How successful companies deliver the best return on digital operations.
It’s one thing to acquire mountains of data, but quite another to harness it to improve results. That’s a growing challenge for manufacturers. Many leadership teams collect treasure troves of data hoping it will help them make better decisions. But to get the most from that data, companies need to link data-gathering technologies and tools to their long-term strategies and change-management efforts.
For companies that get it right, the results are impressive—production efficiency gains of 15% to 20%, as well as improved production flexibility and quality. Those returns dwarf the average 2% to 4% returns from classic continuous improvement methods (see Figure 1). A leading automotive equipment manufacturer that implemented state-of-the-art processing and assembly technologies increased its overall efficiency by 20%, while simultaneously improving quality and flexibility.
Digital supply chains deliver a step-change in improvement in four key areas. Automated processes improve efficiency, reduce error rates and increase flexibility. Improved visibility and more accessible information across the entire supply chain accelerates cycle times and improves collaboration with third-party suppliers. Advanced analytics can significantly improve planning and forecasting. Finally, digital tools enhance employee productivity and safety.
Despite those potential gains, digital manufacturing investments often prove disappointing for leadership teams. One common pitfall is implementing new technologies without a strategy. That approach often results in interesting pilot projects that are difficult to expand and rarely successful in transforming the organization. A second pitfall is spending too much time developing the perfect strategy and failing to respond quickly to a changing business landscape. Finally, some executives stumble by focusing more on the new technology than on the business case supporting the investment.
Successful companies understand that digital manufacturing is a strategic shift. In addition to making sure they have the right tools to process the data, they follow five guidelines to make sure their digital investments avoid pilot purgatory and deliver the best returns.
Set a clear point on the horizon. All too often, companies are tempted to start investing in digital operations with a series of small, tactical pilots that aren’t connected to the long-term business strategy. Later, executives realize that it’s difficult to expand pilots and use them as a base for a broader manufacturing transformation.
Digital leaders avoid these mistakes by setting a long-term vision for digital innovation and investing only in technologies and projects that fulfill that vision. Looking out beyond the next 12 months, they focus on how production lines should function in 5 or 10 years. Defining an operations strategy for the future starts with a few key questions: What will the network look like; what kind of capabilities will we need; and what level of product differentiation do we want? This “future-back” approach ensures each pilot tests the company’s hypothesis about its future operations model.
Don’t build a digital strategy in a vacuum. Digital capabilities can help companies respond rapidly to new customer needs and to competitors. But individual departments might pursue tactical investments in digital technologies without first determining how much they’ll benefit the company as a whole. The information technology department, for example, may decide to invest in a new digital technology without input from operations managers. Only at rollout does it discover production engineers and shop-floor technicians don’t want the initiative because it doesn’t address their problems. Digital leaders connect different teams across silos before funding initiatives to gather input and exchange ideas.
Team up with partners. Companies that seek to build digital operations expertise in-house often struggle to keep pace with rapidly evolving technologies. Best-in-class companies develop a network of trusted experts to help them build specific digital capabilities and evolve their digital operations model over time. They consider what makes sense to develop internally, and which digital components, capabilities, and platforms to source from trusted partners and vendors. That approach allows operations teams to rapidly leverage market innovations.
The laws of business still apply. Operations managers may be keen to speed the investment in innovative digital tools, but it pays to first make the broader business case. The long-term strategic view will persuade leadership teams to commit resources to digital operations. At best-in-class companies, operations leaders map out new levels of operating efficiency, reduced scrap rates, increased utilization rates for existing machines and extended life spans of expensive production assets. What really separates these leaders is their ability to look beyond traditional cost benefits and understand how digital tools can directly support revenue and growth objectives. They understand that ultimately, the investment in digital operations must provide a clear and reasonable return on investment.
Similarly, like most large change programs, digital transformations require upfront investments that don’t always yield immediate returns. Digital leaders set expectations for both the initial return on investment as well as longer-term gains that will accrue in three to five years. Rather than try to secure significant new investment at the beginning, they rechannel existing outlays to support the first steps. Quick wins can help ensure that early stages of investment are self-funding and pave the way for fresh infusions of capital later on.
Track market changes over time. It may sound obvious, but digital dynamics change constantly. Many leadership teams decide where they want to be in 5 to 10 years and then forget to adjust their goals as the competition, markets and technologies evolve. Successful companies monitor developments in the industry and technology and fine-tune the path to their long-term vision as the world around them unfolds.
Leaders know there’s no straight line to the digital point on the horizon. Digital technologies evolve rapidly. Successful companies rethink and modify their strategies over time, especially before making large-scale, potentially transformative investments. A rapid test-and-learn approach allows them to add and remove elements based on what’s successful and what’s not. Getting digital manufacturing right is all about putting those growing mountains of data to work and staying nimble.
Joe Terino and Peter Hanbury are partners in Bain & Company’s Performance Improvement practice. Joe is based in Bain’s Boston office, and Peter is based in the firm’s San Francisco office.
Jon Sobel is cofounder and CEO of Sight Machine, a leader in manufacturing analytics.