Digital Transformation and Industry 4.0 - Part One - With Vasilis Karamalegos

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For this 3-part series, we are joined by Vasilis Karamalegos, CEO and Co-Founder at Smarter Chains, a company that is helping manufacturers achieve Industry 4.0 Transformation at Scale.

In the first episode of this series, we discuss the meaning of digital transformation and Industry 4.0 in a manufacturing context and the technologies that are driving innovation in manufacturing today.

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Key topics covered (click to jump to the section)

  1. What is digital transformation and Industry 4.0 from a manufacturing context?
  2. The key organizational changes that have to occur because of digital transformation.
  3. Why is digital transformation required?
  4. IT and OT integration

Niall Sullivan, Senseye: Hello, and welcome to the Trend Detection podcast. I'm delighted to invite Vasilis from Smarter Chains to this episode where we're going to be talking about digital transformation in Industry 4.0 and more specifically, a report that Smarter Chains have produced with some really interesting insights in there as well.

So, first of all, welcome to Vasilis. Hope you're well, and maybe if you could just start by introducing yourself and your company.

Vasilis Karamalegos, Smarterchains: Hello, thank you so much for having me. I'm delighted that we're going to have this discussion today. We've been working many years together, so I'm very happy to share a few insights around industry 4.0 and how we view the evolution of the industry.

Before we do dive into that, let me just say a few things about me. So I'm Vasilis. I'm Greek. I co-founded Smarter Chains back in 2016 after spending a decade working for Proctor and Gamble manufacturing, and I think on the intersection of technology and manufacturing performance.

It was pretty evident back then but we are moving into a really accelerated world where the pace of change now will be the slowest it will ever going to be. And we really need to rethink the way that we are approaching all things. How do we drive at the plant level, but also at the enterprise level industry for digital transformation?

Our vision was a mission, was to create smart and sustainable factories at scale. And to do this SmarterChanges has developed an all in one software that is managing digital transformation manufacturing across all the different phases of the industry for journey. We start by taking organizations through education in order to formalize understanding.

We help the organizations to prepare by understanding exactly where they stand from the technology and by creation point of view. And then we proceed on defining the different roadmaps and interventions, as well as very granular business cases of why it makes sense to go on this journey, both at the plant level, but also how do you scale the value at the enterprise level.

And once we have the strategy complete then we proceed on the actual execution. We providing the PMO software to be able to orchestrate the implementation at scale, but also be able to drive scalable learnings, which is the way that you can really accelerate the value enterprise wide.

Our model is a repeat model as industry 4 journey is a recurring journey. You always will go through the typical manufacturing PDCA cycle, plant to check act. So we are taking care of really helping our clients understand how to start, but also understand where they are, what is new in the ecosystem and how to reiterate and recalibrate their strategies moving forward.

Niall Sullivan, Senseye: Fantastic. Thank you for that. That introduction is really, really interesting to hear that background. So I just wanted to sort of start at the very beginning really, and just get your point of view because digital transformation industry 4.0 are terms that are widely used and have lots of different interpretations.

So I was just wondering whether you could define, from your point of view, what is digital transformation and industry 4.0, from a manufacturing context I guess.


Vasilis Karamalegos, Smarterchains: Yeah that's a very interesting question because you know, digital transformation is if you like the big umbrella that is starting all parts of the enterprise. Industry 4, we have coined the term if you like, that is specifically for the manufacturing, for the 'make' part of the supply chain. Maybe sometimes a bit of the deliver, but mostly the 'make' part of the supply chain.

Now starting with digital transformation, if we are to put it very simply, is the adoption of all things digital technologies for an organization. This is also hardware and software technologies, as well as all the different organizational interventions that need to come in place in order to enable this transformation.

Now, if we go a bit more, if you like sophisticated or we see from an enterprise point of view, we have four types. You know, we are transforming processes, business models. And of course the specific domain transformations, like in our case manufacturing. And then of course all things cultural in the organization.

Now, if we talk specifically for industry 4, industry 4 is all about the deployment and the use of cyber physical systems in manufacturing, in industrial plants, as a means to foster digitization automation. And of course empower more and more intelligence in the software in order to drive cost, create value, increase throughput, drive productivity. And of course all things organizational mindset we need to have in place.

Now, industry 4 has coined the term because it comes from historical evolution if you like. The first industrial evolution, Great Britain, second one in the U.S., and the third one in U.S and Europe, but these are the ones we can say. But then of course Industry 4 was coined as a term from Germany back in 2011, 2012. And this is what we now talk about digital manufacturing or smart manufacturing. Industry 4 is an embedded term of all those.

