Industry 4.0 Consulting: Digitizing the Life Science Sector

The invention of the steam engine set the stage for the first industrial revolution that took place in the 18th century, mechanizing a lot of works in the agrarian sector. The next revolution was fueled by electricity and paved the way for mass production. The third industrial era witnessed the rise of automation, powered by computers and robotics. And now we have entered the next phase of evolution in the manufacturing space — the Industry 4.0 era. The fourth industrial revolution has often been defined as the information-intensive evolution of manufacturing facilities where humans and machines interact via the Internet of Things (IoT) to optimize the operations and productivity. Life Science is one of the sectors that can gain an immense competitive edge by embracing a new, innovative business model, powered by advanced technologies.  Reports have suggested that the adoption of disruptive technologies can transform the manufacturing value chain in the Life Science industry. In fact, some big ticket companies in this sector have already started turning the innovations into new opportunities.

The Reimagining of the Life Science Sector in the Age of Industry 4.0

Life Science Sector in the Age of Industry 4.0

A few years back, in one of its blogs, the US Food and Drug Administration (FDA) pointed out why the pharmaceutical manufacturers should be encouraged to transition from batch manufacturing to continuous manufacturing. The pharmaceutical industry is becoming overly competitive with more generic drugs entering the market. In this situation, such a transition, according to FDA, would not only ensure the quality of drugs but also reduce the high costs relating to batch manufacturing. No wonder, some major life science and pharmaceutical brands have adopted the Industry 4.0 to reap the benefits of the new-age technologies.  Here are a few ways, these firms are reaping the Industry 4.0 benefits.

Ease of Supply Chain Management: First of all, with the increasing interaction between the physical and virtual, it will be possible to set up next-gen supply chains that are analytics-driven and can be monitored and controlled through a centralized system in real time. For example, in the developing countries that have a complex distribution and warehousing system,  Pharma companies are using cloud-based supply chain management solutions for the better management of inventory and support recalls.

A Widened Scope of Innovation: Clinical research involves dealing with an enormous amount of data. Massive and costly infrastructure is needed to mine, analyze and simulate the data. This costly process can be avoided by integrating cloud-based solutions across a company’s research facilities, irrespective of their geographical locations. These data can then be accessed by disparate teams stationed in different locations for analysis. This system is helping minimize the time and expenses relating to trials. This wider access to data and information is, in turn, making open innovations possible.

Modernization of the Operations Through Automation: Companies are bypassing manual steps with automation. An increasing number of medical device manufacturing facilities are integrating Process Analytical Technologies (PAT) system into assembly lines to speed up production while optimizing the batch quality and minimizing wastes and production costs.

The Life Sciences sector is currently under tremendous pressure resulting from several factors, namely an ever-ageing world population, a faster spread of diseases due to increasing international travel, and the phenomenal rise in the chronic diseases. The companies are struggling to meet huge consumer expectations of coming up with new, cutting-edge drugs that save more lives. In this situation, moving forward, it will become increasingly difficult for companies to stay in business unless they opt for an Industry 4.0 makeover.

The Path to Industry 4.0 Adoption

As with any major shift, companies should be prepared for facing challenges while adopting an Industry 4.0 model. Any technological misstep may translate into costly production outage. Even then, there are several reasons why growth-oriented pharma companies should consider taking the plunge albeit its challenges. They should explore ways to reap the benefits of Big Data solutions, integrate IoT and wearable technologies for a more accurate diagnostic and patient outcomes, and adopt a higher level of across-the-channel collaboration for a better patient experience to name a few. The question, then, is not if a company should become Industry 4.0 ready, but how to go about it. All, one needs is the right strategy and Industry 4.0 consultations.

Intueri’s Industry 4.0 Implementation Approach

We, at Intueri, believe that Industry 4.0 is not a finite system or think – it is a natural evolution using technology to add intelligence to all existing assets manufacturing/supply system. The main intention of the exercise is to drive efficiency, flexibility, quality and lower operating expenses throughout production. We think many companies tend to focus on technology first, forgetting to anchor it in the real issues and linking it to the actual problems on the shop floor. This strategy of “going full gadgets” is tempting, but it rarely creates any real impact.

Intueri’s approach to Industry 4.0 aims to tackle this challenge and is quite simple: start small with a proof of concept of Industry 4.0, realizing its benefits, and then scale-up to conduct organization-wide Industry 4.0 implementation.

To provide guidance and support to align business strategies and operations with Industry 4.0, Intueri uses an Industry 4.0 maturity model to systematically assess a company’s state-of-development in relation to the Industry 4.0 vision. The practical purpose of this work aims at rigorously evaluating a company’s Industry 4.0 maturity and reflect the fitness of current strategies.

Intueri manages the whole Industry 4.0 implementation into three phases. The first phase involves a Proof of Concept of Industry 4.0, by tackling the organization’s most pressing issue. In the second phase, Intueri conducts a comprehensive Industry 4.0 maturity and feasibility assessment for the organization, and roadmap design for Industry 4.0 implementation. The third phase will involve implementation and post-implementation monitoring.

International Trade and Global Value Chain-Hypothesis and Implications

Over the last two decades, trade and production have become increasingly organized around what is commonly referred to as global value chains (GVC) or global supply chains. The advances in information and transportation technologies as well as falling trade barriers have allowed firms to unbundle production into tasks performed at different locations to take advantage of different factor costs. Such production fragmentation means that intermediate goods and services cross borders several times along the chain, often passing through many countries more than once. These complex global production arrangements have changed the nature of trade.

