Digital transformation in manufacturing involves multiple technologies and can take place in multiple aspects of company activity. New relationships with customers, new products, new combinations of products and services, new processes, new business models, new supply network management and new business eco-systems are possible with the application of a broad range of new technologies. This section describes some of the possibilities that are available – more are appearing every day. The following video introduces the range of options:
Evidence indicates that Canadian manufacturers are getting significant benefits from digital transformation. BDC’s study of small to medium size manufacturers showed that 60 % of adopters said that boosted productivity, 50 % that it improved operating costs, 42 % that it improved quality and 13 % said that they had a greater capacity to innovate. Those that have adopted digital forecasted higher growth in the future than those that didn’t.
Effective digital transformation requires a carefully planned strategy that understands the range of possibilities available and how they can be best combined. If done effectively, the results can be substantial.
Creating New Customer Experience
New Customer Expectations
Both business and consumer customers have expectations of closer relationships with the businesses that are meeting their needs. 62 % of Canadian companies reported that customer expectations were a primary innovation driver (CME). This creates an opportunity for manufacturers and the members of their supply chain to apply technologies that allow collaborative communications to take place and data to be gathered that can be used to enable them to do business better. Social media facilitates intensive product or service-based interaction with customers.
When combined with connected products it can lead to improved levels of service, better product design and development, and better sales and marketing. Automation and artificial intelligence are now being applied here and will enable higher levels of performance to be achieved.
For example, mining equipment is now often connected via sensors to its Canadian supplier. This enables better service and maintenance to be provided and valuable information on its use to influence future [product development. That information is also shared with sales and marketing who can use it provide better advice to customers.
New Customer Experiences and New Combinations of Products and Services
Increased competition and the capabilities that are provided by new technologies are changing the nature of the products, and now services, that are offered by manufacturing companies and their partners. Competition has led to a desire to differentiate products by offering additional services that enhance the experience and add value for the customer, while new technologies offer more opportunities to do this.
Nebula Controls, of Waterloo, Ontario provide intelligent systems for greenhouses that enable lighting and other factors to be controlled to maximise growing benefits. Information gathered can be aggregated in the Cloud and allow the knowledge gained from all users to improve advice and services available for farmers in their control and analytics.
Improved service and maintenance on products can be offered through the internet of things, which connects products to the internet. Products can be monitored, remotely and services offered, based on their status. For example, manufacturers can offer remote monitoring of domestic heating equipment and replace parts when they fail. Automotive producers can monitor the status of cars on the road and offer services based on sensors located on the car. The data gathered can inform future product development and influence understanding of market trends. The following video from McKinsey considers how technology can be used to transform customer experiences:
Many products are likely to have service aspects included with them that will increase the value added by manufacturers and their potential income. Longer term relationships will be established between customers and manufacturers. New partnerships with organizations with capability in the new service areas are forming to support this new business model.
Improving Operational Efficiency and Effectiveness
Reduced Costs
Cost reduction is a constant effort in many manufacturing companies and this has intensified in recent years. Often, cutting costs achieves short term financial results but is at longer term expense. Reduced product quality, less investment in research, capital and skills mean decline in performance and a spiral of deterioration.
Information technology enables better decisions to be made on which costs can be cut and which should be protected. Better understanding of customers through the use of social media and customer relationship management will enable more effective value engineering to be practised. Simulation and the use of digital twins allow proposed operational changes to be better understood and better decisions made.
The internet of things provides better maintenance information so that maintenance resources will be better targeted and the impact of cost reductions on equipment can be better understood. The technologies available for digital transformation can help avoidance of negative cost cutting and inform efforts to create efficiencies. McKinsey have estimated that organizational digital strategies can improve operating margins by as much as 20 %.
Improved Processes
When products and technologies are changing more quickly, process improvement is more important. It identifies opportunities for cost reduction and quality improvement and is necessary for organizations to respond to new market demands and take advantage of new technological opportunities.
Process improvement should be based on good knowledge of markets and customers that can be gained from good customer relationship management systems. The internet of things can provide better understanding of the performance of existing processes and better focus improvement efforts. Digital twins can enable proposed improvements to be better assessed and better process investment decisions to be made.
Information technology provides better knowledge of customers and processes and enables better decisions to be made on process improvement to lower costs and improve quality.
Improved Quality
In manufacturing, quality improvement is designed to improve products and services and to improve the quality of processes. Often these improvements can be achieved at minimum cost increase or while reducing cost through process improvement.
Customer expectations of manufacturers are changing more quickly than ever before. Technological advance means that the products that are available to customers are advancing fast and their expectations pf product quality and the services that will accompany them are growing quickly. Quality improvement today must be undertaken in the midst of transformation.
