Preparing for smart factories
Though 76% of manufacturers either have a smart factory initiative that is ongoing or are working on formulating it, only 14% of companies are satisfied with their level of success. Only 6% of manufacturers are ‘Digital Masters’: an advanced stage in digitizing production processes with a strong foundation of vision, governance and employee skills.
Smart factories could add $500 billion to $1.5 trillion in value added to the global economy in five years.
Smart factories turbo-charge manufacturing performance
Manufacturers expect smart factories to drive performance improvements that significantly exceed previous efforts:
Manufacturing under Industry 4.0 has access to digital technologies such as the Internet-of-Things, Big Data Analytics, Artificial Intelligence, Advanced Robotics, 3D printing, and Cloud Computing that have opened the door to incredible gains for early adopters.
The current and expected benefits of these developments are significant. Manufacturers expect on-time-delivery of the finished products to accelerate by 13 times, while quality indicators to improve at more than 12 times the rate of improvement since 1990. They predict the cost items such as Capex & Inventory to be rationalized at 12 times and material, logistics & transportation cost to be rationalized at 11 times the rate of improvement since 1990. At the same time, overall productivity and labor cost improvements are reported to accelerate at 7 times and 9 times the rate of growth since 1990, respectively.
Manufacturers across segments are harnessing the potential of smart factories, with industrial manufacturing seeing the biggest gains in productivity and quality of output.
Key Geographies: Our research shows that the US and Western Europe in particular have made an early head start. Nearly half of manufacturers in the US, France, Germany, and the UK have an ongoing smart factory initiative.
Source: Capgemini Digital Transformation Institute, smart factory survey, February-March 2017
The rewards of smart factories are too large for manufacturers to delay preparations for the future
With the appropriate investment of resources as well as effective transformation management, average manufacturers can become industry leaders through the implementation of digital technology into their processes.
Analysis of a hypothetical average car and truck manufacturer with revenues of $1 billion and a 5% operating margin revealed that manufacturers that currently operate at an average level of effectiveness could experience benefits that would launch them into an industry leadership position. This gain in operating margin–ranging from 36% to 108%–is the combination of enhancements in productivity and efficiency along with a reduction in various costs. As a result, investments in digitalization to realize long-term gains cannot be ignored by any manufacturer.
How can manufacturers ensure the success of their smart factory initiatives? Look to digital masters
Digital Masters have leapt ahead of beginners on key digital and transformation parameters. They provide the blueprint others can follow to achieve similar success.
To understand what differentiates digital masters and beginners, we analyzed the parameters of our two dimensions: digital and transformation management intensity.
Digital Intensity: For digital intensity, digitizing processes and leveraging advanced digital technologies were two key differentiators. We see that a significant majority of digital masters (approximately 80%) said that more than 50% of their processes in all the key areas have been digitized, while less than a third of beginners responded in the same way. Similarly, only a fifth of all beginners are leveraging key technologies such as big data or advanced robotics, whereas a significant majority of digital masters leverage these technologies.
Transformation Management Intensity: Digital skills and governance are the two biggest differentiators in the transformation management intensity. We found that very few beginners are satisfied with their skill levels in key areas such as data analytics, automation and cyber security; whereas most masters felt they have the skills required. In the governance area, a majority of the beginners are not following the basics of transformation governance, such as appointing a leader and establishing a roadmap.
Our analysis points to the key characteristics of digital masters.
Digital masters are making better progress on smart factories compared to their peers: 72% of digital masters have made good or better than expected progress on their smart factory initiatives, compared to only of 37% of beginners. Worryingly, for beginners, 39% of them say that they are struggling with their smart factory initiatives.
Digital masters are making aggressive investments, including training: 45% of digital masters have invested more than 10% of their annual revenues over the last five years in smart factory initiatives, compared to 17% of beginners. And 73% of masters have spent a significant share of their training budget to build digital skills, compared to 17% of beginners.
Digital masters have more aggressive targets: 58% of digital masters are aiming to achieve break even on smart factory initiatives within 5 years, compared to 18% of beginners. Masters also have more ambitious operational KPI targets. For example, 40% have a quality target, compared to 26% of beginners. Key operational KPI targets for beginners also fall considerably short of the targets set by the digital masters.
With the roadmap to smart factory success laid out, manufacturers must commit to digitalization
By learning from digital masters, organizations that have not yet realized smart factory success can discover how to better achieve their targets.
Our survey shows that digital masters take a holistic view of their transformation to smart factories. Moreover, ninety-eight percent of digital masters have established a roadmap for their smart factory initiatives, compared to 41% of beginners. We have seen that digital masters are reaping the rewards of this structured approach.
However, a large majority of organizations are still journeying to attain the maturity level of digital masters. This means that there are different strategic imperatives for manufacturers depending on their digital maturity