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Digital Transformation in
the Manufacturing Sector
A white paper that explores digital transformation in the manufacturing...
Introduction
Digital transformation is not a term that is normally associated with
manufacturing; however, that perception...
Contents
Introduction  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  ...
TRADITIONALLY MANUFACTURERS HAVE BEEN LAGGARDS IN ADOPTING
DIGITAL TRANSFORMATION. THIS IS IRONIC BECAUSE MANUFACTURING
SE...
According to some estimates a 1%
saving in aviation fuel translates to
a 30 billion $ saving over 15 years.
A 1% optimizat...
At first glance small optimisations in fuel
consumption and improvements in efficien-
cy may not seem like much. But given...
DIGITAL FOR MANUFACTURING HAS THE POTENTIAL TO TRANSFORM THE
INDUSTRY LANDSCAPE. FROM NEW PRODUCTS & BUSINESS MODELS TO
BE...
Reimagine Business
models
Customer / End user trends are the single
most important aspect tracked by fast mov-
ing consume...
themselves into digital players and find ways
to capture a larger chunk of the value.
JCB is an example of a company that ...
Customer Sale
Today’s customer is no longer restricted to
the brick and motor store. A modern customer
may start his buyin...
Optimise
Operations
Digital Marketing, Social media activities etc.
are highly visible and the most public face
of digital...
For a manufacturing companies optimizing
operations, be it supporting processes like HR,
Finance or main stream business p...
by the manufacturing process. Intricate designs that perform better and
cool faster are far too complex for the traditiona...
DIGITAL TRANSFORMATION OF THE MANUFACTURING SECTOR IS ENABLED
BY THE NEXUS OF TECHNOLOGIES LIKE SOCIAL, MOBILE, ANALYTICS,...
ARUN NATARAJAN
Digital Transformation in the Manufacturing sector
Digital Transformation in the Manufacturing sector
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Digital Transformation in the Manufacturing sector

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This paper explores the impact of digital transformation in the manufacturing sector.

Published in: Leadership & Management

Digital Transformation in the Manufacturing sector

  1. 1. Digital Transformation in the Manufacturing Sector A white paper that explores digital transformation in the manufacturing & technology sector 2016 ARUN NATARAJAN,
  2. 2. Introduction Digital transformation is not a term that is normally associated with manufacturing; however, that perception is changing fast, with traditional manufacturing firms like GE aggressively pursuing digital opportunities in the industrial sector. Manufacturing sector is not a monolithic one, it stretches from metals, minerals and chemical companies at one end of the spectrum to semiconductor, software and consumer electronics firms at the other end. Focus and adoption of digital varies widely within this sector. For instance consumer electronics companies, with their large B2C business are more focussed on digital in customer engagement, while process manufacturing firms are more focussed on digital in operations. Only a few manufacturing firms have really adopted digital at the very core of their products and business models. Most digital transformation discussions, revolve around the technology dimension; Social, Mobile, Analytics and Cloud being some of them. Technology is definitely the primary enabler for digital, but ignoring the business implication provides an incomplete view. The intent of this document is therefore to explore digital in manufacturing not only from the technology perspective, but also the business one and most importantly explore the outcomes and impact that digital can have on firms and businesses. A final dimension that unique to manufacturing is digital in the factory shop floor. Industry 4.0 or Smart Manufacturing as it is popularly called is another topic we will explore. Arun Natarajan 3 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  3. 3. Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Digital In Manufacturing An oxymoron ? . . . . . . . . . . . . . . . . . . . 6 Digital - The new possibilities . . . . . . . . . . . . . . . . . . . . . . . . 9 Reimagine Business models . . . . . . . . . . . . . . . . . . . . .10 Recast Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . .10 Enhance Customer Engagement . . . . . . . . . . . . . . . . . . . 11 Digitally remaster products . . . . . . . . . . . . . . . . . . . . .12 Optimise Operations . . . . . . . . . . . . . . . . . . . . . . . . .13 Digital in the factory floor . . . . . . . . . . . . . . . . . . . . . . 14 Digital - Through the technology lens . . . . . . . . . . . . . . . . . . . .16 5 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  4. 4. TRADITIONALLY MANUFACTURERS HAVE BEEN LAGGARDS IN ADOPTING DIGITAL TRANSFORMATION. THIS IS IRONIC BECAUSE MANUFACTURING SECTOR HOLDS THE MOST PROMISE FOR DIGITAL OUTCOMES. If sweat and grime, sparks flying from huge cauldron’s of molten metal; massive railways engines being hauled by men in greasy overalls or menacing aircraft engines that can suck the life out of you come to mind at the very mention of the manufacturing sector, then you are prob- ably right; but only if you have been living under a rock and stuck in the year 2000. If you thought that digital transformation is a vocabulary that belongs to the people in the telecom, hi-tech and media sectors, then you can’t be further away from the truth. The manufacturing sector is the new frontier for digital transformation. Being a human capital intensive sector, digital has the potential to impact not only the products and businesses but also our livelihood. Digital