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Digital Transformation in Manufacturing: Important Lessons to Keep in Mind

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Direct investment into digital transformation between 2020 and 2023 is projected to reach 6.8 trillion US dollars. Still, 70% of digital transformation initiatives fail

Most forward-thinking manufacturers have already begun their journey down the digital transformation road. But digital transformation in manufacturing comes with its own set of unique risks and challenges that very few recognize. That’s what we set out to address here.

In this article, you’ll find out:

  • What digital transformation in manufacturing actually means
  • Lessons learned from digital transformation implementation
  • Fundamental examples of digital transformation in action
  • The benefits of digital transformation in manufacturing

What is Digital Transformation in Manufacturing?

Digital transformation is a broad term that’s bandied about in just about every industry. Still, relatively few business leaders have a deep contextual understanding of what digital transformation actually is and could be. Is it cloud computing? Is it digital optimization? No, digital transformation in manufacturing is so much more than that.

Digital Transformation Means Redefining Your Manufacturing Business

Digitizing your manual paper-based processes, migrating from legacy on-prem software to cloud-native solutions, shifting from a physical office to a remote one (or a hybrid of the two) – these are all forms of digitization. And they’re essential. But they’re not digital transformation per se.

Digital transformation means merging operation technology with information technology to transform how your company creates value for customers. It means basing decisions on data rather than gut feel (especially when that gut belongs to a C-Suite that came up pre-internet) and redefining business models and strategies on the back of technology. 

In summary, if you’re not leveraging new technology to change what you do, not simply how you do it, then you might want to reconsider your digital transformation goals.

Digital Transformation in the Manufacturing Industry Isn’t About Technology

OK, so this is somewhat of a provocative heading. Still, many would argue that the technology itself is the easy part of digital transformation, especially when implementing new software. 

Today’s SaaS vendors compete head-to-head on usability and ease of implementation, which keeps everything accessible, even for non-technical users.

The hard part is adoption. And that boils down to company culture. 

According to Behnam Tabrizi, who teaches Leading Organizational Transformation at Stanford University’s Department of Management Science and Engineering: “digital technologies provide possibilities for efficiency gains… But if people lack the right mindset to change… digital transformation will only magnify those flaws.”

Together with colleagues, Tabrizi highlights five key factors that drive digital transformation success:

Lesson #1: Figure out your business strategy before you spend a penny

Digital transformation should be guided by broader business strategy and goals, not by what competitors are doing or what sounds like a good idea. There’s no one-size-fits-all technology. Most organizations will benefit from a diversified spend across a combination of tools.

Lesson #2: Beware of outsiders

Bringing in outsiders to consult on digital transformation “best practices” has its place. But consultants will never have the intimate knowledge of daily operations required to maximize ROI. For that, you need to leverage insiders, who are often overlooked.

Lesson #3: Adopt a customer-driven approach

Digital transformation is ultimately about delivering outstanding value to customers. But how can you maximize client satisfaction without consulting with your customers first? Short answer: you can’t. 

Speak with your customers at the digital transformation conception stage.  Hold focus groups, if possible. Be transparent to find out customer needs, desires, problems, and priorities. 

Lesson #4: Recognize employees’ fears of being replaced

Whether conscious or unconscious, employees view digital transformation, and AI in particular, as an existential threat. It’s a rational fear, but depending on which study you read, not necessarily grounded in fact. Digital transformation leaders need to recognize these fears and provide the necessary reassurance to build organization-wide buy-in.

By the way, here’s what thought leaders are forecasting in regards to automation and jobs. As you can see, there’s a wide disparity of opinion.

The doomsayers believe automation will displace millions of jobs:

The optimists predict that automation will create more jobs than it destroys:

  • Seventy-five million jobs will be displaced, but 133 million new ones will be generated worldwide by 2022 (World Economic Forum).
  • Two million net-new jobs will be created in 2025 (Gartner).

5 Digital Transformation Examples in Manufacturing

Digital transformation in manufacturing covers a broad range of technologies. But they don’t exist in isolation. IIoT (industrial internet of things – see below) relies on BDA (big data and analytics), which relies on cloud computing, and so on. The end goal is the creation of a smart factory –  “a highly digitized shop floor that continuously collects and shares data through connected machines, devices, and production systems.”

Here are five core digital transformation examples in manufacturing:

1. Big Data and Analytics (BDA)

Big data is the name given to volumes of data so large that traditional analysis methods can’t be used to process them. Networked sensors inside manufacturing machinery collects vast quantities of data that improves product quality, energy management, and safety. Condition monitoring uses real-time feedback to predict failures before they arise.

2. Cloud Computing

Cloud computing is a somewhat obvious inclusion in this list – it’s already ubiquitous. But most manufacturers are only scratching the surface of this technology’s potential. 

5G and future generations of wireless technology will continue to expand the ability to store an ever-expanding volume of production data, creating intelligent factory networks that encourage collaboration between humans and machines.

3. Additive Manufacturing (3D Printing) 

Additive manufacturing is a disruptive technology in the truest sense of the term – it promises to significantly alter how the manufacturing industry operates. Printing three-dimensional objects makes batch-of-one production profitable, promises to lower barriers to entry, and localize manufacturing facilities.

4. Industrial Augmented and Virtual Reality (AR and VR)

Augmented reality gives manufacturers the ability to overlay computer-generated images onto the real-world. VR places users inside a simulated reality. AR has applications in assembly guidance, maintenance and repair, and quality control. VR can be invaluable for training. 

5. Autonomous Robotics

Autonomous robots can work independently, with one another, or with humans, carrying out creative (non-repetitive) tasks with a click of a button. Without the need to retrain or retool, manufacturers can produce customized products for the same unit cost as a run of a thousand.

The Benefits of Digital Transformation in Manufacturing

US companies are forecast to spend $2.3 trillion on digital transformation in 2023 alone. There are a whole host of reasons why this is seen as a sound investment. While the benefits of digital transformation in manufacturing differ significantly by company, most fall into one (or more) of the following buckets:

  • Enhanced operational efficiency and product quality
  • Less rework, downtime, maintenance, and waste (resource management)
  • Lower costs (wages, supply chain issues, inventory miscalculations)
  • Improved decision-making (higher-quality data, customer insights, and predictive analytics)
  • Enhanced performance and condition monitoring (predictive maintenance)
  • Greater employee collaboration and retention (fewer silos and digital culture)
  • Increased customer satisfaction (a consistent omni-channel experience)
  • Increased agility (faster adaptation to rapidly changing markets)