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Operations and Supply Chain Management

University of Waterloo

Digital Transformation in
Manufacturing: The Possibilities
ON APRIL 8, 2019SEPTEMBER 28, 2021 / BY PETER
CARR / IN DIGITAL TRANSFORMATION IN
MANUFACTURING

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:

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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

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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

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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

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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

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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

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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

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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

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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

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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:

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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.

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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.

DIGITAL TRANSFORMATION IN MANUFACTURING MANAGEMENT

SCIENCES MANUFACTURING MSCI 700 OPERATIONS AND SUPPLY CHAIN
MANAGEMENT PETER CARR UNIVERSITY OF WATERLOO

BLOG AT WORDPRESS.COM.

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