Digital transformation in manufacturing: the challenges

Any debate around whether or not manufacturers should embrace digital transformation is now well and truly over. Although grappling with a variety of complex challenges, one universal truth that manufacturers are agreed upon is that, in the modern landscape, standing still is not an option.

Emerging digital technology will be integral to the future of any successful manufacturing business, regardless of their current strategies and how they may be prioritising tackling current issues.

That being said, it isn’t simply a case of ‘full steam ahead’ when it comes to digital technology deployment. A number of barriers to adoption exist for manufacturers of all sizes which are slowing, hindering or holding back adoption across the sector. So, what are these barriers, how are manufacturers navigating them and are they really as prohibitive as some would have us believe?

Budget

Naturally, cost is seen by many manufacturers as a key barrier to digital adoption. Shiny new technology, complete with myriad bells and whistles, can come complete with an equally impressive price tag. And, while getting started on a digital transformation journey can be done on a budget, initial outlay is perceived as prohibitive to many businesses who want to dip their toe in the water, particularly as margins and bottom lines have been squeezed by recent wider challenges.

Industrial digitalisation offers huge benefits to manufacturers – not only could it increase profits within a company, but it can also improve productivity. However, the cost makes it hard, particularly for smaller manufacturers, to implement this revolutionary change. Over recent years, as other challenges took their toll on margins and revenue, many manufacturers opted for a ‘what you’ve never had, you’ll never miss’ approach to digital technology, preferring to put any investment available into other areas of the business rather than into something unknown and not already proven.

There are many tips on how smaller manufacturers can overcome these obstacles, such as starting small and focusing on the small changes the business can make instead of the large, expensive and burdensome projects that can take years to make a profit.

For example, companies can buy low-cost cobots or retrofit sensors onto legacy equipment to keep costs lower. Implementing many small digital changes can have the impact of one large change without the added challenges that come with larger projects, such as integration issues, added training and extra maintenance.

As such, ‘Digital Manufacturing on a Shoestring’, a programme created by the University of Cambridge, offers a low risk, low-cost approach to digital solutions, and outlines a set of 59 digital solution areas that can be reused, adapted and combined.

Pilot purgatory

Manufacturers just starting out on a digital transformation journey don’t tend to throw themselves straight in at the deep end. Understandably, it’s commonplace in the first instance to test, trial and pilot digital projects to evaluate their success and feasibility for a business in the long-term.

This negates the expensive initial outlay of full-blown digital solutions that can represent a cost barrier to adoption (as discussed above), and allows manufacturers to test the water and get a flavour for how the technology works and what it can do for their business.

However, this in turn can throw up a barrier of its own – commonly referred to as ‘pilot purgatory’. Regardless of a pilot project’s success, there can be subsequent issues that arise when a business decides to move on from the test phase and look more closely at a wider and more comprehensive roll out across the organisation – particularly if the business is large, complex and has a number of different divisions working in siloed units.

Indeed, often scaling can prove to be a bigger hurdle than getting the ball rolling in the first place and is a key reason why such a large percentage of digital projects fail. As productivity pressures have ramped up and the choice of technology available continues to multiply, far fewer manufacturers have taken the leap towards wider roll-out.

As such, successful digital manufacturing projects are laser-focused on real business problems and companies should have a detailed business case that balances implementation costs against value-creation potential.

Additionally, digitialisation is a journey. Companies need to look beyond their immediate requirements and consider how the application of new technologies will help them build long-term competitive advantage.

Key to this is collaboration, internally across sites, functions and business units, and externally with a select group of technology providers and integration partners. In addition, there is also the need to have digital transformation led from the top of the organisation. The whole executive team and the company’s P&L leaders should understand the organisation’s goals and the new ways of working required to achieve them.

In addition, successful companies recognise the importance of new skillsets in their approach to digital transformation, and the significance of an organisational culture that facilitates development.

Culture change/risk aversion

Manufacturing is a sector that has traditionally been slow to change and adapt, and is typically averse to any risk perceived as unnecessary. As a consequence any new-fangled technology, however impressive, can initially be viewed with suspicion and scepticism, with already established processes and systems forming the go-to, trusted methodology. The ethos being that if something has always been done a certain way, why look for anything better?