Now the core differences between the third industrial revolution and the fourth industrial revolution. On the third we had of course automated assembly systems, flexible manufacturing systems. We have introduction of computer integrated manufacturing systems. And of course in manufacturing was the way to really run the operations.

Now in Industry 4, the main characteristics is all things, first of all, vertical integration of the production systems across the different layers of the enterprise. Horizontal integration across the different valuables of the different supply chain partners because this engineering, which I would say is maybe one of the most important elements as you know, data, mechanical engineering, electrical engineering, neuroscience, a lot of different things that come together and the interference between all those is what is creating tremendous amount of opportunity moving forward.

And then of course last but not least, is the accelerating nature of the different technologies, digital and automation technologies, that Industry 4 is more well known of. But I would not discount all the rest because technology is one part, but the impact it takes organizational design people mindset and the way we really structure and we move the business. And the way that we innovate by combining and interfering different engineering principles is going to be maybe the biggest pillar that we drive the adoption of different technologies moving forward.

Niall Sullivan, Senseye: Yeah. That's a really interesting point you made and it's something that comes up on this podcast in conversation I have quite often, is that it isn't just about technology. It's about having the organizational structure and processes in place to actually deliver on that as well.

So my next question was really going to be around that and what, in your opinion, are the key organizational changes that really has to occur because of digital transformation.


Vasilis Karamalegos, Smarterchains: So at Smarterchains, we have developed and defined a proprietary framework around digital transformation manufacturing. We call this the 10 Industry 4 dimensions. Each of the different dimensions is starting on different parts that are affected by the implementation of digital information technologies.

Out of the 10 dimensions, the two is all things people and human. We call it the factory of the future leadership dimension, and the digital organization dimension. The factory of the future leadership is all things. How do we invest and develop the transformative mindset across the organization? What are the different characteristics that a successful industry for leader should have? How do we manage diversity on the industry for era? What are the different practices and the different policies when it's in place? How do we use technology to augment the capabilities become more efficient With all the tools that we have now in place.

And then of course, what are the different skills that our people, our leaders need to have. And when I talk leaders, I don't talk only boardroom or senior VP's or VP's. I'm talking everyone that is leading his area of work from the operator, the technician on the line, down to the VP that needs to take the decisions on the overall transformation journey.

On the organization piece again, we are having first of all the biggest path for manufacturing is the integration of IT and the information technology and operational technology, which it was operating in silent for so many years, now they to come together, as everything start becoming zeros and ones. Then we have the role of operational excellence and how do we integrate this, the technology into the different operational excellence work that we are doing? How do we manage knowledge? Actually, how do we manage an accelerated amount of knowledge?

Let's not forget that we had before five to ten different vendors of technology and as well, of course, on top of the OEMs in the factory, now we are going to have an exponential more number of different vendors we need to be taken care and having a relationship with. This change is completing the way we manage knowledge as well. And last but not least, how do we develop talent, which is another core pillar? How do we build new different capabilities? How does integrated human resources, these are designed to attract, cultivate and grow leadership and future talent in the organization..

Niall Sullivan, Senseye: So all of those ingredients are key you'd say?

Vasilis Karamalegos, Smarterchains: All of those ingredients are vital. You cannot look at the one and not forget the other. Actually as part of the study that we did back in 2019, that we implemented our data driven assessments, bottom up to fifty different plants across the CPG industry.

I would say that what differentiates the companies that they were far more successful not only implementing and adopting technologies, but also driving value out of the technologies, was leadership because leadership is the vision and is the skills. Those are the components that will put the organization in place to deliver the work.

So there was a huge difference between the plants and the enterprises that they were very advanced on this front from the rest. And of course you could then correlate a very different amount of technology, adoption and valuation as well because of this.

Niall Sullivan, Senseye: And at this stage, I think I just wanted to ask and just step back a little bit. So why in your opinion is digital transformation required? And I know this is sort of a far reaching question with probably lots of different answers, but it'd be just interesting to get your view on that for those companies may be reluctant to embrace digital transformation, if those do exist out there.


Vasilis Karamalegos, Smarterchains: Well, I think for us in the industry, there is a very big difference on the mindset of clients and people that they would be interested in the field before COVID, and after COVID.

Because COVID with all its bad things because of the remote working and, you know, how can you manage the business being more data driven or less status of communication, et cetera, et cetera. It really brought everybody to the page that, 'you know what, yeah, this makes sense' moving forward. So I would definitely say that there is a lot of different elements that can unlock organizational advantages for the digital transformation. Both for manufacturers, but also for society at large.

