Are Manufacturers Ready For The Digital Industrial Revolution?

Anja Reschke

The manufacturing industry is seeing a huge impact from what’s being called the digital industrial revolution. Innovative manufacturers understand that digital transformation is essential to sustain profitable growth and a competitive edge in today’s increasingly disruptive business environment.

What’s driving digital manufacturing?

The following three driving forces are pushing manufacturers to become more digitally competitive:

  1. Product-based business models are transforming into services via subscription or pay-per-use business models
  1. Growing customer expectations and changing business needs are extending the customer experience
  1. Mass customization allows consumers or partners to configure or make things to order

The staggering potential of smart factories

According to “Smart Factories,” a recent report by Capgemini Consulting, a revolution in manufacturing is clearly underway. The survey of more than 1,000 senior executives includes some key findings that indicate the potential of the digital revolution in the manufacturing sector:

  • Smart factories could add between $500 billion and $1.5 trillion in value to the global economy in the next five years
  • Three-quarters (76%) of manufacturers are either formulating a smart-factory initiative or already have one in place
  • More than half (56%) of manufacturers have earmarked $100 million or more toward smart factories

Leading digital manufacturers

Some manufacturing giants have already made significant commitments to developing smart factories in the past couple of years:

  • Audi invested more than €1 billion in a smart plant that opened in Mexico in 2016
  • GE opened its “brilliant factory” in India in 2015 at a cost of more than $200 million

“Smart”-thinking companies like Rockwell Automation are also putting digital transformation into practice by demystifying the process and decoding digitalization to meet unique industrial automation challenges and realize tangible benefits of digitizing discrete manufacturing.

However, not all manufacturers are jumping on the smart-factory bandwagon. While 76% of manufacturers have digital initiatives in the works, only six percent are digital masters. According to the Capgemini report, there is a high degree of variance regarding the adoption of smart factories within the manufacturing industry. Industrial manufacturing (67%) and aerospace and defence (62%) lead the way, whereas only about a third of life sciences and pharma companies have an operational smart-factory initiative. So there’s still time to gain that competitive advantage.

Why go digital?

The benefits of going digital in the manufacturing sector are substantial. Digital insight from Big Data analytics can give manufacturers end-to-end transparency, which can help them anticipate and respond to changes in the supply chain and enable more informed decision making, resulting in better continuity and increased profit margins.

Manufacturing smart, connected products can also present manufacturers with new opportunities to enhance their customer experience, attract new customers or business partners, and increase their competitive advantage.

Pure manufacturing production plants can also benefit from digitization in many ways. Machine integration and sensor integration to increase overall equipment effectiveness (OEE) in production plants can be very effective, and the benefits of predictive maintenance, automated services, failure prevention, and customization can also set manufacturers apart.

According to “Empowering Discrete Manufacturers for the Digital Age,” by SAP and Capgemini Consulting, manufacturing companies can benefit from digitization in four main areas:

  1. Employee productivity
  1. Operational improvement
  1. Product innovation
  1. Customer-facing initiatives

Going digital creates significant opportunities for companies in discrete manufacturing industries. Manufacturers can create smart, connected products, assets, and operations that can lower costs, reduce time-to-market, increase productivity, and support new revenue streams. Joint initiatives like the “Fast Digital 4 Discrete Industries by SAP and Capgemini” can help businesses achieve these benefits.

Going digital: What to consider

Most manufacturers develop smart factories based on aspects that align with their strategic objectives and consider two specific areas in their digital transformation:

  1. What should be digitized (called “Digital Intensity” in the Capgemini report): involves what essential processes have been digitized (such as production, inventory management, quality, planning, and forecasting), as well as the degree to which certain digital technologies are being used (such as robotics, the Internet of Things, artificial intelligence, and Big Data analytics)
  1. How to manage the digital transformation (called “Transformation Management Intensity” in the report): includes key aspects that drive benefits, such as the company’s digital vision, governance, and the digital skills of its workforce

Manufacturers that consider both of these areas are more likely to reap benefits from developing smart factories.

Getting started on your digital journey

If you are in the early stages of digitizing your manufacturing capabilities, here are some things to consider as you begin your digital journey:

  • Have a clear vision with a holistic view of your digital transformation: Focus on the financial impact of an end-to-end manufacturing transformation rather than one-off technological improvements.
  • Establish strong leadership and governance to oversee your smart-factory strategy: Agile and innovative leaders play a critical role in the success of digital initiatives. Ensure each facet of the manufacturing process is represented in the core group of decision-makers. Don’t forget to also rally support from key leaders across the organization.
  • Prioritize and execute initiatives, demonstrate early wins, and scale to the entire organization: Two big challenges of smart-factory implementations include organizational apathy as well as identifying and prioritizing the right opportunities. Focus on starting key initiatives and then scale them to the entire organization once proven.

Navigate your digital journey to ensure success

Once you have started down the road toward implementing your digital vision, don’t forget the following recommendations from the Cagemini report:

  • Measure and monitor the business value of your digital initiatives: Develop a standard set of key performance indicators (KPIs) to monitor your digital progress and success.
  • Be prepared to bridge the skills gap: In order to have a successful digital transformation, you need to have digitally skilled employees, especially in areas such as Big Data analytics, automation, and mechatronics, to name a few. To bring your workforce up to speed, consider investing in training current employees, forming strategic partnerships with technology providers, nurturing and acquiring startups, or hiring new employees with the required skillsets.

In order to be successful in today’s increasingly connected and disrupted business environment, manufacturers need to continually progress. Even forward-thinking manufacturers with smart factories operating today will need to transform from strictly having smart manufacturing capabilities to becoming fully integrated digital corporations. Are you ready to succeed in the digital industrial revolution?

Learn how manufacturers can realize the potential of the digital industrial revolution in Capgemini’s “Smart Factories” report.

Joint initiatives like the “Fast Digital 4 Discrete Industries by SAP and Capgemini” can help businesses with their end-to-end digital transformation.

Discover more in the whitepaper Empowering Discrete Manufacturers for the Digital Age.”

Learn how to Decode Digitalization for Your Discrete Manufacturing Company.

About Anja Reschke

Anja Reschke is the Senior Director of Strategic Ecosystem Marketing at SAP. She is responsible for the development of joint strategic marketing plans, programs, and activities, with global strategic services and technology partners.