This has led to legacy and outdated systems proliferating the manufacturing sector. And this is the case even when the potential benefits of digital technology are taken into account; the situation becomes far worse if there is a view that the introduction of new technology will be detrimental to the existing workforce – robotics being a prime example.

There is a stark difference in attitude towards investment in robotics between the UK and many of the leading automated nations. Therefore, for manufacturers, particularly SMEs, it’s essential that staff are trained and educated on the benefits that the right technology solution can deliver.

Digitalisation is not just about technology; creating a digital culture is critical to the success of any transformation project. Digital disruption is a business priority, and it starts and ends with people. They are the lifeblood of any organisation and the most important part of the change management process.

Having a culture that supports digital transformation is at the heart of a programme’s success. And reviewing the potential risks and considering them when you establish a culture of change, will lead to a more resilient organisation.

Including people in the process from the ground up is vital to cultivating a change that will be embraced by an organisation in the long-term. Businesses will only succeed in digitalisation if they create an inclusive culture that fosters innovation.

ROI

Linked closely to the aforementioned pilot purgatory, a digital technology barrier for many manufacturers is knowing when they will receive payback for any investment – commonly known as ROI.

Any business would be loath to make any investment if the benefits to the entire business in the long-term are not provable. However, the issue that many manufacturers have is that they just don’t when, or indeed if, they will see that digital technology investment pay for itself; and if they can’t get a definitive answer, it can put many firms off of even getting started.

It’s important that digital technology is seen as an enabler rather than a cost, however, there is evidence to suggest that while the number of digital transformation initiatives are growing, their ROI is actually declining. In what can sometimes be a confusing landscape (particularly for the uninitiated), there can be a misalignment in the expected outcomes, goals and benefits of adopting digital technologies in the workplace.

An alarmingly high number of manufacturers report a less than satisfactory ROI on their digital investments. However, it is important to note that Rome was not built in a day, a phrase particularly apt for digital transformation. Remember, it is an ongoing journey rather than a single destination, and it doesn’t happen overnight or in one go.

Technologies will evolve and new solutions will come online. As such, measuring ROI should be a recurring activity; the goal of which is to ensure the company is investing its resources in a solution that can deliver results and boost profits by a sizeable margin.

In terms of how best to measure the ROI of digital transformation, it is important for manufacturers to first establish the primary reason for embarking on the digital journey in the first pace and the business objectives that matter, whether that’s to increase revenue, improve productivity or increase customer UX.

From there it is important to choose measurement metrics that are aligned closely with those objectives, so that what is being measured has a direct bearing on what is trying to be achieved.

From there, establish some time frames around which the measurement can be built. It is also important to establish where the business is now, where it wants to get to, and how long it will take to get there. Otherwise, garnering an accurate picture of ROI will be impossible.

Digital skills

An obvious barrier for many manufacturers is that they lack the necessary in-house skills to drive any digital transformation project forward; to select, deploy, manage and maintain such technology. Talented, skilled workers are the lifeblood of the manufacturing industry, but for many businesses, employing staff with the relevant digital expertise has become an ever-present challenge.

It’s no secret that the sector has an ongoing issue around skills, with a lack of young people opting for manufacturing as a career. As such, manufacturing has an ageing workforce, many of whom will be reaching retirement age over the next two decades.

Not only does the sector have a supply and demand problem around what would be considered traditional manufacturing capabilities – welding, CNC machining etc – businesses are also crying out for emerging digital skills that they perhaps never needed in previous generations, but which will be vital to drive digitalisation and Industry 4.0 forward.

However, the fact that the requirement for these types of skills is relatively new to the sector has created recruitment challenges. And these have been exacerbated by competition; manufacturing is not the only sector in need of emerging digital skills, and it is currently losing talent to tech and finance, for example – sectors that have the perception among the younger workforce as being more exciting and lucrative – meaning many manufacturers are fishing in a relatively shallow talent pool.

The increase in the need for digital technology within manufacturing has highlighted the lack of key data analytics skills, for example, to enable companies to make the best use of what their data is telling them. And, with so many businesses using data and system integration technologies, it is vital that companies invest in data science skills and software engineering to capitalise on all that information.

It is also important to note that the digital skills needed in many roles have a shorter lifespan than ever before. In the new digital economy, where roles and capabilities are evolving constantly, manufacturers need to establish clear career development and training pathways. And as such, partnerships between universities, business schools and employers will be critical.

