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Smart Policies for Smart Factories


Kim Min-ho
Kim Min-ho
By Kim Min-ho

How can you tell someone is smart? Just the fact that they are carrying a good laptop doesn't mean they are smart. I tell if a person is smart when the person knows their goal and knows how to use their skills and information effectively to achieve the goal.

Now I ask the same question of a factory instead of a human. "Smart factories" have become a buzz phrase and by now we should know what it means to be a smart factory. A factory is smart when it uses information effectively from the factory floor up to management level to meet its goal such as creating high-quality products or minimizing operational inefficiencies. Implementation of information technology (IT) such as artificial intelligence (AI) and industrial internet of things (IIoT) across factory operations transforms the physical factory into a digital factory and creates a constant flow of information. A factory does not become a smart factory by adopting a single technology but it can get smarter progressively to make better decisions by creating digital links between not only the workers but also machines and processes.

This digital transformation of production, dubbed as Industry 4.0, is transforming industries, value chains, and business models. Many countries put forward strategies to promote a digital transformation to remain competitive in the manufacturing industry. The Korean government has also pursued policies to encourage small- and medium-sized enterprises (SMEs) to adopt smart manufacturing. The goal is to have 30,000 smart factories by 2022 and a total of 1 trillion won was earmarked for relevant projects solely in the 2019 budget.

However, there are concerns that the policy is similar to the SME IT Support Project from the early 2000s, which also targeted 30,000 firms. Despite the efforts to encourage SMEs to adopt enterprise resource planning (ERP) software, there were numerous cases in which the software was not being used properly. Problems arise when the government tries to implement policies only from a technical aspect.

New research at the Korea Development Institute (KDI) gives important implications for smart factory policies from an organizational perspective. In the research, I together with Chung Sung-hoon and Lee Chang-keun performed a survey to measure the actual level of smartness across about 1,000 randomly selected factories. The level of smartness, otherwise named "smartization," was measured by two characteristics. One was the interconnectedness of production activities and the other was the degree of data sharing and utilization in the decision-making. The findings show that the increase in the level of smartness is found to enhance the productivity of overall production processes. However, the research also found that the level of structured personnel management, an indicator of how well the incentives were managed, shows complementarity with the technology adopted. Interpreting this result, the adoption of technologies for smartization is effective only when it is well aligned with worker's incentives. This implies that it would not be possible to increase the level of smartness by focusing only on the adoption of technologies.

To maintain its effectiveness even when the scale and recipients of policy support are expanded, there should be improvements in policy details and action plans.

Firstly, policy should help firms to make investments in smartization based on the accurate diagnosis of its organizational practices and the recognition of its need and expected effects of the smartization. Before adopting technologies for smartization, it is strongly recommended that factory's managers and workers are offered with sufficient training and consultation to help themselves develop a blueprint for smartization and prepare technological and organizational solutions.

Second, the government's policy support system needs to be smart by utilizing information acquired in the process of providing support. Diagnoses, evaluation, and consulting information obtained in the support process should be linked and re-applied to other fields such as technology development and training assistance so that policy's effectiveness can be maximized.

Lastly, Korea needs an innovative shift towards a network-driven platform like Germany's "Plattform Industrie 4.0," in which a public-private-academic network, not government-led governance, serves as a substantive and actual authority in charge of developing strategy. The public-private-academic network platform has a different governance from a typical control tower or committee. This private sector-driven approach can effectively respond to the Industry 4.0 world.

Kim is KDI fellow at department of Knowledge Economy.




Kim Min-ho
Kim Min-ho
By Kim Min-ho

How can you tell someone is smart? Just the fact that they are carrying a good laptop doesn't mean they are smart. I tell if a person is smart when the person knows their goal and knows how to use their skills and information effectively to achieve the goal.

Now I ask the same question of a factory instead of a human. "Smart factories" have become a buzz phrase and by now we should know what it means to be a smart factory. A factory is smart when it uses information effectively from the factory floor up to management level to meet its goal such as creating high-quality products or minimizing operational inefficiencies. Implementation of information technology (IT) such as artificial intelligence (AI) and industrial internet of things (IIoT) across factory operations transforms the physical factory into a digital factory and creates a constant flow of information. A factory does not become a smart factory by adopting a single technology but it can get smarter progressively to make better decisions by creating digital links between not only the workers but also machines and processes.

This digital transformation of production, dubbed as Industry 4.0, is transforming industries, value chains, and business models. Many countries put forward strategies to promote a digital transformation to remain competitive in the manufacturing industry. The Korean government has also pursued policies to encourage small- and medium-sized enterprises (SMEs) to adopt smart manufacturing. The goal is to have 30,000 smart factories by 2022 and a total of 1 trillion won was earmarked for relevant projects solely in the 2019 budget.

However, there are concerns that the policy is similar to the SME IT Support Project from the early 2000s, which also targeted 30,000 firms. Despite the efforts to encourage SMEs to adopt enterprise resource planning (ERP) software, there were numerous cases in which the software was not being used properly. Problems arise when the government tries to implement policies only from a technical aspect.

New research at the Korea Development Institute (KDI) gives important implications for smart factory policies from an organizational perspective. In the research, I together with Chung Sung-hoon and Lee Chang-keun performed a survey to measure the actual level of smartness across about 1,000 randomly selected factories. The level of smartness, otherwise named "smartization," was measured by two characteristics. One was the interconnectedness of production activities and the other was the degree of data sharing and utilization in the decision-making. The findings show that the increase in the level of smartness is found to enhance the productivity of overall production processes. However, the research also found that the level of structured personnel management, an indicator of how well the incentives were managed, shows complementarity with the technology adopted. Interpreting this result, the adoption of technologies for smartization is effective only when it is well aligned with worker's incentives. This implies that it would not be possible to increase the level of smartness by focusing only on the adoption of technologies.

To maintain its effectiveness even when the scale and recipients of policy support are expanded, there should be improvements in policy details and action plans.

Firstly, policy should help firms to make investments in smartization based on the accurate diagnosis of its organizational practices and the recognition of its need and expected effects of the smartization. Before adopting technologies for smartization, it is strongly recommended that factory's managers and workers are offered with sufficient training and consultation to help themselves develop a blueprint for smartization and prepare technological and organizational solutions.

Second, the government's policy support system needs to be smart by utilizing information acquired in the process of providing support. Diagnoses, evaluation, and consulting information obtained in the support process should be linked and re-applied to other fields such as technology development and training assistance so that policy's effectiveness can be maximized.

Lastly, Korea needs an innovative shift towards a network-driven platform like Germany's "Plattform Industrie 4.0," in which a public-private-academic network, not government-led governance, serves as a substantive and actual authority in charge of developing strategy. The public-private-academic network platform has a different governance from a typical control tower or committee. This private sector-driven approach can effectively respond to the Industry 4.0 world.

Kim is KDI fellow at department of Knowledge Economy.



Lee Kyung-min lkm@koreatimes.co.kr

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