Several terms are used to describe the combined impact of digital connectivity, advanced analytics, artificial intelligence, and new cyberphysical systems in the production of physical goods. But whether it’s dubbed Industry 4.0, the industrial Internet of Things, or digital manufacturing—as we use in this article—expectations remain high regarding the benefits that disruptive technologies will create for manufacturers and technology providers.
For some manufacturers, the primary benefits relate to improved productivity and reduced cost, but others expect more wide-ranging impact such as shorter time to market, more agile operations, increased ease of product customization, and even the opportunity to generate additional revenue streams through value-added services.
Many companies are embarking on the journey to integrate digital and production, but approaches to capturing its value differ significantly. A few companies have gained senior-management attention and committed significant resources to driving progress, including the creation of “lighthouse” facilities as a test bed and future showcase for a range of solutions. The majority, however, seem to be adopting more of an incremental approach, with individual plants or business units selecting pilots in a less coordinated manner.
Gauging attitudes, documenting progress
To understand how leaders in various manufacturing industries are thinking about digital manufacturing and determine how far they’ve progressed in adopting it, we conducted our Digital Manufacturing Global Expert Survey for a third time in the first quarter of 2017. The survey engaged a panel of 400 industry experts in China, Germany, Japan, and the United States and focused on potential changes in attitudes on digital manufacturing, progress made in implementation, drivers of and barriers to implementation, and organizational approaches to scaling impact from disruptive technologies in manufacturing.
Growing optimism. The buzz around digital manufacturing continues, with respondents from all four countries showing a higher degree of optimism than they did one year ago (Exhibit 1). In China, Germany, and the United States, over 60 percent of respondents are more optimistic about the potential of digital manufacturing than they were a year ago, with a particular surge in China, where more than 80 percent of respondents are more optimistic. In Japan, only 40 percent are more optimistic—but in last year’s survey, that figure was 8 percent. The main reasons for this global optimism cited by respondents are greater opportunities, higher return on investment, and less difficulty in capturing this value than initially expected.
Respondents from China, Germany, and the United States expect this potential to translate into double-digit revenue and cost improvements over the next three years, although those from Japan are more cautious. While increases in machine and labor productivity, in delivery performance, and in the customer base are some of the more common drivers of improved financial performance, significant numbers of respondents also cite reduction in input costs, improved quality, decreased maintenance costs, and lower working capital as important factors.
Pilots are under way but scale is limited. As companies deploy digital-manufacturing solutions, most are pursuing multiple use cases, with a focus on a mix of efficiency gains (for example, digital quality and performance management or remote monitoring) and business-model innovation (for example, in situ 3-D printing and real-time supply-chain optimization). The most common of these address quality, performance management, process control, and remote monitoring, irrespective of geography and industry sector. What is also notable, though, is that even among those who state that a particular use case is relevant to their companies, less than a third report rolling out that use case across the company (Exhibit 2).
Analysis of the survey results suggests there is no strong correlation between reported progress on a company’s digital-manufacturing journey and their industry sector. However, there are indications that certain countries are seeing accelerated deployment and value capture. For example, a significant number (75 percent) of respondents from Chinese companies say they have a clear road map or explicit targets. By contrast, only 50 percent of Japanese respondents report this level of progress—and 37 percent say their companies have neither a clear view on use cases nor a digital-manufacturing road map or associated business cases. In addition, many companies have not set explicit targets for the value they expect from digital manufacturing. Along similar lines, Chinese respondents indicate that many formal, corporate-level programs have been launched with dedicated resources and funding, which does not appear to be the case in Japan.
Addressing concerns, building capacity, achieving impact
The survey suggests that a few challenges stand between industry players who see the benefits of digital manufacturing and the ability of their organizations to implement the relevant use cases and start reaping their benefits (Exhibit 3). Two challenges, in particular, top the list as the biggest barriers:
Talent. Digital manufacturing involves, by definition, a technology transformation, but behind the implementation is human talent. A fifth of the industry players surveyed state that challenges in attracting, managing, and retaining the right talent are making the implementation of digital manufacturing difficult.
Data management and security. Much of the benefit of digital manufacturing comes from the ability to manage the massive amounts of data being generated. Management includes capturing, aggregating, analyzing, and securing large amounts of data, and nearly another fifth of survey respondents describe challenges in these areas as a barrier to implementing digital manufacturing.
Despite the ecosystem concerns and current lack of capabilities, our client experiences and industry observations indicate that there is a path that manufacturers might follow. Specifically, eight activities guided by three principles of transformation can help companies prepare for digital manufacturing and successfully roll out the appropriate use cases at scale (Exhibit 4).
