creating business in era of digital transformation

© 2017 KPMG Samjong Accounting Corp., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),a Swiss entity. All rights reserved. Printed in Korea.

Document Classification: KPMG Confidential

Creating Business in Era of Digital Transformation

- Smart Manufacturing for Digital Journey

KPMG Korea

2017

2


© 2017 KPMG Samjong Accounting Corp., the Korean member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.

Leading global automotive industries selected 'Battery Electric Vehicle (BEV)' as core trend, and 'Diesel' as disappearing technology. Connectivity & Digitalization is a key trend 2016~ 17

I. Digital Innovation in Automotive Industry

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Record high in size of M&A in automotive sector in 2016, the future automotive industry is being transformed to a consumer-centric connection and software-platform industry.


Source: Bloomberg, SAMJUNG KPMG ERI, SAMJONG Insight ISSUE 47 • 2017Note: by publication date until 2016.12.31

《 M&A trends in the global automotive industry》

63

21

68

25 35

46 36

71 61

88

534

464

335

382420 408

370

501525

598

0

20

40

60

80

100

0

150

300

450

600

750

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sales Volume No. of Sales

No. of M&A USD BilNissan Sold its Affiliated Automotive Parts Supplier, Calsonic Kansei

Through the sales of its affiliated parts company, Nissan secured investment capacity for next-generation vehicle technology, and it is necessary to seek “co-opetition” relations by dismissing its conglomerate structure in automotive sector

As part of its management strategy that requires preemptive investment in next-generation vehicle technology, Nissan founded JV to secure AI technology, a core technology of unmanned vehicles, and carried out active investment in R&D for future.

4




Source: SAMJONG Insight ISSUE 47 • 2017Source: IHS

0

10,000

20,000

30,000

40,000

50,000

2013 2014 2015 2016E 2017F 2018F 2019F 2020F

Aftermarket

Safety

Powertrain

EV

Chasis

Body

Dashboard

Infotainment

ADAS

(Unit: million dollar)

《 Outlook for Automotive Semiconductor Market》

Qualcomm acquired NXP, automotive semiconductor company

No 1 Smartphone System Semicon Co. seeks its new growth initiative from autonomous driving

Threatened by the existing market trend such as slower sales of application processor (AP), and uncertainty in the 5G era, Qualcomm decided to preoccupy a favorable position in the autonomous driving technology, visioning high growth in automotive sector of the future.

Record high in size of M&A in automotive sector in 2016, the future automotive industry is being transformed to a consumer-centric connection and software-platform industry.

5



The automotive industry executives, who regarded inorganic growth as an important issue in 2015, now feel the necessity of strategic alliances with new industries armed with Digital Tech


Source: KPMG’s Global Automotive Executive Survey 2017

.

2013 2014 2015 2016

#1

50%

40%

30%

20%

10%

0%

% o

f re

spon

dent

s ra

ting

a st

rate

gy a

s ex

trem

ely

impo

rtan

t

Cooperation with players from converging industriesCorporate partnerships such as joint ventures and strategic alliances

Organic growth

Mergers & acquisitions (cross-sector)

Mergers & acquisitions (inner-sector)

Outsourcing of (non-)core activities to suppliers / contract manufacturers

#5

#5

#6#6

#6

#5

#4#1

#4

#1#2

#4

#2

#4

#3

#3#2

#3#3 #1

#3

#5

#4

#6

#5#6

60%

2017

#2

#1

#2

Almost every second executive considers cooperation with

players from converging industries as extremely important.

58%

42%

Compete Cooperate

59%

41%

55% 45%

Compete Cooperate

OEM view

ICT view

55% of executives believe that OEMs and ICT companies will rather compete than cooperate.

#1

6



Who will own the "Data" which is core resources for Connectivity & Digitalization?Customer and automobile data are key to future automotive industry competitiveness


6% 14% 6% 14% 48% 6%

2 % 18% 7%

5 % 14% 5 % 19% 41% 7%

2 % 15% 6% 33% 29% 5 %

8%

10%

manufacturer

31% 27% 6%

7%

9%

Government

ICT company (e.g. Google, Amazon)

Government ICT company Mobility serviceproviders

OEM/vehicle Owner/driverof the car

Retailer/car dealer

Supplier

Mobility service providers

OEM/vehicle manufacturer

Owner/driver of the car

Retailer/car dealer

Supplier

Co

nsu

mer

Dat

a =

Dow

nst

ream

dat

aV

ehic

le D

ata

= U

pst

ream

dat

aExecutive

Consumer

Executive

Consumer

Over 30% of executives believe that OEMs are the owner of consumer / vehicle data.

