FOCUS: Digital transformation in manufacturing supply chain
By: Monzer Tohme, regional vice president, Middle East & Africa, Epicor Software
One of the key findings of a recent PWC report found that the buzz around Industry 4.0 has moved on from what some saw as marketing hype in 2013 to investment and real results today. But preparing for a digital future is no easy task. It means developing digital capabilities in which a company’s processes, people, culture, and structure are all aligned toward a set of organizational goals. And for most companies the ultimate aim is growth.
In manufacturing, the challenges for companies are multifarious because digital transformation impacts every aspect of operations and the supply chain, from equipment and product design, through to production processes, logistics and service. Industry 4.0 trends now require new, more sophisticated levels of collaboration across geographies on everything from product roadmaps and engineering specifications to production line management and information about parts.
From talk to action
The PWC study found that companies expect to significantly increase their portfolios of digital products by 2020. In addition, our own research has highlighted the importance businesses are placing on digital transformation today, with two-in-five industry professionals agreeing that digital transformation will offer them strong opportunities for growth in the future.
Whatever manufacturing model they are working to, such as engineering-to-order (ETO), make-to-order (MTO) or make-to-stock (MTS), manufacturers are increasingly working with an ever-broadening range of software systems. The challenge is to ensure that software integrates properly and data is shared effectively across all systems.
Another challenge is that migrating to new solutions can incur heavy costs. Many manufacturers have existing legacy systems and technologies that do not provide the functionality, integration and upgrade capabilities required to become a truly digital organization. These organizations should be prioritising what technology is needed at different points on their digital transformation journey.
The reality is that digital transformation is an ongoing process for most companies–they are required to continuously assess when and how fast to migrate their technology. For some this means struggling with digital debt that can restrict the potential of the business for growth.
Digital debt embodies itself in IT cost burdens, due to decisions taken on legacy technology years ago, but also in terms of unsupported old releases, or isolated systems that may hold a business back from its potential–in fact, in a recent report, Forrester defines digital debt as: ‘the opportunity cost resulting from retaining technologies, systems, and processes that constrain a firm’s ability to become a digital business.’
To avoid being constricted under the strains of digital debt, manufacturing businesses must adopt technology that’s customer-led and insight driven. Forrester recommends three steps for manufacturers to migrate from legacy systems in support of a customer-centric operating model.
Identify migration priorities
The first step is to understand the role of digital transformation and how it can help your manufacturing business grow. The best way to do this is to analyze the current state of all systems, from R&D, procurement, production, warehousing, logistics, and marketing to sales and service. Assess these systems for their ability to put the customer at the centre of business operations—for example, do they allow for customer engagement? Do they help a customer achieve what they want to achieve? Businesses should also assess systems for their ability to provide and act on insights, and work in real-time, whilst connecting with other areas of the business.
Crucially, however, make sure you assess the capability of technology against your business goals. Once this assessment has been done, manufacturers can identify migration priorities in their journey towards digital transformation.
Estimate costs one pain-point at a time
It’s important that organisations don’t try to radically overhaul all of their systems at once. A report by Accenture suggests that for organisations to shed systems and behaviours that are relics of the past, they need to establish spending priorities based on what will yield the best returns, and help them keep pace with growth objectives.
Invest in technologies that add strategic business value and develop organizational capabilities that are aligned to your business goals. For example, investing in cloud can expand collaboration along the value chain. For some systems a complete and immediate replacement might be the best option. But for others, such as for applications that work well but simply look a bit out-dated, a full replacement might not be necessary straight away. Here, an update might be a more cost effective and immediate solution.
Map the remediation journey
As Forrester recommends, manufacturers need to ‘build your migration road map consistent with your migration urgency – your digital debt.’ Those that attempt to retain complex, disconnected, networks of legacy applications and systems will limit their ability to put customers first, constrain their digital transformation and restrict business growth. That’s why it is so important for organisations to set out clear goals for legacy migration and constantly re-evaluate their progress.
Turn insight into action and empower your business with the right people, processes and culture to foster change. Digital transformation has already had a profound impact on the manufacturing industry and it shows no sign of slowing down. Remaining competitive means being able to put customers first, and putting customers first requires manufacturers to grow and work in the digital landscape.
The digital model fuels key competitive differentiators, including the ability to extend transactions into experiences, to connect with customers and suppliers anytime and anywhere, and to translate data into strategic insights. Manufacturers that embrace digital transformation now are set to pave the way for business growth tomorrow.