demand streaming or the analysis of your seasonal sales patterns. So you are able to predict the demand for your products even in very complex scenarios, and in real time! Selected features include creating and updating forecasts at various levels of production, identifying and responding to short-term trends and demand patterns, and detecting changes in demand patterns. In summary, you can use a forecast & replenishment solution to optimise the following points in logistics:

  • Forecast accuracy,
  • Modelling of the demand for different articles (inventory articles, seasonal articles),
  • Forecasting demand in advance for the optimisation of inventory and warehouse management,
  • Scalability of the requirements for complex production networks.


The digitisation of your value chain not only affects you as a company, but also your suppliers, intermediaries and chain stores. Most of your partners have no insight into your levels of stocks let alone into the sales of goods to your respective end customers. This often results in a reactive supply chain, which leaves little scope for handling short-term trends and demand patterns. The solution to this challenge is vendor managed inventory, or VMI for short.


Automated replenishment planning. Or replenishment-as-a-service with vendor managed inventory

Vendor managed inventory enables you as a global company to plan and optimise the needs of your individual stores and inventory in your distribution centres in an integrated way. VMI does this by looking at all the nodes in your supply chain holistically – as a kind of comprehensive replenishment planning. With vendor managed inventory, your suppliers and manufacturers can access your inventory and sales data – regardless of where they are in the world. While your suppliers are better able to manage product deliveries and justify their product demands to manufacturers “just in time”, you can improve your inventory performance with a single click. The result: replenishment-as-a-service.


Conclusion: Take the leap!

With step-by-step strategic digitisation of your value chain, you can prepare your company for future requirements and keep it competitive. But you don't have to do it alone. It's better to tackle such a large project together with specialised IT partners so you can exploit the new possibilities of Industry 4.0.