Over 41% of consumers believe that the owners/drivers of thevehicle are the soleowner of thevehicle/consumerdata.

7



Autonomous Driving Concept Car

Fully autonomous driving automobile that communicates with people for the first time in the world

Artificial Intelligence (AI) uses sensor and camera to grasp feelings and physical condition of passenger

Introduction of IONIC, which is the closest to the mass-production model

'Three directions for future mobility‘: Eco-friendly, Free mobility, Connectivity

Pure electric vehicle equipped with fully autonomous driving technologies based on digital networking function and innovative control system

Introducing control features such as 3D digital cockpit, eye tracking and AR head-up display

Volkswagen ‘I.D Concept’ Honda ‘NeuV’Hyundai Motors ‘IONIC EV’

Source: Compilation of press articles, reconstruction of Samjong KPMG Economic Research Institute

Above 500 automotive companies, Bosch, Continental and Hyundai Mobis, and their OEMs attended CES 2017, introducing the autonomous driving cars in a competitive manner, and promising to change not only the automotive but also way of life in the future

II. Digital Innovation of Industries in CES 2017

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Automobile & IT Cooperation

Company Partners Area

NDIVIA Audi, ZF, Tesla

Passenger cars and commercial autonomous vehicles

Intel BMW Autonomous Driving Car

Qualcomm Volkswagen, Audi,Maserati, Chrysler

Autonomous Driving Car

Cisco Hyundai Motor Company

Smart traffic and intelligent remote services

Blackberry Lincoln, Aston Martin, Jaguar

Vehicle operating system

Microsoft Nissan Voice Recognition

Amazon Volkswagen Voice Recognition

Autonomous Driving Technology of IT Sector

NDIVIA

Intel

Tesla Model S is equipped with Brain of autonomous vehicle 'Drive PX2'

Q7 self-driving car based on collaboration with Audi With ZF, autonomous navigation system based on

artificial intelligence for truck and commercial vehicle

With BMW, developing a completely autonomous driving car BMWi Smart Car

Developing autonomous driving platform, announced BMW's self-driving vehicle pilot plan with Mobileye

Qual-comm

Displaying Maserati, Volkswagen Golf, Audi A6, etc. using the application processor 'Snapdragon'

'ARGUS', a cyber security system that protects autonomous car systems from hacking


Automotive & Digital technologies were frequently found in ICT sector, articulating autonomous driving based on artificial intelligence and connected car technologies. Now ICT and Automotive sectors live together on digital technology.


9



CES 2017 Smart Robots

Mayfield Robotics, a venture firm fully invested by Bosch, made Kuri

Kuri recognizes voice and responds to user by sound or lighting

Users can apply both Android & iOS

Kuri

A Chinese robot company, Ubitech, released a humanoid robot equipped with Amazon voice secretary, Alexa

Recognizes users’ voice, plays music, manages smart home devices, and recognizes and responds to face and facial expression

Lynx

LGE released household robot, Hub Hub recognizes users’ behavior and

voice and controls the lighting, security system and home appliances

LGE also released chat bot for airport guidance, and lawn mower robot

Hub Robot


The introduction of various smart home robots suggests that the age of popularization of robots is approaching, and the National Consumer Technology Association (CTA) expects "more than 5 million voice control robots for home in 2020"


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Knowing digital transformation does not end only after a certain period of time, digital journey should be planned and designed by firstly understanding digital technologies, and secondly tailoring them to business on “Think Big, Start Small & Brave” approach.