is viewed as the revolution that will finally bring manufacturing back to the developed economies. This can have far reaching implications for fac- tory workers both in developed and developing economies. So vast is the potential impact that Institutions like the World Economic Forum have adopted ‘Industry 4.0’ as the theme for this year’s conference. Sustainable green manufacturing is another area that will greatly benefit from digital. However, the focus of this document is on the technology and business dimensions of digital rather than the societal implications. Take the case of an aircraft engine, everything about it is massive. It is a huge piece of machinery, it costs a lot of money to buy and is equally expensive to run and maintain. Until recently the only way to acquire one was to buy it for a huge amount of money. But today thanks to digital it is possible for airlines to acquire an aircraft engine on a pay per use model. Software as a service is passé, how about aircraft engines as a service ! Digital In Manufacturing An oxymoron ? Digital transformation, is it really relevant for a traditional sector like manufacturing, we explore... 6 Arun Natarajan - DIGITAL FOR MANUFACTURING & TECHNOLOGY
  5. 5. According to some estimates a 1% saving in aviation fuel translates to a 30 billion $ saving over 15 years. A 1% optimization improvement in healthcare adds 63$ billion over 15 years. A 1% reduction in capex in the oil and gas industry translates to a 90$ billion saving. If you guessed that the company enabling these possibilities is Google, Amazon or one of the new age silicon valley firms, then you would be dead wrong. The company that makes these things possible is General Electric. A tra- ditional manufacturing firm from the pre digital era. Aviation is not the only industrial sector being transformed by digi- tal. Today massive wind turbines can communicate with each other and automatically orient them- selves in the right direction for op- timal power generation. They can communicate with the smart grid and the charging system to ensure a steady output. Further down the power distribution chain, smart meters can communicate with smart electric vehicles to schedule charging during low power rates. The healthcare sector with its expensive assets like MRI scan- ners is another area that is being transformed. Just as with aircraft engines, connected medical equip- ment allows for new usage based business models, remote monitor- ing and preventive maintenance ensures that these critical systems are kept running. Even the humble hospital bed is becoming smart, thanks to GE Health Care’s “Agi- leTrac”. AgileTrac enables hospi- tals to tag and track beds and other mobile assets like heart rate monitors, wheel chairs etc., thus improving the efficiency of the hospital staff and ultimately the quality of patient care. If you thought Google’s driverless car is the epitome of great engi- neering, think again. How about a smart train ? GE transportation’s Rail Edge Movement planner al- lows railway operators to combine logistics with traffic control sys- tems. Operators can monitor the progress and pin point the exact position of the locomotive from a central location. Cruise control for smart trains continuously moni- tor the terrain. Depending on the slope & other terrain information, speed of the locomotive is in- creased or decreased to maintain optimal fuel efficiency. »» Image attribute - Morgue file 7 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  6. 6. At first glance small optimisations in fuel consumption and improvements in efficien- cy may not seem like much. But given that massive scale of the industrial sector, even a 1% saving translates into a huge amount. According to some estimates a 1% saving in aviation fuel translates to a 30 billion $ saving over 15 years. A 1% optimisation improvement in healthcare adds 63$ billion over 15 years. A 1% reduction in capex in the oil and gas industry translates to a 90$ billion saving. Almost all the examples quoted here are from General Electric. While it is true that most of the manufacturing firms are slow to adopt digital, General Electric is an example of benefits that digital can bring to this sector. »» Image attribute - Morgue file 8 Arun Natarajan - DIGITAL FOR MANUFACTURING & TECHNOLOGY
  7. 7. DIGITAL FOR MANUFACTURING HAS THE POTENTIAL TO TRANSFORM THE INDUSTRY LANDSCAPE. FROM NEW PRODUCTS & BUSINESS MODELS TO BETTER CUSTOMER ENGAGEMENT AND PROCESS OPTIMIZATION THE POS- SIBILITIES FOR DISRUPTION ARE ENDLESS. In recent years companies like Uber and Airbnb have made headline news. They have disrupted the taxi and hospitality industry respectively just as Amazon and Apple have disrupted the publishing and music industry. In- terestingly neither amazon or apple were from the publishing or music industry. They were both new comers from a totally unrelated industry segment. Digital has the ability to blur the industry boundaries, allowing non-traditional competitors to trounce incumbents. What happened in the consumer segment could well happen to incumbents in the industrial segment. Tesla & Google are already emerging as competitors for the traditional automotive companies. Unless traditional manufacturers disrupt themselves, they may find themselves competing with digitally savvy new entrants. Forward thinking companies in the manufacturing sector like General Electric and BMW are doubling down on their digital transformation efforts to ensure their survival. Digital opens up a number of possibilities for traditional manufacturers. Customer Engagement and Process Optimization through digital are low hanging fruits. However to fully exploit the potential of digital, companies must take digital to their very core; by reinventing products, services, by re imagining business models and optimizing operations with digital. Digital - The new possibilities This section explores the new business possibilities enabled by digital transformation. 