To paraphrase Ernest Hemingway, change starts slow at first and then comes all of a sudden. Digital transformation is one of the changes that got a lot discussion (and only modest action) for years. While it’s likely that digital transformation would have accelerated in time, the pandemic threw gasoline on that fire. The rapid change is upon us now.
Two different studies this month highlight the acceleration occurring in manufacturers and others. One study was completed by industrial technology provider PTC (née Parametric Technology Corporation) and the other by cloud ERP vendor Plex.
Plex’s view of Smart Manufacturing
This is Plex’s sixth Annual State of Smart Manufacturing Report. The whole report is worth a read but here are some of the tastier bits:
- 4 out of 5 manufacturers are optimistic about Smart Manufacturing and recognize that it is very important to their future success”.
My personal experience confirms this. It’s hard to find a manufacturer who doesn’t see value in advanced manufacturing technology. This is not just about dropping in a CNC machine, a robot welder or a 3-D printer. This is about capturing and delivering information at every step of the process. It still amazes me how many companies don’t really know: what it costs to make different products, how to price customer specific product changes, which plant should make which products, etc. Operating firms by nostalgia, experience and/or feel are inexact and possibly unprofitable. Manufacturers have enough accounting transactions. What they need are real insights into their operations.
- A significant number of firms have (or are in-process of acquiring) fully integrated manufacturing systems.
What this means to me is that manufacturers need more than an ERP. They may need a Manufacturing Execution System (MES), Human Machine Interfaces, SCADA, etc. They need plant (Operations Technology) and back office (Information Technology) solutions and these must work together. This can be especially difficult for firms that have been starved for capital or possess a lot of old capital equipment. That equipment could be way behind on firmware patches, not wired with sensors, is at end of life (EOL), etc. And the ultimate challenge is to have an ERP that was never designed to connect, in real-time, to the shop floor. Tellingly, the study showed only 5% of firms aren’t looking towards this technology.
- Connections were key operational activities reported in this study.
Seventy percent of respondents are connecting people, tech, machinery and supply chains to each other (you’d be surprised how much paper, spreadsheets and white boards are still in use). Processes are being better connected, too. Technology that escalates issues is gaining momentum with more and more clients interested in robotic process automation (RPA), too. And when the data islands and latency go away, my clients see a digital fingerprint cutting across the entirety of the production process. You can’t get product traceability and pricing/costing precision across the value chain with disconnected, disjointed or missing technology.
- Coinciding with the pandemic, Plex noted 100%+ growth in many advanced manufacturing technologies.
These included Industrial Internet of Things (IIoT), smart devices, RPA, Machine Learning, and Cobots (collaborative robots).
- Plex found firms struggling with poorly connected people/systems, lack of inventory/process visibility, weak quality control, and poor reporting.
While I see the same issues, I also see problems with:
- Skill shortfalls in plants particularly with advanced technologies (eg: who’s going to tune the algorithms that guide formulas, temperature, blending, equipment failure predictions, etc.?)
- No capital to deal with decades of accumulated technical debt at the plant and HQ level
- Large OT security risks/exposures
- Firms using an old ERP that can’t handle large volumes of new data, handle statistical data, or operate in real-time, etc. Out of date ERP products are boat anchors but changing OT without dealing with IT ought to be criminal.
- Money's still tight.
The top barrier to change in Plex’s study wasn’t a surprise. Change takes capital. While many clients are pleasantly stunned to learned that many IoT devices today can cost in the $1-10 range each (and last for 10 years), these same clients are still listening to old-school ERP vendors and systems integrators who don’t know how to deliver a high-value project in days and for pennies. Most of those vendors don’t get out of bed unless the project starts at 8 figures. Other challenges included skill shortages, poorly defined value propositions, employee resistance, and no one to run a truly transformational initiative. I concur on all of those observations.
To read Plex’s 6th Annual State of Smart Manufacturing report, click here
After reading PTC’s report, The State of Industrial Digital Transformation, I had a chance for a brief chat with PTC’s EVP of Digital Transformation Solutions Craig Melrose (co-author of the report). The PTC report noted four key takeaways. I’ll take on a couple of these while the detail within the report is where things come alive.
When I spoke with Craig, I asked the following:
Re: takeaway #2 – Your survey showed which CXO has responsibility for the DX (digital transformation) initiative. No real surprise there but what I see is that one CXO is trying to drive DX only to realize that their effort will impact other CXOs. My last project was being driven by the CIO but the DX initiatives would impact Operations and Finance materially. So, how are all of these CXOs going to work together to see the DX initiatives through successfully?
Craig indicated that the responsible CxO can differ from firm to firm. What matters more, he said, is if DX is a top 3 or top 5 priority item for the responsible executive and the executive team. Moreover, “when the pain of change is less than the pain of staying the same, then change will happen”.
I’d agree with Craig’s assessment. There’s nothing sadder than seeing a lone CxO trying to make a DX initiative succeed while the rest of the executive team remains unsupportive (or worse, passive resistant).
PTC’s study showed nearly 90% of DX strategy leaders and budget holders were CxOs. I’m not surprised about this as most firms need a top executive with ample political capital to drive a transformational effort. These projects cross functional, process, political, budgetary and other boundaries. A lower-level manager will struggle to make this kind of change occur.
I also asked:
Re: Takeaway #4 – Your study showed 92% of industrial companies are on a DX journey with 41% on a full-on enterprise-wide change program (Note: that’s on par with the Plex study). Will all 41% be successful?
Craig stated that the potential for real digital transformation is there but that this depends on one’s “definition of success”. He added DX can be a great equalizer.
He also drew parallels to the “Lean Manufacturing” movement adding that if you ask 10 manufacturers what it is, they all think they do it. For some firms, he sees them looking at DX as a starting point for dramatic change while he thinks I’m more of a purist who sees DX only as a way to achieve top quartile performance.
I’ve seen the starting point story before. This incremental approach can work but some companies get sucked into a lot of incremental efforts that may require subsequent re-implementations as the DX gets peeled back one small project at a time. The classic example of this is a firm implementing a ‘modern ERP’ only to find that they’ll need to re-do inventory accounting, cost accounting, chart of accounts and other items as they discover what other impacts subsequent waves of minor transformation will trigger.
We both discussed how the best DX projects take someone with the vision to see the whole post-DX vision and how the firm will get there. Too many people can only see their plant or their process. They might not see the rest of the firm or what its competitors are doing. The best team members will be cosmopolitan – that is, they will be acutely aware of new technologies, what others in other industries are doing and where competitors (new and old) are changing.
Craig also discussed how it can be hard to train people into becoming digital. He’s right.
To read PTC’s State of Industrial Digital Transformation report, click here
While the DX goals above are admirable, sometimes ERP vendors and systems integrators are mucking these up. Some tech firms, with their fast implementation methodologies are just repaving cow paths. There’s no reinvention/reengineering going on there and obviously no DX. Some vendors are marketing their platform as a way to someday, somehow be a springboard for DX. However, there’s no DX happening there for now. Businesses need to be abundantly clear what their DX destination is to be and don’t let any vendor/consultant steer you wrong.
Sustainability initiatives are omnipresent in many annual reports and manufacturers have to have the data and storyline right regarding their progress here. IoT technologies can measure fuel consumption, carbon dioxide generated, water consumption, etc. New technologies can help with energy management. I mention this as DX projects must consider more than just processing efficiencies.
One big observation from both studies bears repeating: these projects have gone from, 'Nice idea, maybe we’ll look into it', to, 'We’re going full-on DX NOW!'. The time for talk is over and your competitors are implementing digital transformation. The next move is yours.