Demystifying Digital Transformation in Manufacturing
By Louis Columbus
To stay competitive, manufacturers must continually reinvent themselves and find new ways to improve—whether by delivering differentiated products, controlling costs, or improving quality.
To stay competitive, manufacturers must continually reinvent themselves and find new ways to improve—whether by delivering differentiated products, controlling costs, or improving quality. So, it should be no surprise that manufacturers’ pragmatic, practical need for results presents a perfect proving ground for digital transformation techniques, technologies, and processes.
New digital technologies that promise to transform manufacturing must provide improved business outcomes if they are going to become engrained in the daily operations of any organization.
Today, three factors are accelerating the adoption of digital transformation techniques, technologies, and processes: the chronic labor shortage of workers in manufacturing, customers’ requests for more product quality data on each production run that includes their orders, and customer expectations for price breaks over time.
This article looks at pragmatic strategies for applying digital transformation approaches in order to turn the industry pressures faced by manufacturing into opportunities for gaining a competitive advantage.
It’s All About People
It is easy to focus too narrowly on the word “digital.” However, real digital transformation is all about empowering people. That is particularly true at the core of manufacturing, where the goal is about improving how people get work done and how information technologies can help employees to streamline and improve the daily processes of producing high-quality products.
In my experience, 80 percent to 90 percent of a given enterprise resource planning (ERP) system implementation’s costs are for customizing a system to match how teams work. This includes change management programs, training, and continual support of new technologies that support the core ERP platform. Spending on software is a mere 10 percent of a total implementation.
The same holds true for manufacturing’s adoption of the latest digital transformation technologies, including additive manufacturing, analytics, 3D printing, the Internet of Things (IoT), machine learning, and manufacturing intelligence, to name a few. Adopting these new technologies has everything to do with change management, and the first goal is to define how they improve people’s ability to get more done in less time while capitalizing on their core strengths as contributors.
The tighter the match of any new technology in the context of strengthening people’s ability to contribute and help them excel, the higher the probability that an initiative will succeed. Therefore, giving employees greater training and expertise in using this technology to do their jobs is a compelling and proven business case that delivers results. By coupling years of experience and expertise with the latest digital technologies and automation, manufacturers can create a winning combination that makes them formidable competitive forces in their markets.
A report by McKinsey & Company on how digital manufacturing can escape “pilot purgatory” highlights how addressing the human factor is critical to closing the digital transformation gap that exists in manufacturing today. Although 70 percent of manufacturers told McKinsey that digital manufacturing is a top priority, just 30 percent of organizations have rolled out pilots companywide.
As part of its recommendations for closing this chasm, the McKinsey study recommends “getting ahead of the capability gap: build the skills to achieve impact and the culture to sustain it.” At the same time, it emphasizes the importance of manufacturers having their senior management team champion any new digital initiative and model the behaviors needed to make it succeed.
From the CEO to senior executives and line managers, members of the leadership team need to show they have skin in the game and are completely committed. I have seen CEOs dive in to learn new applications and techniques, and even earn certificates in machine learning, so they can serve as role models for their teams. And it works; their efforts inspire others to continually improve.
Digital transformation is not about replacing people; it must be about giving people new ways to excel in their jobs while capitalizing on their expertise and experience. The combination of human and tech factors leads to exponential gains in scale, speed, and productivity. McKinsey’s excellent report underscores this point with examples and is worth a read.
Business Case First, Dashboard Later
Manufacturing is dominated by professionals with engineering expertise, and many decisions are made with an engineering-driven mindset—one that highly values reliable, true analytics and metrics of performance. That is why many of manufacturers’ initial digital transformation pilots are focused first on analytics and manufacturing intelligence.
Such insights are highly valuable in the pilot and production phases of a digital transformation initiative. But before manufacturers start thinking about dashboards, they need to put their best engineering and financial minds to work on building a compelling business case if they are to attain the benefits they seek.
In laying the groundwork for their digital transformation, manufacturers need to build out a true business plan complete with financial projections of when, where, how, and why the new technologies are going to drive more revenue and reduce costs. This plan should focus on the incremental revenue gains and cost reductions possible with a new series of technologies, so that the company can recognize and track results early on.
Without establishing this framework first, dashboards can quickly become swollen with so many metrics and key performance indicators that they become unusable in directing the digital transformation project.
By thinking about the business case first, manufacturers have a great opportunity to unleash their best minds on the most challenging problems of all: how to keep growing and keep costs down in uncertain times. However, manufacturers need to resist the temptation to trim headcount to get cost savings and instead look at which process areas are costing excess time and revenue.
Manufacturing’s labor shortage is not going to end anytime soon, so keeping valuable workers is a prudent idea. Besides, as digital transformation efforts increase the open production hours that can be used to take on additional customer orders, those employees will be needed to build the products.
