Source: Mckinsey & Company

5G offers a level of connectivity that could transform the shop floor. Here’s how leaders use today’s technologies to secure supply chains and create value, despite the challenges of deployment.

In this episode of the McKinsey Podcast, Diane Brady speaks with partners Michael Chui and Enno de Boer about the fifth generation of wireless technologies and how artificial intelligence, the Internet of Things, and other advanced technologies are reshaping businesses. An edited transcript of their conversation follows.

Diane Brady: Hello, and welcome to the McKinsey Podcast. I’m Diane Brady. Today we’re talking about the fuel that is powering the Fourth Industrial Revolution. It is, of course, the much anticipated 5G, or fifth-generation wireless technology. What it delivers is an astonishing level of connectivity that will transform every industry. Today we’re focusing on the impact it’s already having on manufacturing, from the supply chain to how we run our factories, and, more importantly, that there are many times where we don’t actually need 5G to get this done.

Joining me today are two McKinsey leaders who spend a lot of time on the front lines of transformative technologies. Michael Chui is a San Francisco–based partner at the McKinsey Global Institute, where he leads research on the impact of technology on business and society. Enno de Boer is the global head of manufacturing out of New York, where he’s worked with partners like the World Economic Forum on the future of production and the Fourth Industrial Revolution. Enno, Michael, welcome.

Michael Chui: Thanks, Diane. Great to be here.

Enno de Boer: It’s great to be here.

Diane Brady: You are both on the front lines. I want to know who has the cooler job here. Enno, what is your answer on that?

Enno de Boer: I thought it was Michael, but my job got more and more exciting over the last three, four years—as technology is just exploding on the shop floor. So I would say I’m now head-to-head with Michael.

Diane Brady: Well, then we have to start with Michael. Just give us a primer on connectivity, because there really are two things I remember about the Super Bowl last year: one is the halftime show with Shakira and J Lo, and the other is this slew of 5G commercials announcing that the future was here. So is it?

Michael Chui: Well, it’s on its way here. You know that the G in 5G stands for generation. This is the fifth generation of these wireless technologies. And each one has been faster—and that’s definitely true. But there are other things, other benefits that this generation of technologies brings. Number one is, it actually reduces latency, which is this slightly technical idea.

But it just means that signals go one place and back much more rapidly. And that’s really important when you need to be highly responsive, like for a self-driving car, for instance. It also provides the capability of the Internet of Things, including things on the manufacturing shop floor, which I’m sure we’ll discuss later, and reducing the amount of battery necessary for something that isn’t powered up to stay connected. So it does a whole bunch of different things. The other thing that’s really valuable is it’s much more efficient in terms of how it uses radio spectrum.

Diane Brady: Enno, is the fifth generation what’s powering this Fourth Industrial Revolution?

Enno de Boer: It is, and it is not yet. But it is soon to come. So to your earlier question, I think 5G is just coming on the shop floor because you need private networks, private 5G networks, and those are just coming up and becoming available. Now, we have a real connectivity challenge on the shop floor because typically to drive value off the shop floor you need to bring together 20 to 30 digital solutions that are really changing the way you run your operations and really augment the operator.

I think the challenge that manufacturers are seeing now is, as we see this suite of technologies coming toward us, how to deploy them in a very structured way and make them work together. So that’s the challenge at the moment—it’s all about deployment. The technology is there.

Diane Brady: I want to start with COVID-19, because we’ve seen a number of both unanticipated and, to some extent, anticipated fallout from that. Michael, what has it done in terms of connectivity IoT [Internet of Things]?

Michael Chui: A couple things. One is that it has brought to the forefront some of the applications that advanced connectivity—5G and other technologies, actually—can enable. So if you think about things like trying to understand whether or not your work­force is safe, and being able to determine where they are, who has been connected to whom, if you need to do contact tracing, and those sorts of things, these technologies enable those types of applications.

It also enables remote healthcare. A number of different things, which could respond to the real public-health and healthcare needs that this unfortunate and terrible pandemic has caused. At the same time, as Enno was saying, we are just in the process of installing all of this 5G infrastructure. It will take billions of dollars and countless person hours to actually put all of the base stations, and antennae, and all the other things that you need to put in place.

In fact, it has slowed the deployment of these technologies because it’s harder to operate. These are people who have to work in the physical world, the people who you might describe as essential workers. They are falling sick, they need to maintain social distance, they need to have PPE [personal protective equipment]. And, capital budgets have been strained. The industry association estimates that deployments for 2020 are down about 25 percent as a result of COVID-19. So the need has been increased to a certain extent, or become more obvious. And yet the challenge about deployment has also increased, particularly while we’re still in this pandemic.

Diane Brady: Enno, my interpretation, or at least what I’ve gleaned from this pandemic, is that it has accelerated digitization. So I’m trying to bring those two ideas in line—that there’s less money, there’s less being done. But yet, at the same time, we’re clearly seeing acceleration on some fronts.

Enno de Boer: So we see on the shop floor, in the supply chain, an absolute acceleration. And the reason for this is that digital is driving real business outcomes. We have seen in this pandemic that we have a lot of uncertainty in the system, uncertainty that needs us to be very closely connected to the customer, because connectivity is important to the customer. And we have seen a lot of supply disruption in the system through this pandemic.

Supply-chain resilience is now a must-have. And if you think about supply-chain resilience, what you need is to connect literally all the way to your supplier and really understand where they are in the production process. You need to have a control in place that gives you oversight over your facilities. And that needs a lot of connectivity.

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