For a start our world is getting more and more into black Swan type of events. So more unpredictable from all things, from population growth, from the connectivity of our socioeconomic systems, natural resources, all things sustainability, climate change by diversity. And then of course we have all the geopolitical things on top. Like the recent Russia Ukraine conflict, Covid.

So clearly digital transformation is going to unlock sources of value like of course, improved operational efficiency and the resilience because the more effective you are the more competitive you are the more resilient you can be to external events.

Empowering the workforce, improving sustainability profile for the company, help you be able to enter new markets and new regions faster, far more sophisticated and more educated as well. And of course provide greater propositional value and market relevance because currently we are still doing this sort of transformation as a strategic choice, but eventually it's going to be an embedded core pillar of enterprise strategy.

It's not going to be a choice. It's going to be a given that you need to have a strategy there for many different reasons from vendors asking suppliers when they are on the journey, because sharing data and intelligence is going to be a core part as we know very well in supply chain in order to improve the operations.

So we are going to see a lot of standardization from a compliance point of view as well coming into play, that even the ones that they were not believing that this will add the value will jump into it.

Now to the ones that they still believe that it will not add value. Of course, there is a lot of history of failed attempts, the organization is not ready, they have no experience of data and how to use this. So there is a lot of good reasons many times that people do not embark on the journey, but also as technology evolves and new business models come to place, they make it easier as well to try and use technologies as well.

For example, one good example I always like to use is, in the past you need to have capex investments invest on a robot, but now there are business models that you can actually rent it, start learning about around it, see if there is value or not through putting it on your ops. And then you can decide if you really want to be scaling different hardware type of technologies.

Niall Sullivan, Senseye: And that was a really interesting point you made during that Vasilis around companies, that for digital transformation it won't be a choice but it'll be required and a key part of the organization.

From your feeling and talking to manufacturers, how far away do you feel that is from being sort of widespread that it is a key pillar within the organization, not just something that, 'oh, we should probably think about that?'

Vasilis Karamalegos, Smarterchains: I don't think that we are very far from this. Usually all different trends are coming, roll down top down from the adoption of some big foot leaders.

For example, a big company, like let's say Amazon or let's say Proctor on the consumer field. It requires from all suppliers to provide that they're really working on type of digital transformation initiatives that eventually, as part of their supplier assessment processes will help them to really enhance visibility, provide them with cost reduction opportunities or even enable more joint value creation instance on the upstream supply chain. This will try the trend.

And we have seen this in the past as well. Let's say cryptocurrencies, the more they took off when more formal type of brands out there starting adopting them. So this is driving the traction.

So I expect that this is something that we are going to witness later on, but not yet because we are still on the journey of people really having the wow moment that 'yeah, this is really adding value. I want more of it'.

So I think that when we are going to have the first wave of innovators and the area adopters, really driving enormous amount of value, then the area majority of the lads that are going to be following and then we are going to be seeing far more systemization on it.

Not only from company to company, but I also believe we're going to see a lot of systemization from also Government officials and authorities, et cetera, et cetera, as it is going to be a core enabler for upgrading and driving value across the manufacturing sectors.

And it's going to be a part of competitive strategy as well, especially now that we're going to have a lot of restoring because of we're moving into a different world now from the geopolitical standpoint.

So I do see that countries as well are going to play a more active role in driving digital transformation initiatives and support to companies at scale. Of course there were some countries like German that they started early, but now there is a lot of other countries that they're following up. And I do think that eventually this will trigger compliance type of interventions that will really help accelerate the adoption of digital transformation as a core strategy.

Absolutely. Don't forget that manufacturing is 20 to 30% of the GDP of many countries. It's 12% of the global dividend. If we account for logistics as well we're talking about 25% of the global economy. Hundreds of millions of jobs. Hundreds of trillions of value.

So of course in a more and more interconnected world, as the value of everyone is being driven by that, we are going to see that we're going to have more orientation from a compliance point of view, from a country's point of view of the path forward in order to enable their manufacturers to jump on the journey.

We as Smarter Chains, we started the journey on this promise. So we have platformized and productized the full process of taking an organization from knowing nothing to having a fully committed bottom up top down sync, financially driven roadmap.

And our strategy was always from the best of the rest. We worked with the best companies in the industry, but always our mind was to create a product that can be scaled across the companies that they don't have the resources, but even the change management culture of adopting new staff.