The best business plans are predicated on improving processes, products, and procedures that involve tight collaboration between personnel in design, investing, manufacturing engineering, sales, marketing, channel marketing, and pricing. Together these teams need to develop the business case and supporting road map of why any given new technology makes sense to adopt. By far the most effective business cases are those that seek to create greater orchestration for new product development across the many functional areas of a manufacturing operation.
One core focus of digital transformation in manufacturing today is tighter orchestration of new product development using product life-cycle management (PLM) with ERP and manufacturing execution system (MES) solutions, and sales and marketing insights from customer relationship management (CRM) software. By orchestrating these systems—which all too often do not communicate effectively with each other—manufacturers aim to respond faster to both customer demands and market conditions.
Often real-time monitoring shows the gaps between PLM, ERP, MES, and CRM systems that slow down new product development and make cost visibility a challenge to improve. Through real-time monitoring, manufacturers can access a contextually rich, real-time data stream to benchmark operations and determine the best approach to improve process areas.
For this reason, real-time monitoring of the most essential production processes across different systems is often the first step manufacturers take in digitally transforming their businesses. In taking advantage of real-time monitoring, the overarching goal needs to be providing design engineering with the same data that manufacturing, sales, and marketing teams are using, so all of manufacturing operations speak the same language.
True digital transformation helps teams to understand the constraints and challenges of the functional departments they rely on, and then applies integration to make each department multilingual from the standpoint of speaking the languages of teams they work with daily.
The most successful digital transformation efforts get everyone talking the same language by normalizing performance using real-time product and process monitoring to identify gaps between systems and then putting real-time integration in place to close those gaps. While all this is happening, production team members often remark that they are finally getting the data they need to excel at their jobs.
Most important of all, taking an integrative approach to digital transformation can keep manufacturing on the one true path of being customer-centric—focused on how to solve customer problems with products, delight customers with new product and service experiences, and help their customers grow.
Manufacturers that combine real-time product and process monitoring with system integration can better orchestrate the core enterprise systems they rely on. This, in turn, enables them to find new ways of optimizing production processes while paying attention to customers and how they are using products to help them grow.
All manufacturers are part of a broader supplier network, especially those competing in business-to-business markets. Excelling as a supplier is best achieved by trimming time off the production process while improving quality and understanding tier-one supplier or original equipment manufacturer customers’ needs to improve the end product.
Digital transformation selectively applied using a strong business case provides this level of end-to-end visibility for members of the supply chain. This visibility, for example, makes track and trace functions much easier to accomplish than previous manual methods. Most important, with real-time product and process monitoring, manufacturers know where they are excelling and how they need to improve in supplying products to a final assembler.
The best-performing manufacturers on the planet may not always be the most well- known or those mentioned the most in the media. They are the ones that have a nearly unbreakable bond of trust with their customers, because they have learned how to produce products with integrity, and they are transparent on all aspects of production.
It is not that they are perfect and do not ever make mistakes; every manufacturing operation does. It is that they own up to those errors, know how to act with integrity, are not afraid to share product quality data, and in short have earned the trust of their customers through years of operating this way.
The ability to provide transparency and instill trust is where being selective about which digital transformation technologies to use becomes relevant. Real-time monitoring and systems integration combined with predictive analytics, 3D modeling, and robotics are giving manufacturers new insights into how they can improve product quality, streamline fulfillment, improve product configuration options, and respond to the life-cycle requirements of their customers.
In summary, having a digital transformation initiative that is driven by a strong business case— and recognizes that people come first—is the key to succeeding with any new technology that has the potential to drive revenue and reduce costs. The essence of a strong digital transformation strategy is the willingness to become collaborators in creation with customers, suppliers, and employees. It takes the best minds a manufacturer has to make any digital transformation succeed, so paying attention to change management first is an imperative.
The commitment to change management starts at the top with the CEO and the management team. And for manufacturing to stay strong as an industry, true digital transformation is really a commitment to continual self-transformation. That desire and passion to keep learning and improving is the catalyst that ensures new technologies deliver value and dividends for decades to come.
About The Author
Louis Columbus, enterprise software strategist, is currently serving as principal of IQMS/DelmiaWorks. You can reach him on Twitter at @LouisColumbus. IQMS is a maker of manufacturing ERP software and part of the Dassault Systèmes portfolio. Columbus previous worked at Ingram Cloud, iBASEt, Plex Systems, and AMR Research (now Gartner). Columbus is also a member of the Enterprise Irregulars. His academic background includes an MBA from Pepperdine University and completion of the Strategic Marketing Management and Digital Marketing Programs at the Stanford University Graduate School of Business.
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