9 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  8. 8. Reimagine Business models Customer / End user trends are the single most important aspect tracked by fast mov- ing consumer goods companies; their survival depends on it. Firms in the manufacturing sector have traditionally been slower to react compared to their B2C counter parts, thought there are some exceptions. Take the case of the luxury automobile maker, BMW. Some studies conclude that millennials no longer see a car as a status symbol that it once was. Increasingly it is being seen as a mode of transport that can get you from point A to B. This trend has far reaching implications for the automotive sector. While most manu- facturers are focusing on in-car entertainment, diver assist and diver-less systems, BMW has moved further ahead in its digital journey. They are now offering cars as a service. DriveNow is a joint venture between BMW and Sixt that provides car sharing services in several cities in Europe and North America. DriveNow service began in Munich Germany in June 2011. As of September 2015, DriveNow operates over 4,000 vehicles in six countries worldwide and with over 500,000 customers. A similar service, ReachNow, was established in April 2016 by BMW in Seattle, Washington. Similarly, GE Aviation has evolved its business model from the outright sale of engines to pay per use. In the process they have also tapped into new revenue streams by offering moni- toring and after-market services preventive maintenance services. Recast Value Chains One of the biggest impacts of digital is on the existing industry value chains. Traditional manufacturing value chains were pretty straight forward. A manufacturer sourced raw materials from suppliers, produced finished goods and sold them to the end customer through their distribution network. Though every player in this value chain was economically compen- sated for their efforts, the lion’s share of the profit went to the manufacturer. However in a world where physical products are digitised and connected, new players enter the value chain. For instance manufacturers of mobile phones, source chips and hardware from their suppliers at competitive prices, manufacture a mobile phone and sell it in a very competitive market place. Manufacturing a phone is cer- tainly a value creation activity. Over the top players like Google, App developers & Analytics players also create value by providing the operat- ing system, apps that make the phone usable and finally the analytics that make sense of the enormous amounts of data generated. Though each of the players in the val- ue chain; semiconductor companies, phone manufacturers, Google, app develop- ers and analytics service providers all create value for the customer, the value captured is not proportionate. The lion’s share of the profits no longer go to the manufacturer of the device, instead it is split between the over the top (OTT) providers. This fate awaits every manufacturer, unless they learn to transform »» BMW DriveNow Service 10 Arun Natarajan - DIGITAL FOR MANUFACTURING & TECHNOLOGY
  9. 9. themselves into digital players and find ways to capture a larger chunk of the value. JCB is an example of a company that is doing just that. Adding a set of sensors and hooking them up to an analytics backend, has enabled them to sell aftermarket services like predictive maintenance, geo fencing etc. Building digital capabilities has enabled them to expand the value chain and also capture a larger chunk of the value. Enhance Customer Engagement Customer is King, is a cliché, yet it has never been more true. Today customers are no longer satisfied with mass produced undifferentiated products. They are demanding customizing, personalization and increasingly co creation. Customer awareness of price, service and quality are also at an all-time high, thanks to social media and mobile. They no longer trust or even rely on manufacturers for product information. User groups, Social connects and online forums are their primary source of product and service information. To connect with this digitally savvy customer, companies are looking beyond surveys and focus groups. Engaging them before the sale (cus- tomer understanding), during the sale (through Omni channels ) and after the sale (service & after market) is key to winning. Customer understanding To understand the new age customers, and to keep pace with them, firms can no longer rely on focus groups and surveys. Instead they must listen to conversation on social media, user groups etc. They must engage custom- ers in conversations, listen to them and even co create products with them. Such intimate knowledge of customers is now possible through online chan- nels and social media. Further, with products becoming smarter and con- nected it is possible to, not only listen to customers, but also collect data on product usage. For instance, a connected car can give manufacturers volumes of data on driving patterns, usage, fuel consumption among other things. This information can be used in new product design, preventive maintenance etc. Listening to customers and reacting to them quickly can help companies stay competitive. It was customer research that led Philips to introduce the wildly success- ful noodle maker in Asia. But the same product failed to take off in the European market. Based on social media conversations, Philips soon re- alized that, there was a problem; customers were using the product to make pasta rather than noodles; an application for which it was not designed. Based on this insight, designers at Philips re engineered the noodle maker to make pasta. »» Connected JCB 11 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  10. 