III. How to Start Digital Journey

Intelligence-centric

IoT SensorVision

VR/ARChat Bot

Smart Control

Optimized Decision Making

AI on Autonomous Adaptation

Cloud & Fog

Computing

Data CollectionCentralized vs. Distributed

Optimized Feedback

Smart Gateway

D&A Pattern Algorithm on

Ontology

Virt

ual

Phys

ical

CustomerFront

Process

RobotDrone

HW/SW

Cyber Security

Cyber Physical System1

4

2 3 5

2 61 7

http://www.google.co.kr/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwi6ycqpzKbXAhWEUZQKHcPUDTQQjRwIBw&url=http://wwlp.com/2017/03/10/hotel-study-claims-aibnb-becoming-platform-for-businesses/&psig=AOvVaw1G-fa3IRaSXlZ0_5UVSLhJ&ust=1509942498413882

http://www.google.co.kr/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwi6ycqpzKbXAhWEUZQKHcPUDTQQjRwIBw&url=http://wwlp.com/2017/03/10/hotel-study-claims-aibnb-becoming-platform-for-businesses/&psig=AOvVaw1G-fa3IRaSXlZ0_5UVSLhJ&ust=1509942498413882

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Getting started— Email, contacts &

calendar— BYOD

Access to content— Documents— Reports— Sales decks— Collateral

First mobile app— Customer-facing— Internal LoB

enablement

App pipeline— Suite of LoB apps— Mobile access to

business systems— Mobile enabled

workflow

Governance model and mobile COE

Industrialize mobility— Standards— Code re-use— Mobile analytics— Data mgmt.— Methodology— Alliance

management— Additional tools

Enable the business— Native vs. Web— App containers— Back-end integra

tionMAM/distribution

— Apps security— Privacy policies

Access to the enterprise —

— MDM+— Mobile VPN— Cloud storage— Third party apps

Secure devices— MDM / Policies— Security tools

Mobile as anongoing enabler of businesstransformation

IT tools, processes, decision& projects

Business requirements& desires

Think Big, Start Small & Brave!

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1

2

3

4

5

What are core infrastructure and intelligence that will lead the 4th Industrial Revolution?What are the digital technologies at strategic sweet spot, artificial intelligence, data platform, autonomous navigation?

Have you distinguished valuable data from garbage ones, through the full value chain of data, from customers – marketing - logistics - production - purchase? Have you tried to connect data sets to make “Enterprise-Wide Optimization”?

Why do you want to connect? Do you clearly define what objective to analyze the data? Why do global executives and companies participate in CES and try to converge business ?

What are the Digital Techs that will bring benefits, opportunities, and disruptive innovations to business, and break down the boundaries between industries? Have you studied and tried to apply those Digital Techs by comparing various options?

Does the organization accept "Think Big, Start Small & Brave" as a disruptive innovation?How do you make change management when using disruptively innovative Digital Techs?


Strategic Implication: Connectivity through Data Platform

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IV. Digital & Smart Manufacturing

6 dimensions build the basis of i4.0‘s principles

Source: KPMG International, i4.0 framework 2017

Industry 4.0 Readiness Assessment

Industry 4.0 Readiness Assessment is a starting point for digital journey, reviewing the level of utilization of Digital Techs and measuring the influence over six dimensions of company.

KPMG Six Dimensions Assessment Industry 4.0 Readiness Assessment

Strategy & Business Modell

Technology

Finance & Risk Manageme

nt

Employees & Competences

Systems & Processes

Services & Networks

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CloudData Processing Data AnalyticsSimulations Visualization

Digital Transformation Platform LevelDecision Making SW

Data StorageData Level Maturity Level

Productioncapacity planning

New product development

Factorylayout

Business planninq

Production planning

Procurementorder

Sales order

Production order

Sales planning

Strat-egy

SCM

Business Function Level

Factory Level

FeedbackDecision MakingData Collection Feedback

QRBar-code

IoTdevice

Sensor Switch ActuatorRFID

CorporateLevel

MES

Strate-gy

Opera-tions

Organi-zation

KPI mgmt.

Work order

Facility management/monitoring

Qualitymanage-

ment

Materialreceipts

Product/semi-product record

Enterprise-Wide Optimization

DDM

AP server

Server

PLC

ArchitectureLevel

Delivery order

Data Managing SW/HW

Objectives of Future Factory

1

Visualization through Data PlatformCollect production data of facilities, processes, products, people for visibly controlling factory according to real-time status

2

Data Analytics for Decision SupportPre-capture of quality abnormality and equipment maintenance timing based onanalysis of production data, pattern, and algorithm thereof

3

Simulation for OptimizationOptimizing management process based on insights and algorithm drawn from analytics,and accumulated by ontology

4

Robotic Process Automation (RPA)Replace repetitive and rule-based tasks by S/W. H/W, digital devices, and cognitive technology

Factory of the future is based on Enterprise-Wide Optimization ("EWO"), where data are seamlessly connected, pattern and algorithm are creating value, and reaching digitally-transformed decision making process on incentivized and agile data platform.