Principle 1: Diagnosis to design
The principle here is that it’s essential to take a close look at where along the value chain the elements of digital manufacturing might have the biggest potential benefit. Then, it’s critical to design a plan that uses the levers that will bring that value. This element focuses on taking a business perspective to identify the levers to boost operations and design the target digital ecosystem. Two success factors are critical here:
Form a clear perspective on how and where digital will create bottom-line value linked to a clear return on investment. It is critical that each company completes its own diagnostic of the most important levers to drive bottom-line value, how much value can be unlocked, and the investment required to do so. The survey shows us that there is still a lot to do. Less than 20 percent of respondents report having granular business cases on the potential use cases their companies want to pilot.
Develop a multihorizon road map. Companies need to think about operational horizons to create a clear path to impact. This needs to take into account implementation timelines and critical technological enablers (such as connecting machines and creating data lakes), and ideally will create a self-funding program. The pace of technological evolution is such that any road map should be revisited every three to six months and revised using what’s learned from pilots. A desire for perfection should not be allowed to get in the way of pragmatic decision making and forward movement.
Principle 2: Data/technology to impact
Once a multihorizon road map is in place, the real work of capturing value must begin with a focus on sustainably implementing new technologies and ensuring benefits flow to the bottom line. Three success factors are critical here:
Building an ecosystem of technology partners. The nature and breadth of digital-manufacturing solutions means that companies will be unable to capture the full potential benefit by only developing solutions in house or relying on a single technology vendor. Manufacturers will need to develop an ecosystem of technology partners who can support them in their efforts (while also ensuring adequate cybersecurity is in place). Partnership examples include consortia or public–private partnerships that are bringing together manufacturers, large technology suppliers, and smaller technology-based start-ups.
Adopting an agile approach to developing, piloting, and refining digital-manufacturing solutions. We expect the rapid development and testing of new applications and solutions to yield benefits in manufacturing, particularly in relation to solutions that focus on improving labor productivity and performance transparency. One global mining player, for example, uses a two-week “agile sprint” methodology to develop and pilot minimum viable products for specific use cases such as predictive maintenance and workforce planning. The company continues to refine the solutions and typically requires five or six more releases to achieve a “minimum mature product” that can be rolled out across a broader set of sites.
Fully engaging the workforce to ensure successful adoption and change management. Employees need to understand why new ways of working are beneficial, and those benefits need to be consistent with financial incentives. Training on using new tools needs to be provided, and leaders need to role model new ways of behaving. User councils (comprising frontline operators and supervisors to provide feedback on early versions of solutions) and showcase facilities (used to demonstrate successes to operational leaders) are ways of institutionalizing a culture of change.
Principle 3: Capabilities to transformation
Capturing and sustaining the full potential of digital manufacturing requires companies to embark on a transformation that stretches across, and indeed beyond, all aspects of the manufacturing process. In this context, we consider three success factors critical to achieving sustainable impact at scale:
Securing active C-suite sponsorship—and ensuring that the transformation’s success is wired into individual KPIs. Whether digital-manufacturing efforts are led by operations, technology, or a new chief digital officer, a few elements are non-negotiable. The effort must be driven from the very top, the leader must have the power to bridge functional silos and information and operational technology (IT/OT), and success must be wired into individual and organizational incentives to ensure alignment and motivation.
Adapting business processes so that they match the digital world. Achieving a digital-manufacturing transformation also requires companies to adapt their business processes to a more dynamic and, to some extent, more uncertain environment. Several companies are adopting more of a venture capital–type approach to funding with initial “seed funding” for good ideas and then stage gates to release additional funds. Procurement functions may also need to evolve for better interaction with technology start-ups. Similarly, IT functions typically need to improve their ability to more rapidly integrate third-party solutions without compromising cybersecurity.
Developing a talent- and capability-management plan. The exact capabilities required to scale fast and scale sustainably will vary but are almost certain to include raising organizational capability around IT/OT convergence, data analytics, advanced robotics, and agile solution development. Manufacturers might draw IT/OT skills from the corporate IT team on an as-needed basis or build capabilities through partnering or recruitment. Others may choose to build up all the required capabilities in-house by establishing, for example, a global center of excellence with a team whose responsibility it is to keep on the cutting edge of technology and steer the business toward relevant use cases.
The 2017 survey reveals interesting realities about digital manufacturing. On the one hand, manufacturing companies around the world are increasingly optimistic about integrating digital and production, and the overwhelming majority have identified use cases that are relevant to them. On the other hand, a relatively small number of these companies have made sufficient progress toward implementation. With a focus on design, data, and capabilities, these companies can close the gap between awareness and action and position themselves for the efficiency gains or differentiation by innovation that come with digital manufacturing.