The Future of Manufacturing Is a Journey, Not a Destination, SMS Speakers Say

In kicking off Chief Executive’s 2nd annual Smart Manufacturing Summit, Doug Oberhelman recounted feeling intimidated just before speaking at a gathering of technology executives.

“I looked out at this audience of all these 30-year-old tech people and thought, ‘This isn’t going to be much fun,’” said the CEO of Caterpillar, which hosted the event at its global headquarters in Peoria, Illinois.

“We are doing things at Caterpillar that are equal to, if not more advanced than that of almost any tech company in the world. We just do it in a different way.”

“But as I got going, it got better, because I realized we are doing things at Caterpillar that are equal to, if not more advanced than that of almost any tech company in the world. We just do it in a different way—using all those products to get things done that we need to get done.”

The anecdote underscored the fact that a massive transformation is under way in the manufacturing world. American companies are clawing their way back to competitiveness—after nearly a decade of seeing production move to cheaper-labor overseas producers—by leveraging advances in areas like additive manufacturing, automation, robotics, wireless and connected devices. [These discussions] follow aim to help leaders on that journey by providing highlights from the insights, knowledge and experiences shared at this year’s Summit.

Caterpillar’s Journey to Enterprise Excellence

No matter how good you are and how far you’ve come, there’s always room for improvement—that was the central message Dave Bozeman, SVP of Caterpillar’s Enterprise System Group shared with Summit attendees. Caterpillar, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel electric locomotives, has come a long way over the last decade. A decade ago, the large, diversified manufacturer faced the challenge of aligning all of its various brands and operations around a central organizational DNA and boosting production efficiency. The company addressed the challenge by creating the Caterpillar Production System, which encompassed three key elements: its operating system, management system and cultural system.

“No matter how good you are and how far you’ve come, there’s always room for improvement.”

The three components together, not one independently, make the system work—and it does work. Caterpillar measures its progress on four key components—people, quality, velocity and cost. Under people, for example, the metric is recordable injury frequency, which dropped from 6.5 to 0.79 over the past decade—or 51,000 injuries prevented. Similarly, approximately 500,000 defects were avoided due to quality performance enhancements under CPR, and 700,000 of 1 million vehicles were shipped on time. At the same time, the company reported a record increase in cash flow. Caterpillar, however, does not intend to stop there. The next step is to take a deeper dive within to find more opportunities for improvement. Already Bozeman has targeted several: pursuing a more holistic, connected system for its divisions, achieving a more disciplined culture and boosting the company’s lean expertise. He urged attendees to do the same, asking themselves:

  • How has my business evolved over the years?
  • Has evolution hindered my performance?
  • How siloed is my business?
  • Where are my hidden factories (i.e. repair bays) and how can I apply lean to them?
  • Do we deliver on our customer requirements?

Panel: Making Smart Manufacturing Work

Three veterans offer their experiences, observations and insights on implementing smart manufacturing.

Who: Raj Batra, President of Industry Automation at Siemens

What: A leader in automation technology products engineered and manufactured for all industrial sectors.

“Eighty percent of manufacturing costs are predetermined in the product design phase. So to not be able to simulate design and tie that to manufacturing processes means really missing out on something.”

On the forces driving Smart Manufacturing: Product complexity has doubled over the past 15 years. The number of sellable products has gone up by about 250 percent and the time-to-market—the whole innovation cycle to bring products to market—has been drastically reduced. We also have [demand for] mass customization, productivity and efficiency. In traditional manufacturing, those were at opposite ends of the spectrum—and there was a lot of cost to be able to accomplish them. Our view is that the only way to do this is to digitize the enterprise. You simply have to talk about the real and virtual worlds, to simulate product design and tie that to manufacturing technologies, because anyone who studies manufacturing process knows that 80 percent of manufacturing costs are predetermined in the product design phase. So to not be able to simulate design and tie that to manufacturing processes means really missing out on something.

On recognizing opportunities: It’s always interesting to me that in the U.S. we’re somewhat comfortable aging factory assets. If you have an iPhone that’s more than six months old, you really feel outdated and out of touch, but we’ll have an automation asset at the heart of productivity enhancement that is 25 years old. You simply can’t get productivity out of a 286 computer, which, in some cases, is the equivalent of what you have, maybe even one step before that. There are big productivity gains to be had through automating asset modernization.

Who: Bob Nardelli, Founder of XLR-8, Senior Advisor to Cerberus Capital Management

What: An investment and consulting company specializing in emerging companies

On the Smart Manufacturing imperative for mid-size firms: As you start to scale a company, smart manufacturing becomes increasingly important. When I was running GE Transportation, we were doing something similar through brute force, manually getting data and focusing on cost, quality and customer experience. What Smart Manufacturing does is to bring a level of speed and the ability to digest big data. Collecting big data is easy. Using it is the challenge, and smart manufacturing lets us do that. I would encourage the 197,000 companies out there today that are between $500 million to $1 billion in revenue to not be intimidated by smart manufacturing, but to embrace it and start, maybe one sensor at a time, working your way through connecting those key elements of the process critical to quality and [essential] to your customers. You either have to innovate or you’ll evaporate. Start small, keep adding the sensors, keep adding the information and work with CRM—that will be the best way to keep growing and scaling your business.

“Collecting big data is easy. Using it is the challenge, and smart manufacturing lets us do that.”

On where to start: Get the key individuals from your factory—from the shop floor to the superintendent—all in a room and talk about the major issues you’re having. Is it an inability to fill orders within a committed time frame, so you’re paying penalties or paying to expedite air freight? What is the biggest bottleneck you have? What piece of equipment tends to go down the most? Put all the issues, challenges or opportunities on a whiteboard. Then, talk about [how] to control those using very simple dashboards. It’s not that complicated. You just work through it in a very deliberate, thoughtful and unemotional way to bring out the issues,and then figure out the best way to digitize or systematize those so that it helps you be able to scale your business. Otherwise,you will be handicapped by the limits of what you can see and how you can react.

Who: Terrence Hahn, President and CEO, Honeywell Transportation Systems

What: A $3.6 billion global business, HTS develops and manufactures innovative automotive technologies, including the Garrett Turbochargers.

“[Smart manufacturing] is an opportunity to build off of strengths that you have.”

On building on legacy systems: This is an opportunity to build off of strengths that you have. Everybody in this room is a leader because [he or she] defined a business model and led a team to be successful in executing that. The smart manufacturing environment is now putting new tools in that maybe accelerate the pace at which you can execute those business models. Having that information on hand is extremely important, but it doesn’t mean you have to abandon what you have in place. It’s really about looking at your vision for the future and then working backwards to the point you are today, rather than, “Where am I today, and where [are] all the places I could go?” The latter sometimes leads to people not ending up in the place they had ultimately envisioned. The same thing is true with IT systems; map out where you want to go so that people are collecting information in the right way.

On the talent component: Once you’ve created your vision of the future and you know your strategy to get there, you need to think about how you’re developing the talent to make that happen. In the pre-smart manufacturing world, the floor supervisor potentially became the supervisor of a set of groups or a part of the building and then [he or she] became in charge of the plant, then all the plants and so on. The skill set was just handling larger and larger organizations and to really seeing your entire product line. Now, that manufacturing leadership career path [must] touch many other places. Has a manufacturing leader been in an IT organization to understand that? Has a manufacturing-leadership candidate been in an engineering or technology organization? Have they had exposure to applications engineering?

" Jennifer Pellet : As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.."