15




The ultimate goal of digital journey in manufacturing industry is to create a new disruptive innovation business model that utilizes Digital Techs.

Build a digital platform

• Apply Digital Tech to production

• Purchasing -Production - Logistics -Customers

• Data collection / connection and

• Pattern-Based Decision Making

Corporate / Industrial Disruptive Innovation

• Digital Tech makes it possible• Make the most of the features

/ benefits• Ecosystem design for partner

companies• Remove Production /

Operations Boundaries• PLM-based Digital Article

Collection

Open Innovation

• Convergence of Heterogeneous Industry / Internal & External Data

• New Business Model based on Digital Techs

Out-Company, Data connectivity with

Public Sector

Enterprise-WideOptimization

Digital & SmartFactory

As-Is

New Business(Product / Service)

Digital & Smart Factory

Enterprise-WideOptimization

In-Company, Data connectivity with

Industry Value chain

As-Is

New Business

16




Production equipment, digital signal processing, networking, DB / Cloud technology vendors consist of ecology that future factory should interact and leverage collectively.

① Building Digital Tech Ecosystem in Manufacturing / Operations / IT

Purpose of optimization by using digital-based data linkage

Establishing an ecosystem that integrates vendors with full spectrum function in collecting and linking data

② Collecting and Completing Digital Articles Aiming Cyber-Physical System

Optimized data value creation modelingthrough design / manufacturing / operations aiming CPS (Cyber-Physical-System)

Automated (and adaptively autonomous) decision making by convergence of internal / external data crossing-over industries

Commercialize data-driven and optimization capabilities across the industry ecosystem

Assembly ProcessHybrid

S/WData Analysis / AI

Simulation / Optimization

Production equipment management

DB + Cloud

Networking

H/WEquipment

(OT)

Signal

processing

IoT

Digital Technology Vendors Ecology Objectives of Ecology

17



Siemens has consistently linked Amberg's manufacturing facilities, software and data platforms. Implementation of Digital Factory that establishes the whole chain of value chain including data collection - infrastructure - data analysis – feedback.


Siemens Digital Factory Image Data Analysis & Feedback

Infrastructure Establishment

- Data Platform for real-time data analysis is required

- Improving KPI by utilizing facility management / D&A / visualization by configuring Data Platform

- Continuously improving quality, operational excellence through data feedback structure

- Sensing most of (un)structured data of value chain using devices such as IoT / PLC / POP

- Middleware software is essential for seamlessly connected and real-time data collection

18



TESLA's Smart Factory System

Source: TESLA, SAMJUNG KPMG ERI reshaped

Smart Cut System

Operates the body transportation system using the magnetic force of the magnetic tape installed on the floor, instead of the conveyor belt.

Operates in the air without physical contact

Automated robot assembly process

Employees serve for process monitoring and machinery maintenance

Operations Objectives

Easily and quickly change assembly process without additional investment

Operates at the same speed when mass customized cars are ordered

Production Line Image

The data of the robot is continuously updated,advanced robots and technology contribute to productivity

and quality improvement

TESLA introduces Smart Cut, a magnetically levitation assembly system, away from traditional conveyor systems. This production robots can perform dozens of various tasks by entering into a new task in a shortest timing. This intelligent flexibility is a key element of production that can make anything other than automotive vehicles.


19



Enhanced learning through FANUC's visual intelligence technology

Source: FANUC, reconstruction of Samjong KPMG Economic Research Institute

Search

•Using 3D Area Sensor

•High rate scanning

Map

•Creating 3D maps

•High-speed visual line tracking

Pick & Place

•No manual positioning

•Early correction

Applying reinforced learning enables FANUC to engage robots in

new missions immediately, without time-consuming training

Deepening reinforcement learning progress

FANUC developed and commercialized self learning robot technology steadily through combining AI, smart sensors, and machine learning with existing robotics technology. In addition, through technology cooperation with NVIDIA, FANUC secured Digital Techs such as AI, cloud, data center, and embedded device with deep learning.