Digital technology internship programmes, run by organisations such as Made Smarter, have helped connect graduates with manufacturers who have then been able to benefit from that fresh insight to help them adopt technological tools.

Legacy equipment

The pace of change of digital technology in recent years, combined with the risk and change averse nature of the sector, has resulted in most (if not all) manufacturers having to manage older, legacy equipment and systems, and a fragmented IT infrastructure – while at the same time trying to integrate new emerging technology into their processes.

A ‘if it’s not broken why fix it?’ mentality has resulted in a plethora of systems still in operation beyond their natural lifespan, creating issues around interoperability with newer software and systems, and strategies for phasing out and decommissioning. However, as the need for digitalisation has become more pressing, manufacturers are faced with a decision; whether to upgrade existing assets or replace them with new ones.

Outdated systems are not designed to integrate with new technologies, often making them incompatible with Industry 4.0 upgrades. Manufacturers could scrap all legacy systems and build a new infrastructure from scratch, but this is impractical. It’s expensive, and it means shutting down for weeks or months.

An alternative would be to perform an inventory of systems, scrap and replace some and try to update others. However, that also takes time and money and could raise data privacy and security issues. And, as mentioned earlier, not every company has the in-house expertise necessary to implement such a strategy.

Solutions include the adoption of IoT sensors which allow for data collection on machines to ensure they are running productively and efficiently. They can also provide alerts to problems before a breakdown occurs, for predictive maintenance and better control of production.

Furthermore, integrated communications systems can be installed to collect and integrate data from CRM, ERP, SCM and PLM systems, as well as from the sensors on machines. Data can be displayed on easy to read and understand consoles placed anywhere. This lets users collect, visualise and analyse data from all areas of the factory from anywhere, enabling production to be optimised from start to finish.

IT/OT convergence

Within a traditional manufacturing environment, IT/OT would typically operate as two separate entities of an organisation that would have been siloed from one another. As a result, a gap often exists between the enterprise and the shop floor.

IT, or information technology, is the central intelligence of an organisation, encompassing systems that can analyse and process operational and business data. These resources facilitate the translation of data into actionable insights, enabling workers to make informed decisions.

OT, or operational technology, forms the foundational infrastructure of a factory, traditionally relying on established and proven legacy systems. It interfaces directly with factory level hardware, including machinery and programmable logic controllers (PLCs). OT systems prioritise reliability and have historically operated independently from IT, with workers possessing unique skillsets tailored to their respective domains.

As manufacturers further accelerate their digital transformation aspirations, converging IT and OT is a pivotal piece of the puzzle. After all, smarter shop floor machines produce better data. And better data helps to make machines operate more efficiently.

When it comes to enhancing the digital transformation journey, the mutual benefits for enterprise and the shop floor of IT and OT convergence are substantial. However, it may take some time to break down the traditional walls separating IT and OT systems and processes, to bring together the teams, processes and systems into a coherent whole.

Any IT/OT convergence can also throw up security concerns as IoT devices have been historically vulnerable to attacks, which means that the OT attack surface expands when it is integrated with IT. Cyber security should therefore be a major concern to the business, as OT is responsible for smooth facility operations.

In addition, existing IT and OT systems may use different programming languages, portals and/or platforms. To ensure smooth IT/OT convergence, the business may need to manually develop integrations.

Manufacturing leaders need to build a holistic roadmap to integrate IT and OT systems that align with the overall business strategy. On top of that, like any type of change management, business leaders must ensure organisation-wide alignment to maximise the chances of success.

A continued focus on workforce readiness by upskilling and reskilling employees is also needed to prime workers for ongoing and continuous improvement across the organisation, as well as to equip them with the tools necessary to thrive in today’s digital-first world.

Confused marketplace

Not only can the sheer volume and rapid evolution of digital technologies, such as IoT, AI, cloud computing and big data, be overwhelming, as manufacturers have gradually opened the door to their digital journey, they will have been presented with a veritable smorgasbord of software, systems and solutions, from a plethora of vendors – all promising the Earth – around which they can build their transformation.

This has left many organisations unable to see the wood for the trees in terms of how and where to get started – creating such a complex, convoluted and confusing environment in some cases, that it has put manufacturers off from getting under way at all. Not ideal if a company has key stakeholder requests to satisfy.