Digital transformation in manufacturing features more rapidly changing customer demands, products and processes. In this environment continuous quality improvement is more important than it has ever been before. Its effective application requires early and comprehensive understanding of customer expectations and demands through a process of closer customer engagement than is common today. It requires the organization to incorporate new technologies in its processes and continuously seek to improve and fine tune its activities in response to the needs of the customer. Daimler Trucks Asia’s proactive sensing project estimated that it would save $8 million in warranty costs in its first 24 months (Deloitte). In the following interview I discuss the digital transformation and quality management with Dan Jacob of Estee Lauder:
Technologically based engagement with customers is necessary to achieve the levels of knowledge that are required on a continuous basis. Artificial intelligence and data analytics will enable the information gathered to be understood. the internet of things will allow quality improvements to be better designed and refined as they are implemented. Automation and robotics will facilitate better process reliability and process quality to be improved.
Better Maintenance
Maintenance in manufacturing organizations is being revolutionized by digital transformation technologies. Equipment reliability is an important aspect of most manufacturing organizations. Equipment that is not working is not producing income and equipment that is not working properly can cause reduced productivity and lower quality. Simply fixing equipment when it breaks is widely understood to be less effective than performing activities that service equipment so that breakdowns will become much less likely. This approach has featured in many organizations for many years.
Preventative maintenance attempts to anticipate equipment failures and act to prevent them. Many manufacturers have established programs to do this and some have been reasonably effective. Others have implemented programs and abandoned them because the results have been poor. Knowledge of the equipment and the practices needed to prevent failure has often been weak and sensors fitted on equipment have often been insufficient to provide enough data to base maintenance programs on and to provide confidence to allocate the resources that are required to properly implement them.
This is changing with digital transformation. Internet of things-based sensors allow much more and better data to be gathered from equipment. Artificial intelligence can be applied to understand that data more and make good decisions with it, communication technologies can better coordinate and inform maintenance personnel and information sharing technologies can enable information to be shared between multiple companies and better knowledge gained from this larger data set. The following video describes digital transformation and predictive maintenance:
Many organizations have started to apply the internet of things in maintenance activity. Companies that use large common equipment, where failure is especially expensive have featured amongst the early adopters, such as engine locomotives, wind turbines and power stations. Aveva report that a single early warning of a crack in a turbine rotor saved a power utility over $7.5 million.
More Accurate Forecasting
Forecasting is used by manufacturing organizations because they are unable to respond instantly to changes in demand. The time required to order raw materials, the cost of holding inventory and the time to produce an order once it is received mean that forecasting is used to anticipate demand and organise resources to respond to it.
In recent years, as competition has intensified and the pace of change in markets has increased, forecasting has become more difficult – there are higher levels of uncertainty to deal with. While forecasting has never been able to accurately predict the future, today’s predictions are less reliable than they have been in the past. Deloitte report that current forecast accuracy levels in manufacturing are 70 – 75 %.
Big data, gathered from internal and external sources, combined with data analytics and artificial intelligence are seen as the solution to this problem by many organizations. They have the ability to base predictions on many more data sources, that have been more recently gathered and quickly processed, increasing the likelihood of less inaccuracy. This will be valuable for many organizations. IBM tell us that their technology will improve forecast accuracy:
Rapid change and complexity are likely to continue to increase in future years and forecasting is only part of manufacturing companies’ possible solution. The other is to increase the speed of response that manufacturing facilities and supply chains can make to changing requirements. Agility, through the application of technologies that create flexibility such as 3D printing, automation and intelligent scheduling systems, combined with more responsive, collaborative supply chains is needed. Quicker responses reduce the time period that needs to be forecasted and the impact of its certain inaccuracy.
Embracing New Business Models
New Business Models
The opportunities that technology provides will fundamentally change many manufacturing companies. While some will see little change, others are changing now and will look very different in the future. Products will incorporate technology-based services based on connectivity. Internally, existing operations will incorporate a range of new capabilities which will depend on the nature of current products and processes and the technology applications that can be applied to them. The World Economic Forum report that 80 % of executives think their business model is at risk. Germany’s automotive industry is a good example, as reported by the Economist:
New business models will develop in many industries which will transform manufacturing businesses. Some areas of activity will decline, while others will increase, and new business activities appear. Skills and jobs will change, new partnerships will form, and supply chain collaboration will allow them to work together effectively. These new relationships will spur further new products, services and businesses. For example, in the automotive sector car manufacturers are investing in their own car share companies, exploiting technologies that enable sharing and anticipating changes in customer demand. IDC report that 63 % of Canadian manufacturing companies are developing new business models through creating digital channels and business platforms and 47 % expanding to new industries.