20



Applying VR/AR into the data value chain, companies are able to realize innovations by detecting defects, and improving business operations that have not been recognized before.


Data Value Chain Innovation

•Achieve innovation in corporate management activities by visualizing data from value chain such as product design, corporate data analysis, marketing, product production, and post-customer service.

Cave Automated Virtual Environment (CAVE)

•Provides an simulation environment with 3D visualization (VR)

•Create an environment to remotely identify problems and improve ideas among interested parties

1

2

•VR (Virtual Reality): Reality created artificially through computers

•AR (Augmented Reality):Computer graphics technology that combines virtual objects and information in a real environment to make them look like objects in the original environment

<3D Visualization of Product>

<VR/AR Factory Monitoring>

Technologies

•During production, controlling and optimization for various scenarios and conditions are feasible to reduce trial and error, and time to market

Background

MHI's Virtual Reality Implication

21



General Electric (GE) established a Monitoring & Diagnostics (M&D) Center toprovide 24 / 7 / 365 service to analyze, diagnose and solve the conditions of facilities


Building a new business model with enhanced operational excellence

• Recognizing and strengthening GE's Operational Excellence to build a model that evolves from manufacturing products to providing services

Provide the same service regardless of manufacturer (on GE Platform)

• GE collects, analyzes, and diagnoses data by attaching sensors for data collection so that it can provide data library for same devices/facilities users

• Increased users of GE Platform, Predix, users can be locked-in to GE

1

2

• On-Site Monitoring: Automatically collects and processes data through advanced algorithms such as 24-hour monitoring of facility status and trend analysis for diagnosis

• Operational Assessment Report: Provides key asset status and operational metrics to help manage asset maintenance

<24/7 Monitoring Sys.>

<GE Remote Monitoring>

Service

• Identify the cause of the problem through data analysis and minimize down time to improve performance and manage risk

• Evaluate and improve key performance indicators

Advantages

GE Remote Monitoring & Diagnostics Implication

22



Bosch provides education engineering service to similar or heterogeneous industry companies based on accumulated data of Industry 4.0 technology. By educating and networking engineers resources, Bosch can secure options for a Factory as a Service.


• Bosch Rexroth: As a subsidiary of Bosch, a leading supplier and user of Industry 4.0 solutions

업체 소개

<Bosch mMS 4.0>

<i4.0 Training Service>

Factory operation know-how service: FaaS (Factory as a Service)

• Bosch's factory operation know-how and new technology utilization method as a service to support Industry 4.0

• Leveraging capability of Bosch for Industry 4.0, consulting advisory to other companies can be servicified

Developing and Accumulating Engineer Pool for Industry 4.0

• Industry 4.0 training services enable Bosch to be industry-leading talent provider and human resources matcher like Linked In service

1

2

• Provide knowledge and experience related to Industry 4.0 to universities, institutions and companies through educational system

• Support Document / e-Learning Solution for real Industry 4.0 related technology [Example: Providing mMS 4.0 module training system to simulate the entire Industry 4.0 factory]

Service

Company

Bosch의 Industry 4.0 Training Service Implication

23



1

2

3

4

5

Reflecting each company's portfolio, capture core technology and intelligence of Industry 4.0 and actively review R&D support and M&A.

Prepare for a data-based hyper-connected society and identify the promising industries by paying attention to the paradigm shifts in various industries

Recognize that convergence between heterogeneous industries / technologies is accelerated, and actively monitor technology trends to find business opportunities

Build/use a generalized and powerful data platform that break down the boundarybetween the industries as ICT sector accelerates the entry into the automotive sector

Considering industries, products, and technologies are changing rapidly, leap forward to disrupt by establishing an agile, and data-platformed organization

The strategic implication: Digital Transformation starts from and is sustained by understanding and using Digital Technologies

V. How to Sustain Digital Journey in Manufacturing

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© 2017 KPMG SamjongAccounting Corp., the Korean member firm of the KPMG network of independent member firmsaffiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Korea.

The KPMG name and logo are registered trademarksor trademarksof KPMG International.

KPMG Consulting Service, Center of Excellence for Digital Transformation

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Taiyoung Kim, [email protected]

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