Manufacturing industry is rapidly changing by digitization. From robots tied to sophisticated computer networks to standalone manufacturing machines from different vendors that can “talk” to each other. Digitization is revolutionizing businesses regardless of industry. It’s footprint is seen not only in manufacturing but also other industries across hundreds of niche markets.

The following article is based on a recent McKinsey Industry 4.0 survey of some 300 global manufacturers.

Take a look at the following statistics

  • Amazon Business, a B2B e-commerce platform, had sales of  $1 billion in its first year in 2015
  • 3-D printing costs are down 60% from 1990 to 2014
  • Industrial robot costs are down 5% annually between 2000-2013
  • B2B digital commerce in 2015 is estimated at  $1 trillion in U.S.

Effect of digitization in operations

McKinsey’s survey shows 8 areas of opportunity to drive value with significant impact across all functions. These are:

  • 10-40% reduction of maintenance costs
  • 3-5% productivity increase in energy and production yield
  • 30-50% reduction of total machine downtime
  • 45-50% increase in technical services and human robot collaboration
  • 20-50% reduction in inventory
  • 10-20% reduction in quality costs
  • 85% increase in forecasting accuracy
  • 20-50% reduction in time to market

For example maintenance costs can be reduced through remote maintenance. Many automated machine manufacturers utilize control platforms that have embedded network connections. These embedded systems can send and receive information from various critical components of the machine to a remote technician for troubleshooting.

In the area of energy consumption automated machines are now capable to run at lower energy levels through digital optimization of their internal components.

Total machine downtime has been greatly reduced through predictive maintenance intervals that remind operators it’s time for maintenance. Machines now have the capability to detect conditions of operation that can impact maintenance intervals.

Remote monitoring and control of machines means technical professional no longer have to be physically present to interact and run or stop machines from operation. The machine HMI can be remotely controlled.

Real-time supply chains can learn and adapt to ever changing production and customer demands. Suppliers of components are now tied through intelligent and sophisticated computer networks that can instantly plan and control inventory levels.

Statistical process control is now tied into manufacturing and data collection. Automatic machine and data control and SPC algorithms can automatically change process parameters to increase quality and lower costs due to rejects.

Data driven demand generation has supercharged many functional areas including sales and marketing.

Digitization in engineering design, and prototyping have dramatically reduce time to market.

Blog Digital in industry From buzzword to value creation McKinsey Company 3

Is everyone onboard the digitization bandwagon?

Even though the opportunities are amazing and the data shows proof of high ROI, not everyone is onboard yet. Part of that is because of the complexity of what is involved. Digitization can be a huger project requiring a major investment in resources. Not every company has the internal resources to get it done and implementation can take a long time and include fair amount of risk.

McKinsey’s survey of 300 global manufacturing companies showed that only 24% have assigned clear responsibilities to implement it and 16% have an overall strategy in place.

6 Action Items to Win in Digitization

Blog Digital in industry From buzzword to value creation McKinsey Company 4


Companies that want to get ahead of the digital pack would be wise to take five key steps:

  • Prioritize and scale up. Use formal market research to determine customer’s willingness to pay for additional value. Determine the risk factors and ease of implementation. Consider potential for innovation and disruption in the market. Do you need outside help? Who would best be able to put together a pilot program?
  • Experiment. Adopt a mind set of learning. Setup small scale experiments with select target customers and evaluate results. Give yourself time to absorb and learn and repeat to establish confidence. If a test is not providing satisfactory results in a reasonable time frame or the target customer is not impressed with the additional value kill the project.
  • Create a solid foundation. Invest in key resources, processes, and computing systems. Create a core development team that can be assigned to investigate the potential opportunity. Empower the individuals to be able to do the best they can to make digitization successful.
  • Treat data as a competitive advantage. Protect your data in the same way that you protect other IP assets. Put in place robust IT infrastructure to protect the data from malicious attacks.
  • Create an atmosphere of true teamwork. Digitization is a cross functional initiative. Empower your management to inform and instill real cooperation between team members.
  • Identify technologies with the greatest potential. Identify those platforms, applications, and technologies that can produce the biggest impact.
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Nick Rakhshani