The digital transformation of manufacturing is forcing industrial companies to get smart. A trend toward “Smart Operations” has become an industry-wide priority, like Lean Six Sigma was in the 1990s, argues Charlie Chung, senior marketing manager with UPS Supply Chain Solutions. What’s your company’s IQ?
It sounds like an industrial-strength bad joke. But for manufacturers, it’s no laughing matter.
After shelling out hundreds of billions of dollars collectively over the last few decades and completely reorganizing their factories to improve product quality, reduce waste and stay ahead in an increasingly competitive global industry, the world’s manufacturers have been put on notice – they need to transform their operations all over again.
The culprit?
A host of disruptive technological and sociological developments — everything from cloud computing and machine-to-machine communication to a sea change in customer expectations about product customization and after-sales service — that no one foresaw a generation ago.
That’s when the industry, following the lead of Toyota Motor Corp. and Motorola Inc., embraced the so-called “Lean Six Sigma” approach to industrial efficiency and quality control and focused on driving product defects and unnecessary procedures off the factory floor.
A big payoff
To be sure, the huge industry-wide investment in Lean Six Sigma — training costs alone were estimated to be $50,000 per worker — seemed to pay off for a lot of manufacturers, delivering significant improvements and cost savings at number of big-name outfits, according to a 2008 report from Bain & Co.
Companies like General Electric Co., Caterpillar Inc., Xerox Corp. and Johnson & Johnson took the lead. And as they biggies went, so went their rivals and suppliers.
By the beginning of this decade, Lean Six Sigma was pretty much corporate gospel.
But right from the start, there were some factors even Lean Six Sigma couldn’t eliminate.
While manufacturers could streamline production to eliminate variability and increase efficiency, the world outside their factory walls continued to be a messy, maddening place that challenged their enhanced, just-in-time processes.
Bad weather delayed the delivery of crucial supplies from suppliers and finished goods to waiting customers.
Sudden changes in consumer tastes and expectations were not easily accommodated by the companies’ approaches to efficient production.
More real-time data
The brittleness of supply chains became increasingly glaring in recent years as digitally driven advances in product design, manufacturing operations and post-sales monitoring, control and servicing suddenly provided manufacturers with petabytes and petabytes of real-time data on everything they cared about most.
- Data on their own processes
- Data on products in the field
- Data on changing customer preferences
So much data it overwhelmed the rigid production systems and corporate cultures inspired by Lean Six Sigma, a discipline that – let’s face it — was born back when 32-bit microprocessors were state-of-the-art, the Internet was in its infancy and social networks were flesh-and-blood, not bits and bytes.
It’s a whole new world.
And the rate of change is accelerating. Companies can, of course, adhere to their old ways and ignore the inconvenient torrent of intelligence streaming out of their operations.
Or they can take a cautious, let’s-wait-and-see before-we-make-this-a-priority approach.
Smart operational challenges
Many are making this shift. A recent survey of 100 manufacturing executives conducted by the International Data Corporation(IDC), a market intelligence and advisory services company, found that about half the companies that participated were moving slowly at best.
But that same survey, conducted in partnership with UPS, found the other half of respondents were making big operational changes — smart operational changes — to harness the insight now spewing out of their value chains.
The reason?
That insight boosts revenue and profit. Research from MIT Sloan shows that companies aggressively pursuing the digital transformation of their operations earn profits 26 percent higher than those that haven’t.
The result?
The move toward “Smart Operations” has become an industry-wide priority, like Lean Six Sigma was in the 1990s.
Smart-Operations champions don’t see it as a repudiation of Lean Six Sigma.
They see it is an extension of the philosophy, marrying the continuous improvement aspects of Lean Six Sigma with real-time big data to “super charge” a manufacturer’s whole value chain, from production to marketing to after-sales service.
So it’s not a new fad.
It’s the fine-tuning of a well-established approach to efficiency and quality control that promises to make plants and processes intelligent and self-optimizing.
What’s that sound?
And here’s the great news: Done right, it won’t require hundreds of billions of dollars in new investments industry-wide.
That sound you hear?
That’s a collective sigh of relief coming from those responsible for profitability.
The IDC-UPS study, which offers a road map for companies keen to implement Smart Operations themselves, found that manufacturers that had already adopted the approach had a couple of things in common:
- They were quick to deploy both sensors and mobile devices to monitor and analyze products in the field.That transforms the customer experience, permitting the manufacturers to perform real-time predictive analysis and to initiate corrective action before the product fails.Those companies were also enjoying top- and bottom-line growth because – outside the warranty period –those interventions generate service revenue.
- The smart operations leaders also have connected their assets.Their managers don’t just understand the way machines work — or don’t work — together.The machines themselves understand it, too, and they exchange data to anticipate and minimize the impact of unexpected surprises on the production line and to identify and resolve them automatically.
Another prominent success factor
It’s true: Achieving that level of connectivity — turning a manufacturing value chain into a network that shares just enough information — requires an investment in data acquisition and analytics as well as better collaboration within the organization.
The IDC-UPS research also revealed another prominent success factor: The companies taking a lead in Smart Operations are also deepening their relationships with service partners, including their logistics providers.
That frees them up to focus on their key internal competencies while leveraging the scale, technology and skills of those providers.
What does all that mean? Well in the case of a partner like UPS, it means manufacturers don’t have to build their own smart global supply chain and logistics network.
UPS already did that. It’s a network that can give them real-time insight into their supply chains and help them initiate corrective action before problems occur.
Partnering also keeps a lid on the investment spend. UPS has that covered, too.
Every year, UPS invests about $1 billion dollars to make its small parcel, air and ground freight and logistics solutions business smarter, faster and better.
Manufacturers don’t have to do everything at once. Obviously, it’s a long and comprehensive process to advance from Lean Six Sigma to Smart Operations.
But it’s worth it. Smart Operations are critical to the success of manufacturers with limited resources, especially as they work to serve their increasingly demanding customers fast and flexibly.
(Top photo: Courtesy Getty Images.)
This piece first appeared in UPS Longitudes blog.
Charlie Chung is Senior Marketing Manager at UPS Supply Chain Solutions.
All views expressed are those of the author.