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How To Do Digital Transformation The Right Way

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Manufacturers are spending hundreds of billions, but they should wade in and post early victories against an unsettled backdrop.

Major sectors of manufacturing are embracing digital transformation for their own reasons and at different paces. But there are some common best practices for these varying industries as they sink hundreds of billions of dollars into their operations in order to optimize new technologies under what’s become known as Industry 4.0.

The best approaches across verticals include a crawl-walk-run strategy on digital simulations of supply chains and factory operations, a focus on helping scarce labor make the most of industrial automation, and the possibility of “reshoring” operations hand in hand with greater digital investments.

“There’s a shift in the way the market is thinking about [digital] solutions, and it really is a solutions-first approach,” Ryan Martin, industrial and manufacturing markets research director at ABI Research, told Chief Executive. “You figure out the problem and the solution first, and then the technology to support that.”

The global automotive sector has become the biggest spender on digital transformation, ABI’s latest study found, forecasting that the industry will invest nearly $100 billion this year and more than $238 billion annually by 2030 in its transformation to electric vehicles from internal-combustion powertrains.

Automakers need software to design new types of vehicles and work with Tier One parts suppliers to assure performance requirements and the demands of mass customization, while the OEMS will need to transition production to the new types of vehicles without harming production volumes, ABI said.

Meanwhile, another manufacturing sector allocating sizable budget to digital transformation is electronics, whose spending on digitization ABI projected to climb from about $55 million this year to nearly $150 billion annually by 2030. These companies must invest in machine learning to maintain levels of manufacturing sophistication and quality.

The oil and gas industry, while facing existential threats over the long term, must invest now in digital monitoring technologies and cybersecurity measures. Such spending will amount to about $9 billion this year, ABI projected, and more than $14 billion a year in 2030 despite the industry’s substantial headwinds.

A fourth major sector involved in digital transformation, fast-moving consumer goods, faces pressures from unreliable and opaque supply chains, retailers reluctant to pass on price increases, and ESG-related demands. Such needs are translating to spending of about $7 billion on digital transformation this year, projected by ABI to rise to about $23 billion annually by 2030.

As manufacturers in each of these sectors act, Martin says, they can learn from practices that already have been shaping companies’ best responses to the demands and opportunities for digital transformation:

• Wade into digital simulation. “A couple years ago you would hear about the need to have a digital twin” to optimize a factory operation, Martin says. “But today the focus is on improving quality performance and availability” in what is known as overall equipment effectiveness, a composite of the number of quality defects, the availability of machines for utilization, and the performance of those machines.

“Before, the focus was on big-ROI projects with [unrealistic] time horizons, but now the focus is on projects that drive immediate time to value, to see if something works or doesn’t, so you can find alignment or scale. ROI is built incrementally along the way.”

• Erect a lighthouse. Start small, pick your battles and “ideally find and identify ‘lighthouse’ use cases that do demonstrate wins, drive alignment and that you can build on,” says Martin. “We need to show that the [digital] activities we are engaging in are meaningful, especially in this economic climate where margins are getting thinner.”

• Don’t forget your people. Martin advises “focusing on people” with digital-transformation investments. “What are you doing to actually help the people who are using these solutions? Are you saving them time? All savings can be quantified in terms of business value, but what about the people being supported? Champion their buy-in, and you’re going to derive benefits over time.”

• Couple with “reshoring.” Digital transformation and repatriation of manufacturing might complement each other, each representing a way to take advantage of new inflection points in the U.S. and global economy.

“Many companies are seeing a once-in-a-generation opportunity to potentially up-level, and change the way they do business,” Martin says. “For some that means reshoring; for some it means different kinds of industrial automation.” In any event, “it means really thinking critically about the activities you’re engaging in on a daily basis and how much value they add to the end product.”


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