New Business Eco- Systems
As businesses transform, they will form new relationships with organizations that will provide products and services that support their new activities. New technology enabled, service-based products will create relationships with technology providers including cloud services. New suppliers will support robotics and automation and new relationships with learning providers will supply the necessary skills, for example.
New eco-systems are emerging and new relationships and partnerships are being formed. Organizations are working together that did not do so before and some important relationships that existed in the past will no longer be needed. New eco-systems for farm machinery producers include relationships with technology providers to supply equipment that is connected to satellites and GPS systems that enable information gathered by satellites to direct more productive machinery behaviour in the field, utilising services provided by the manufacturer.
In the new competitive environment, with intensified competition and rapidly advancing technology and changing products, effective supply chain cooperation is more important then ever. Products are rarely wholly created and delivered by one company meaning that competitive performance depends on the performance of the entire supply chain. Effectively managing supply chains in this rapidly changing environment is critically important. The Boston Consulting Group have produced a good summary of digital ecosystems:
Relationships within the new eco-systems will also exploit the capabilities that new technologies offer. The internet of things will enable better coordination of supply and closer collaboration in product design and development. Cloud services will enable information to be more easily shared and collaboration tools will enable the members of the eco-system to work better with each other, to improve processes and respond more quickly to more dynamic markets.
Information technology is enabling organizations to work together more easily across the world. Higher levels of visibility of activity and easier collaboration on product and process decision making and improvement can enable businesses to compete better. Technologies that they will use will include the internet of things to track activity, the cloud to store and share data, artificial intelligence to process big data from the entire chain and social media tools that enable collaboration. In future self driving vehicles and new forms of automated delivery of products will enhance supply chain activity.
While new business eco-systems will enable new business models to flourish, other businesses will decline in this new manufacturing environment.
New Possibilities For Employees
New business processes, models and eco-systems will require new activities and skills for employees. Information technology-based skills are now highly valued, especially those needed to operate, support and manage the new technologies. Capgemini estimate that organization’s non-physical skill needs will increase by 50 % as a result of digital transformation. The ability to work effectively with others in rapidly changing environments, important today, will be even more important in the future. Participation in continuous improvement activity will be routine.
The skills that managers need will also be transformed. Manufacturing is changing from its focus on doing the same work, the same way this year as was done last year, it is now an environment where managers must be agents of change in support of the organization’s strategic objectives and where the impact on employees will need to be managed very carefully:
For employees and managers this new environment can provide many opportunities and be very exciting. For existing employees, significant changes in technical skills and in their participation in the organization that they work for will be necessary. This will be attractive to many, allowing them to do more highly skilled work and to be an active partner in their organization.
“New Ways of Working is one of Maple Leaf Foods core digital transformation initiatives. The team is looking to cloud, mobile, and data analytics as the drivers of this transformation. Designed for both flexibility and productivity, the technologies free teams from doing mundane tasks in favor of a more strategic focus. Employee engagement figures will be used to monitor success”. IDC
Managers will need to be able to motivate and inspire these behaviors amongst employees. They will also need to have a good understanding of the new technologies that are involved in the processes that they are managing and have the skills to work with a range of different partners throughout the organization.
Jobs will not become more exciting for all employees in all manufacturing organizations. Some will be automated and disappear and others will become less skilled. It is important that organizations deal with this with compassion and sensitivity.
Many organizations are struggling with this aspect of their transformation today. It is critical that they address it if they are to be successful with their transformation activity. Senior organizational leaders must be capable of leading their people through this fundamental change in their working lives. This presentation from SAP provides advice on effectively managing the transition.
Integration
Organizational silos are a severe barrier to fully exploiting information technology in manufacturing. The possibilities of organizational improvements and new business models and eco-systems can only be realised if people effectively work together across the organization and throughout its supply network.
Information gathered by sales in its engagement with customers can now relatively easily be shared with providers of service and repair to products so that they are aware of customer history when they make their service calls. Information can also be shared with product development and design and used in improvement of existing products and the design of new offerings. Sales information can influence forecasts of future demand and focus process quality improvement efforts. Cloud based information sharing can be spread to the entire supply chain and collaboration tools can be used to support its exploitation.
Integrated use of the technologies that are now available to organizations requires organizational transformation. From the senior management team downward, people need to be willing to work with others working in other functional areas. An ongoing, conscious, structured effort to integrate technology adoption and use to enable integration to take place is needed.
Operations and Supply Chain Management 