With an overwhelming number of technologies, solutions and options that align with an organisation’s specific needs, it can be difficult to navigate through all the choices to determine which ones will best support the organisation’s goals. Making the wrong technology choice can be a waste of financial resources, as well as inviting compatibility issues or inefficiencies within existing systems, further hindering the transformation progress.

Integrating new technologies with existing systems can also cause delays and disruptions, as careful planning and coordination are required to ensure a smooth transition. Organisations need to approach their technology choices strategically to overcome any barriers they may present, taking into consideration factors such as scalability, flexibility and ease of integration. It may also be beneficial for companies to consult with technology experts, partner with trusted vendors, or participate in industry forums and conferences to gain the most current insights into emerging technologies and best practices

The first step is conducting a thorough needs assessment to define your organisation’s requirements and goals. Then you can effectively evaluate different technology options, considering factors such as ease of use, scalability, integration, flexibility, adaptability and cost.

Cyber security risks

By definition, the more a company invests in and deploys digital technology, the more connected that company’s systems and processes will be to, not only the rest of the business, but to the outside world.

While this may be desirable to a degree – linking disparate and siloed elements of the organisation together, giving better transparency across business processes and enabling more real-time decision making – this increase in connectivity will of course increase the attack surface of the business, which malicious actors could potentially exploit.

Industrial cyber crime is on the rise, and as digitalisation has become more ubiquitous across manufacturing, it’s no surprise that the sector is now the most targeted by cyber criminals. There have already been some high-profile attacks within the sector leading to worrying headlines around ransomware and the like. Unsurprisingly, this can sound the alarm bell for some businesses and give them pause prior to committing to any digital transformation project which could potentially give criminals and open invitation.

Manufacturing organisations are a particularly lucrative and accessible target for ransomware due to their low tolerance for downtime and relatively low level of cyber maturity compared to other sectors. Not to mention the ever-increasing sophistication of cyber attack techniques, making them something of a moving target when it comes to fighting back.

To prevent cyber security delaying the digital transformation journey, it is important that manufacturers build cyber resilience into their organisations. This can start with cultural change and a comprehensive governance strategy so that cyber security has clear ownership within an organisation. It also covers the importance of securing budget and resources, while also creating incentives to ensure that cyber security is an objective embraced by all.

In addition, a risk-based approach must be used to incorporate cyber resilience into the development of new products, processes, systems and technologies. Again, collaboration is key so there is huge importance on fostering trusted partnerships and raising security awareness among stakeholders. Rather than having one organisation exert control over a supply chain, an ecosystem approach involves encouraging all entities in a business network to collaborate to address cyber security issues.

Geopolitical uncertainty

It’s a VUCA world out there – volatility, uncertainty, complexity and ambiguity currently reign supreme across the globe. And the more uncertainty persists the more a business is inclined to batten down the hatches and be averse to change or risk.

This is by no means ubiquitous across the sector, and the volatility of recent times has, in some cases, actually served as a catalyst for organisations to update their processes – the vulnerabilities of which were laid bare by recent disruption – and digitally transform their businesses to not only bring them up to date but also to safeguard against any future challenges.

However, there have been some companies for whom global disruption – whether that be COVID-19, Brexit or supply chain issues caused by conflict in the Ukraine and Gaza – has caused digitalisation projects to be put on ice.

Not only has uncertainty caused companies to be more risk averse, it has also contracted the bottom line and profit margins, meaning that in some cases, any resources set aside for digitalisation projects were retargeted towards shoring up supply chains or investing in extra inventory etc.

Data management

Data is of course, the fuel that powers digital transformation, and any project is only as good as the data behind it. The success or failure of a digitalisation project can all hinge on the quality and integrity of the data, and how it is managed within the organisation. Indeed, ineffective data management can lead to fundamental flaws in any business decisions.

The problem that many organisations now face with regards to data is that there is now a lot of it. As manufacturers have embraced emerging technologies so the volume of data created by their machines and systems has increased; far beyond the levels experienced in previous generations.

Therefore, a recurring problem for manufacturers is not only how to effectively and efficiently harvest all this data, but also what to do with it once they have done so. Data is unlike oil; it has no value when it is just being stored, so achieving actionable insights from data is imperative for any modern business.

Prioritising efficient data management practices is the solution to this challenge. This involves establishing processes and policies that enable your organisation to collect, store, retrieve, analyse and utilise data in a way that is secure, accurate and compliant with relevant regulations.