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Digital transformation and what it means for manufacturing

Digital transformation has already changed the way technology-dependent businesses function. This is not just about how they buy services but in many cases has created fundamental changes to business models and interactions with partners and suppliers.

By John Oates

Recent research from IDC has focussed on how this process is impacting on the manufacturing industry.

The IDC Manufacturing Insights report found seven key drivers which underpin the predictions they made. The analysts looked beyond just the technology but also examined wider drivers from social, political, economic, legal and business spheres.

They made predictions for the short-term as well as looking at longer term strategic thinking.

These seven drivers are live issues for manufacturers today and they often act in concert with each other to push changes.


The seven key drivers and the impact they’re already having:


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  1. DX (Digital Transformation): Accelerating business disruption from digital transformation: Digital change is moving from the edge of manufacturing to central and mainstream strategy for everyone. It is no longer about early adopters and start-up companies but a requirement for all manufacturers. This requires an investment in digitising operations, communications and product development in order to change the way firms design, produce and deliver products and services.
  2. Cyber-IQ: An interconnected, informed, interactive, intrusive, intelligent, and cognitive ecosystem: The arrival of artificial intelligence, Internet of Things, virtual and augmented reality and big data to the business mainstream is creating systems which can mimic or even exceed human smarts. For the manufacturing industry this is changing everyday work as well as connections to suppliers and customers.
  3. East-west: Shifting global economic power, balance, and influence: Manufacturing has long dealt with the growing importance Asia as a source of skilled labour, low cost factories and flexible component suppliers. But the driver is now moving beyond just outsourcing and reducing costs. Asia is an increasingly important as a market in its own right as well as providing the skills and infrastructure which are no longer available at any price in Europe and the US.
  4. Dynamic value chains: Shifting powers in the value chain upstream and downstream: Digital transformation is accelerating changes to supply chains and how companies work together. The old definitions – Original Equipment Manufacturers, like Ford or Apple, versus their key suppliers – traditionally called Tier 1, and key suppliers to those firms – Tier 2 – are less relevant. Equally end users and consumers have an increasing role in changing and influencing the supply chain – with ever faster turnover of product designs and iterations. Of course manufacturers have always thrived on the success of how they relate to others in the supply chain, but how those relationships evolve and mutate is changing faster thanks to technology. The need for deeper collaboration and cooperation has never been greater.
  5. Information as an asset: Increasing the use, analysis, and security of information: Manufacturing, along with almost every business, is recognising the implicit value in the data which it creates and collects. IDC estimates the digital universe is growing at 40% per year and will reach 44ZB, or 44 trillion gigabytes, by 2020. Dealing with this exponentially growing data pool is a major challenge. There are two parts to this challenge – firstly to exploit it to create new efficiencies and improved business processes. But the second, and more demanding, challenge is to use intelligent analysis of this data to create brand new revenue streams. Proper exploitation of this data resource should provide a better understanding of business processes, of customer needs and of how the two can most efficiently be brought together. It can also provide insight into areas of complementary business services. Doing this securely, safely and for a competitive cost is the key challenge for business today.
  6. The talented workforce: Talent redistribution and pressures on knowledge sharing: Manufacturers, in common with many other industries, are struggling with getting the right skilled people in the right place. These skills include design, engineering, research and development and supply chain management. Technology can help link these skills wherever they are in the world. As the workforce ages and changes there is a risk of losing institutional knowledge as well as opportunities from younger workers demanding and expecting new ways of working.
  7. Business-relevant security: Connecting cyber and physical security across IT and OT: By bringing together operational and information technology manufacturing must face the need to redefine security strategy. This requires a holistic approach in place of a patch and fix attitude. Companies must consider governance and compliance of existing customer and other corporate data while also ensuring the security of new projects like Internet of Things.


IDC uses these seven drivers to make specific predictions for the future of manufacturing.


Customer systems deliver increased market share

It expects that manufacturers which invest in customer-centric technologies will see market share grow by between two and three per cent by the end of 2017. These include improving customer relationship management systems, social listening platforms and customer self-service tools. These investments should increase business agility, improve demand predictions.

This change will require IT to embrace a culture of innovation, build strong bridges with business departments to accelerate project development and deployment and find the partners which can achieve this in the short and the long-term.


Technology investments require measurement, but what to measure?

In step with these technology investments IDC also expects the majority of manufacturing companies to put in place systems which measure the effectiveness of this spending. But some of this measurement will rely on new metrics rather than just return on investment. Some projects will be able to show such a return on the original business case but some will have evolved in such a way that new measurements are needed.


Supply chain forecasting coming to an end

By 2019 IDC expects 75 per cent of manufacturing supply chains will have shifted to digital connections which will improve responsiveness and productivity by 15 per cent. This change will require big changes to customer-facing technology and need an IT department which makes best use of data capture, information analysis and supplier connectivity. Such a change in supply chain will also carefully managed security.

By the end of 2019 IDC analysts also expect an acceptance that supply chain forecasting may never be as accurate as it once was. In its place systems need to provide both demand-sensing and the speed to react so quickly that forecasting is no longer necessary.

For IT this means creating transparent supply chains, the ability to analyse large data sets in real-time and provide business insight to those that need it at the time that they need it.

IDC FutureScape Manufacturing Predictions includes seven other specific predictions, as well as outlining what the organisation must do to deal with them.

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