Much attention has been placed on how digital technologies are expected to transform the way every industry conducts business. Companies are already using new technologies to transform how they analyze their markets, interact with their customers, and gain insights about their performance. What keeps getting overlooked, however, is that the digital revolution will also radically change how organizations operate their businesses on a daily level—their manufacturing plants, capital assets, supply chain and service, and product development.
Companies have long pushed to implement automation and deploy Lean and Six Sigma techniques to align costs with business strategy, but now, real changes in this arena are quickly emerging, and the benefits will be significant. While a company’s results will vary depending on industry and the maturity of its current manufacturing capabilities and technology infrastructure, we expect that in some cases a fully implemented digital manufacturing solution could increase capacity by a factor of 10 and reduce labor and overhead costs by half.
A case in point: One Tier 1 automotive supplier was struggling to meet customer demand due to a bottleneck in its machining centers caused by unplanned downtime and frequent halts for emergency maintenance. As a result, the company had to run 24/7 shifts and send parts to customers via air freight.
Following a detailed cycle-time analysis and the identification of the top sources of non-value added activity, the company implemented a new digital manufacturing system that provided a communications link between man and machine and enabled predictive maintenance capabilities. Now the company can spot production-threatening problems while they are developing and perform early maintenance to minimize their impact.
The result? Output has increased by 20%, and boosted revenue potential by $14 million a day.
Similar efforts have the potential to transform every aspect of industrial operations. Physical supply chains will come to depend on a combination of the full horizontal integration of all the players, complete visibility into all logistics activities—and eventually the greater use of autonomous vehicles—as well as smart procurement and warehousing. It will all be tied together through an operational intelligence engine with advanced analytics that will be able not only to predict potential problems but to prescribe solutions before the problems become reality.
Businesses will also be able to optimize their management of capital assets – a huge benefit given that some industries now spend up to $150 billion annually to maintain their fixed capital assets and vehicle fleets. Companies are already improving their ability to monitor their assets to determine how they are being used and when they should be maintained. Missing links still may exist in terms of the continuing lack of full data on how the assets are used, and the advanced systems needed to analyze the data. Still, we expect that a successful capital asset program can result in up to 40% lower maintenance costs, up to 20% greater asset utilization, and reductions in capital expenses of up to 10%.
Finally, there is connected product development. While not central to companies’ ongoing sourcing, manufacturing, and distribution efforts, many of the same emerging technologies and analytics techniques will be used to gather information on how customers use current products, to bridge the gap between product development and production, and then follow the product digitally throughout its lifecycle, from design through to retirement.
Unfortunately, implementing a full suite of digital operations technologies at your company won’t be easy. According to a recent PwC survey on the prospects for Industry 4.0, executives remain unsure of the significant financial investment required and the economic benefits that will follow. Many also say they lack a vision of how digital operations should transform their companies, and worry that they won’t be able to find the talent needed to proceed or to put in place the necessary digitally oriented culture. Additionally, a very confused and fragmented market has been created by the many new business models that have opened up to enable, enhance or embed digital capabilities.
Still, that’s no excuse for delaying the effort to reap the benefits of digital operations. Overcoming these hurdles will require careful, even visionary, strategic planning and, just as important, the development of four key digital capabilities.
- All data pertaining to operations must be consistent, high-quality, fully available, and cover operational processes from end to end while ensuring security.
- Digital technologies must be fully integrated into legacy systems and information flows.
- The operating model, business processes, and governance mechanisms will need to be changed to accommodate the full potential of new prescriptive, optimization technologies.
- Roadmaps to the desired end-state must be developed, and must include use cases that can be self-funding, including the potential value to be gained through greater customer interaction and visibility into operational processes.
Despite these challenges, industrial manufacturers hoping to win in the emerging competitive landscape will have little choice but to embrace digital operations capabilities. While the actual path to the future of digital operations may still be murky, there is no question that companies that move the fastest along it will gain a powerful competitive advantage over their rivals.
Eduardo Alvarez is a principal with Strategy&, PwC’s strategy consulting business, and with PwC US. Based in Chicago, he has more than 20 years of experience leading business process and technology-enabled transformations for Fortune 100 companies. He assists global energy and utilities clients in globalizing, improving profits, and developing more agile business models.