When digital is on the shop floor, why isn’t value always down the line?

By

Mark Heidenreich

Ernst & Young LLP Supply Chain and Operations Executive Director

Project and operations management leader with 30 years of experience. Product development and manufacturing professional.

4 minute read 7 Aug 2019

Show resources

An ongoing study about digitization in manufacturing confirms what you may already know … and offers some unexpected insights.

Most businesses are undertaking digital transformation projects of one sort or another. It’s a rite of business passage in the 21st century. Some transformations are narrow and tightly targeted; some are all-encompassing and enterprise-wide. But one thing remains constant during the Transformative Age: success is not guaranteed. Billions of dollars have been spent without moving the needle on creating sustainable value or making companies better able to handle today’s continuous disruption.

EY teams want to know why. So we’ve launched a study on advanced manufacturing reinvention. And what we’re discovering is … well, it’s complicated. But here are three things we’ve learned so far that you might find helpful.

There is no one way to the top

One of the approaches to analyzing the survey data is to organize the companies based on their financial performance, and then cross-index them with various behaviors and characteristics to see what conclusions we can reach when we compare the most successful companies with the least successful.

The study is showing that certain characteristics correlate with the most successful companies. They devote more resources to continuous improvement initiatives. They have integrated information systems and technology supporting daily operations, conduct more frequent assessments, suffer lower rates of attrition, and are better at both achieving and sustaining improvements.

That’s what you would expect to see, right? Except we’re finding top-tier companies with lower scores on a given characteristic than bottom-tier companies. For instance:

  • Some top-tier companies have manufacturing-employee turnover in the 16%–20% range, while some bottom-tier companies’ attrition is less than 5%
  • There are both top-tier and bottom-tier companies who land in the 51%–75% range for achieving and sustaining improvements

So, one conclusion: there is no secret sauce. Find ways to mitigate your flaws and leverage your strengths – because every company has its unique path to success.

Digital is the answer … unless it isn’t

Digital makes the average company faster, more accurate, more innovative, nimbler, more efficient, more cost-effective. In manufacturing operations, digital can measurably improve maintenance and reliability, quality, operations, and energy and utility management. The potential benefits are rampant and widespread.

But digital isn’t a magic wand. Every company in the survey is involved in some sort of digital transformation initiative – more than 78% place a high or very high emphasis on manufacturing improvement. Yet, there are a handful of companies who achieved less than 25% of their improvement objectives in each of the past three years, and a similar number that have been unable to sustain improvements for five years. And going digital is particularly ineffective in delivering on its potential when the primary question a company asks is, “What should be our digital manufacturing strategy?” instead of the real, heart-of-the-matter question, “What should we do to improve and sustain manufacturing performance?"

Digitizing and connecting functions doesn’t turn you into an industry leader overnight – and perhaps not at all if you don’t have an overarching improvement objective that is tied to easily quantifiable metrics, like overall equipment effectiveness, first-pass quality, or mean time between failure. First, create a strategic underpinning to the digital transformation, customized to your company’s unique characteristics and opportunities and market dynamics – then you’ll not only know what the optimum digitization path is for you, but you’re much more likely to be successful as you pursue it.

The “I” in CIO should stand for “improvement”

CIOs are naturally focused on technology. Except technology is a tactic, not a strategy. In recent years, US-based businesses alone spent billions upon billions annually on manufacturing transformation. Yet the study shows that nearly 37% of companies achieved less than half of their annual manufacturing improvement objectives in each of the past three years – and more than 28% failed to sustain the improvement objectives they did achieve.

The point is, it’s not simply about what you want to change – “let’s take out this manual operation and plug in this automation technology” – but what you want to improve. And then a strategy for achieving that improvement, which involves vastly more than a technology investment followed by system integration. A sound manufacturing reinvention strategy should align with business strategy, focus on workforce skills and abilities, and address cybersecurity, all areas for which the survey respondents highlight opportunities for improvement. Your strategy should make the business case for the improvement, for the outcome, not just for the input of a given technology. Focus on value and the opportunities to be unlocked.

Take the survey!

The Digital Manufacturing Survey is still open. Participants will receive a benchmarking deck with their responses against the overall results. Please contact Mark Heidenreich if you would like to participate.

Summary

The EY manufacturing study – currently underway – might ultimately confirm what you already know: the future belongs to the digitally connected. Emerging technologies enable extraordinary competitive advantages, and the agile culture shall inherit the earth. But knowing what you need to do doesn’t automatically translate into doing it – or doing it successfully. To extract the most value, look beyond your “digital to-do list” to the more analog aspects of your organization. They can either help or hinder your digitization projects. 

About this article

By

Mark Heidenreich

Ernst & Young LLP Supply Chain and Operations Executive Director

Project and operations management leader with 30 years of experience. Product development and manufacturing professional.