So making it easy for them to be able to capitalize and embark on the journey easier than having to invest hundreds of thousands of dollars to a more expensive type of companies consulting service, advisory services. So make it easy for them to really go on a self-serve mode into the journey and be able to tap into help when is required, but not to get started.

Niall Sullivan, Senseye: Yeah. So it's almost bringing, bit of a funny phrase I guess, but bringing digital transformation to the masses. So making it accessible to companies that maybe thought it beyond their means with their current resources and that side of things.

Vasilis Karamalegos, Smarterchains: This was always the vision, and this is exactly the vision we are we are still pursuing and we are doing a lot of work on this, working with top companies on that. We are working with top to top academic institutions. So we can really drive our framework as a standard because in manufacturing, we are the experts of non standards.

And if we really want to be able to scale, and scale the value for everyone involved, we really need to find a common language of understanding that is talking the full journey from how you educate people and you harmonize understanding, how you engage and you prepare an organization for a journey. How do you define the strategy moving forward? And then how do you really embark on the strategy you implement? You capitalize on the learnings and you constantly iterate to improve.

It's not a one off journey. It's not that I come, I define the journey, it gets started. It's not like that because the learnings are showing on so many different feeds and continues.

Niall Sullivan, Senseye: Exactly. It's not easy and there's bumps in the road, of course, but yeah, it's not going to be particularly a smooth journey.

What I wanted to focus on next was the technologies that are sort of key to successful digital transformation for manufacturing. Is there a few examples you can provide? And, I guess also the other comment is really, from what you said earlier as well, is actually integrating those as well. So that it's the IT and OT integration as well of those technologies. So first of all, just examples of technologies that are really being driven in manufacturing at the minute.


Vasilis Karamalegos, Smarterchains: This is a hard question. It's a hard question to really answer because at the end of the day, it really boils down to what are the specific needs, not from a technological point of view and because from a technological point of view, I mean, of course there are so many different technologies, right? So more than 100 different technologies that you can really implement. So how do you choose?

Value is the one. Understanding exactly what is the value in the operations in order to be able then to drive exactly the specific technological interventions you need to have in place. And that is not an easy journey as well, because maybe you have value on in integrating, for example mass envision system. But maybe you don't have digitalization on the software. You have no connectivity which things that we find every day.

So it's important as well, that's why our roadmaps they have usually three stages. The foundation stage that you really put everything that you need in order to proceed on the transformation, the acceleration stage, which there we see the more value creating and loss eliminating type of softwares and hardwares. And then amplification states with amplification stage. Once you have the previous infrastructure is where you can really drive and amplify the value. And this is of course the section, if you like technologies that we see everywhere, in PR, et cetera et cetera. Now, if we are to break this down, what are some more than others?

I would say that on the foundation stage is connectivity, is IOT platforms. So being able to enhance visibility and tablets really drive mobility on the software. From the acceleration stage, condition monitoring sensor, as health bottom line, really understanding the machine and getting a grasp around which of course there's a lot of experience on the software about the machines, but not providing a far more data driven understanding of where the ventures should take place. Machine vision systems as well, or as we're spending a lot of time on the repetitive activities on monitoring the line and the performance of the line, which they can be really standardized. Connected workforce platform. That's a massive one, I would say, because starting everybody in the organization enabling productivity and a lot of trouble shooting automation, and a lot of things that you can really drive value from.

So I would say those three of course, because then it's endless, right? So I can talk about new breeds of computer maintenance, computerized maintenance management software CMMSs.

Of course energy is a big part, which I guess now we're going to be seeing a huge suite as well, with everything's that's going on, on the necessity of having effective way of not only smart maintaining, but as well as getting the intelligence and drive interventions based on the different intelligence that's coming out of the line with regards to energy.

And then of course we are going to more advanced things like predictive maintenance that you do that you need to have good visualization. You need to have a cloud connectivity, et cetera, et cetera, in order to be able to drive value and more hardware type of technologies as well as automating a lot of manual different tasks.

Now on the hardware stuff, of course they're a bit later, but still there is opportunities. The things how we want to see it, right, because very different, you see technology from a isolated plant specific point of view. It's a completely different discussion when you see that scale.

And we, from a core position and from experience as well, we always want to be talking enterprise because in many cases, the value that you can get from the technology does not lie on the node.

It lies on multiple different plants that you can really try scalable interventions and really drive the value as well as justify the business case for the investment as well, as well as understanding how you can really drive the organizational interventions and organizational design changes and support models that you can really take the most value out of it.