10. Customer Sale Today’s customer is no longer restricted to the brick and motor store. A modern customer may start his buying journey by researching the product / service online, collect feedback from current customers in user groups, followed by a visit to the physical store to experience the product hands on. And finally make the purchase online and perhaps have the product delivered to a convenient collection point. Ca- tering to this digitally savvy customer requires implementing systems that map the entire customer journey from the initial research to the final purchase. A digitally savvy customer’s journey cuts across various online and offline touch points, providing this ‘Omni Channel’ experience is best done through digital. Zara is a fashion retailer known for its fast fashion. By connecting their designers, inven- tory and point of sale systems in retail outlets, Zara was able to respond quickly and replenish popular products. Digitizing the entire sales channel and integrating it with their design and manufacturing systems helped Zara quickly introduce new designs, study their popularity and restock popular designs in record time. Zara manages a turnaround time of 3-4 weeks compared to 2-3 months for other fash- ion retailers. Customer service Customer service is being revolution- ized by digital. Thanks to digital, com- panies have multiple touch points with customers; from the humble telephone to online chat, twitter and other so- cial media channels. Some of these non-traditional channels offer a cost advantage to companies while provid- ing customers a better experience. Some companies are also developing a loyal base of customer advocates through user groups and other online forums. These customer advocates often help and advice new users. Apart from reducing the burden on the firm, this approach builds customer loyalty. Digitally remaster products Yes, you can re-engineer the turbine blades for better efficiency, improve the mechanical structure etc. But how can you possibly digitally reinvent a massive windmill farm? Yet that is exactly what GE did with their windmill farms or JCB did with their excavators. GE’s massive wind turbines can communicate with each other and automatically orient themselves in the right direction for optimal power generation. They can communicate with the smart grid and the charging system to ensure a steady output. Further down the power distribution chain, smart meters can communicate with smart electric vehicles to schedule charging during low power rates. JCB’s excavators a behemoth of a machine has been digitally remastered by adding a series of sensors that relay data back to an analytics backend. This allows JCB to provide Geo fenc- ing security services, preventive maintenance and someday even excavators as a service or on a pay per use business model. »» Zara retail outlet 12 Arun Natarajan - DIGITAL FOR MANUFACTURING & TECHNOLOGY
  11. 11. Optimise Operations Digital Marketing, Social media activities etc. are highly visible and the most public face of digital transformation. Transforming the internal and external processes are not as glamorous as transforming customer engage- ment. However, the industry is replete with examples of firms that have derived their competitive advantage from efficient supply chains and operations. Walmart & Amazon are companies that have dominated their industries through process innovation. Logistics com- pany UPS for example owes its suc- cess to it’s operational efficiency. The company operates in over 200 countries and serves over 8 million customers. UPS’s ability to track their delivery vehicles and com- bine it with delivery addresses, driver availability, traffic conditions, weather etc. helps it optimize its routes. As with all large scale operations even a minimal op- timization in the route can add up to enormous savings. Closer to the manufacturing sector, paint manufacturer Asian paints has derived enor- mous benefits from digitizing its operations. By standardizing the order taking process and moving chunks of the repetitive work to call centers, it has relieved the sales team of the mundane order taking tasks. Sales executives now function as trusted advisers and focus more on acquiring new customers. Boeing is another example of an enormously complex manufacturing company. It manages over 5000 small and large production units that employ over half a million people. The enor- mous task of managing this vast supplier base located in different parts of the world is best solved by digitizing its operations. It doesn’t get more hard core manu- facturing than the process manu- facturing sector. Dow chemicals has over 5000 products and operators in dozens of countries. The nature of the chemical industry is such that, customers demand samples of the products before placing bulk orders. With ten and thousands of products, managing the process of shipping samples and follow- ing up with the customers was a daunting task that was greatly simplified by the implementation of digital technologies. »» 787 Dreamliner 13 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  12. 