Traditional and GVC Trade (% of Nominal World GDP)

Source: IMF’s calculations based on Eora database. Traditional trade comprises exports of goods and services that are produced in one country and absorbed in the destination

Today, 70% of international trade involves a variety of transactions where services, raw materials, parts and components are exchanged in global value chains (GVCs) across countries, before being incorporated into final products that are shipped to consumers all over the world.

Participation in GVCs has a positive impact on income per capita, as well as its components, investment and productivity. Importantly, we find that these gains are related to GVC trade and not to conventional trade. The results appear robust to endogeneity and reverse causality. The gains from GVC participation, however, are not automatic. There is large degree of heterogeneity. The upper-middle and high-income countries appear to be benefiting from such participation, while we find less robust effects for low and lower-middle income countries. The relationship between upstreamness in GVCs and economic development is not straightforward. While financial and business services tend to be upstream and high in value-added, the link is less clear in manufacturing.“Moving up” to more high-tech sectors as a result of participation in major supply chains does take place but is not universal, suggesting that gains are likely conditional on other factors.

Global production networks rely on the logistics chain, which requires efficient network infrastructure and complementary services. Trade flows in value added terms reveal that transport, logistics, finance, communication, and other business and professional services play a significant role in exports of goods. More efficient service sectors enhance the competitiveness of manufacturing firms.

Domestic firms can only seize export opportunities if they have access to imports of world-class goods and services inputs. Imports help firms to become more productive and competitive in their export markets. Responses to this reality can be undertaken unilaterally and have indeed led to unilateral liberalisation in recent years, but trade agreements allow countries to create disciplines collectively and to address some of the externalities related to activities of firms in GVCs.

Trade agreements should cover as many dimensions of GVCs as possible, from customs barriers to rules of origin to trade facilitation to services. Because there are network and scale effects in GVCs, the gains and the success of agreements in implementing disciplines will be greater when more countries participate, and markets are opened on a multilateral basis. GVCs strengthen the economic case for advancing negotiations at the multilateral level, as barriers between third countries upstream or downstream matter as much as barriers put in place by direct trade partners and are best addressed together. While multilateral agreements are widely accepted as the best way forward, most of the liberalisation outside of purely unilateral opening has occurred at the regional level in the past two decades.

Macroeconomic Implications

 In the global supply chain export and import between participating countries add to economic benefits domestically and fundamentally. For instance, final commodities in the value chain formed as a result of trade between nations would typically lead to lower cost of products. Likewise, based on the product category, input costs might be low, labour intensive countries would have higher labour demand for such type of products, etc.

Effects on Economic Activities and Inflation Levels

At a macro level, GVCs magnify the transmission of macroeconomic shocks across countries, weaken exchange rate effects, and widen the benefits of regional agreements. International input–output linkages also create strong links in the formation of prices, implying that inflation in one country is more likely to spill over to direct and indirect trade partners. Such linkages account for an estimated half of the global component of Producer Price Index inflation. GVC participation will be associated with a rising synchronization of real economic activity and inflation across countries. With complex interconnections in production, the consequences of a currency movement for export volumes are likely to be reduced and will become harder to predict. Because exports require imports, and because some exports are processed abroad and re-imported back, a depreciation may not stimulate exports as much as in the past. For example, some recent episodes of significant exchange rate movements, such as those in Japan (2012–14) and the United Kingdom (2007–09), were not associated with very large movements in trade volumes.

Effects on Regional Trade Agreements

The rise of GVCs changes the effects regional trade agreements and how policy makers should think about the possible diversion of trade flows. When firm-to-firm relationships are rigid, the benefits of accessing new markets can be shared throughout the production chains. Forming a regional trade agreement usually leads to an increase in trade flows within the bloc forming the agreement and is also associated with a reduction of trade with partners outside the bloc. Economists call the latter effect a “trade diversion,” because forming an agreement “diverts” trade toward members of the agreement.

Impact on Job Creation

GVCs are significant vehicles of job creation, employing around 17 million people worldwide and carrying a share of 60 percent of global trade. Simply put, GVCs include all of the people and activities involved in the production of a good or service when the different stages of the production process are located across different countries and geographies. As globalization increases, GVCs are becoming more relevant in international production, trade, and investments. And Global Value Chains also have an important effect on job creation.

However, there is a potential trade-off between increasing competitiveness and job creation, and the exact nature of positive labour market outcomes depends on several parameters. Given the cross-border (and, therefore, multiple jurisdictive) nature of GVCs, national policy choices to strengthen positive labour outcomes are important yet limited. By structural transformation and generating new linkages in and around the chain, further creation of jobs take place.

Having said this, the eventual outcome on the labour market depends on several factors, including the readiness of the domestic labour force to respond to changing global demand, and flexibility of labour market policy to allow for ease of labour mobility.

Conclusion

Thus, global value chain and international trade together serve a broader dimension to countries and industries wherein their participation will lead to wider implications for markets domestically and internationally. Owing to the presence of GVC, trade liberalization leads to increased skill premium between countries. When trade is liberalized, countries specialize in their comparative advantage stages, and these specialization patterns, in conjunction with usual sectoral specialization, lead to increase in skill premium. In this manner, several implications of integration of trade and global value chain can be outlined with the expansion of supply chain across countries. Diversification of trade and its close linkage with development of any supply chain is therefore a key focus dimension for industries and countries, which in next steps, could further be broken down into granular levels of sectors and products, and so on.

Our highlight thus remains on the integration of closely related sectors of the industries and its shaping up in the global chain. In the next few articles we will continue to focus on such developments.