12. For a manufacturing companies optimizing operations, be it supporting processes like HR, Finance or main stream business processes like supply chain, order to cash etc can yield huge benefits. It can certainly be a competi- tive advantage that will take years for others to emulate. Digital in the factory floor No discussion on digital for manufacturing is complete without a section on Industry 4.0. Digitally savvy customers are demanding customization and personalization. Catering to this need is easier said than done for an industry whose vocabulary includes terms such as economies of scale and experience learning curve. Customizing a product to a particular segment or personalizing it to an individual’s needs goes against everything that makes the manufacturing sector’s cost structure tick. The utopian goal of Industry 4.0, then is the mass production of customized or personal- ized products that cost the same as an uni- form product. Extending this utopian vision is also the concept of self-production, where individual components carry within them the product blue print. For smart products to interact with the as- sembly line requires smart robots and other systems. Together they form a self-organizing network of machines, inventory systems and other resources that automatically exchange information and control each other. This en- ables things like automatic reconfiguration of the assembly line in the event of failure of a particular machine. Smart robots, smart factory floors, augmented reality, 3D printing, predictive maintenance, products embedded with their own assembly information are all technolo- gies that are collectively bunched into the Industry 4.0 paradigm Smart Robots Gone are those days of industry robots that look like aliens that could crush you with a single blow. Shop floors of yesterdays were hazardous places for humans, an accidental brush in with a robot usually ended with the human in the hospital bed. Today robots have become a lot smarter and gentler, Ja- pan for instance is experimenting with service robots to take care of its ag- ing population. Appos is a small sized Kiva robot that forms the backbone of the Zappos ware house. Daimler’s KUKA robots work alongside humans in shop floors. 3D Printing 3D printing also known as additive manu- facturing is being used for a variety of ap- plications. They enable quick prototyping of experimental products. Enable a long tail of replacement components for aging equip- ment. They also allow for optimal designs that were once impossible to produce due to the manufacturing limitations. For example, the design of cooling fins for chipsets is restricted »» Daimler’s Kuka Robots, picture credit - Daimler website 14 Arun Natarajan - DIGITAL FOR MANUFACTURING & TECHNOLOGY
  13. 13. by the manufacturing process. Intricate designs that perform better and cool faster are far too complex for the traditional manufacturing process. With 3D printing these limitations are a thing of the past. Augmented Reality AR is not a new technology, it has been used in aircraft simulations and pilot training for a num- ber of years. But today that technology is mak- ing it’s way out of such hi tech centers and into the hands of ordinary service profession- als. Field professionals from the telecom to IT are leveraging these this technology to fix complex problems on the field. Problems that once required the presence of an expert. 15 DIGITAL FOR MANUFACTURING & TECHNOLOGY
  14. 14. DIGITAL TRANSFORMATION OF THE MANUFACTURING SECTOR IS ENABLED BY THE NEXUS OF TECHNOLOGIES LIKE SOCIAL, MOBILE, ANALYTICS, CLOUD, INTERNET OF THINGS & MACHINE LEARNING. Digital is a game changer for the manufacturing sector. It has the ability to make or break companies. However, none of these advances would have been possible without the recent developments on the technology front. Moore’s law has ensured the availability of an ever increasing amount of compute power at ever decreasing rates. This coupled with the decreasing price of cloud storage, advancements in connectivity (internet of things) and advances in data analytics has brought digital affordability even to the smallest of companies. At the most basic level, digital is anything that be represented as a sequence of ones and zeros. Digital enables the storage, transmission and analysis of information. Gartner describes digital as all electronically traceable forms and uses of information and technology. SMAC (Social, Mobile, Analytics, Cloud) is an acronym that is synonymous with digital. While each one of these technologies has the power to change industry landscape, the disruptive power of digital comes when firms use a combination of these technologies. Gartner calls it the ‘Nexus of forces’. The nexus of social, mobile, analytics and cloud is sufficient for sector with very limited physical assets like banking, however a physical asset heavy sector like manufacturing requires a means of translating the properties of physical assets into data. Digital twin is the name given to a digital equivalent of a physical asset. Digital twins use data from sensors installed in the physical system along with an embedded communications module to transmit this data to central unit. Cyber physical systems is a related term that refers to integrations of computation, networking and physical processes. Together these technologies enable the manufacturing sector to reap the dividends of digital transformation. Digital - Through the technology lens A physical asset heavy sector like Manufacturing needs more than just SMAC for digital transformation. Internet of things , Digital Twins, Cyber Physical Systems are terms used to describe technologies that bridge the very physical manufacturing world with the ones & zeros of digital world. 16 Arun Natarajan - DIGITAL FOR MANUFACTURING & TECHNOLOGY
  15. 15. ARUN NATARAJAN

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