In the post-COVID-19 era, manufacturers must make a simple choice: go digital or go extinct. While the pandemic pushed digital transformation initiatives into top gear, not everyone has gone digital. Why not, and how can late adaptors catch up?
The great realization
The pace of digital transformation has varied across industries. Consumer-facing industries such as media, consumer products, retail, financial services, and healthcare have been at the forefront, while manufacturing industries such as industrial, automotive, chemicals, mining, mill products, aerospace and defense have been selective in their digital transformations. Manufacturing industries continue to be overwhelmed with supply chain disruptions, so their focus has been to find quick fixes to their supply-chain woes. But many companies are now realizing that their survival may depend not on short-term fixes, but on a holistic transformation of the entire value chain of planning, sourcing, manufacturing, and distribution.
The degree of competitiveness and competency for most manufacturers during the pandemic was directly proportional to their Industry 4.0 maturity. For example, a McKinsey survey found that 96% of manufacturers that had managed to scale Industry 4.0 use cases across multiple locations of operations were better able to respond to the biggest crises of this decade. So, what is stopping digital laggards from turning into digital powerhouses propelled by Industry 4.0 technologies?
The strategic importance of digital transformation is now abundantly evident to manufacturers across sectors. However, implementing digitization across an enterprise can challenging for the following major reasons:
- Scaling success: A large numbers of Industry 4.0 use cases have been created, but most have not made it past the ‘proof of concept’ stage due to a lack of adequate sponsorship and the inability to deal with organizational change impact.
- IT/OT ownership: Most organizations have entrusted CIOs with the responsibility for IT, but the ownership of operational technology (OT) still lies with the operations team. This lack of alignment between stakeholders from IT and OT often slows down the pace of digital transformation.
- Cash constraints: CIO budgets have been shrinking, so their ability to fund significant transformations is limited. Digital transformation needs to be funded by the business, and its execution needs to be governed by business stakeholders to ensure accountability and a higher chance of success.
- Awareness: Many manufacturers remain unaware of what manufacturing and digital supply chain management can bring to the table. Given the pace at which traditional business models are being disrupted and new technologies are emerging, raising awareness is not just important, but a question of survival.
- Fear of failure: Lastly, many digital transformation initiatives have failed to deliver on the promise. This has created a fear of failure among many stakeholders. The only way to overcome this is to learn from failures and prepare better for the next initiative.
The quickest path to digitization for late adopters
Operational resilience, scalability, and flexibility will remain the top priorities for late adopters. If your organization has been slow to digitize, the good news is that there are three key areas that organizations can invest in to benefit from digital transformation today. Strategic investments in these areas will allow manufacturers to deploy exciting new technologies such as: advanced automation on the shop floor, connected machines, green manufacturing, 3D printing, predictive maintenance, tech-enabled field service, track and trace, and supply chain visibility/resiliency.
1. Modern architecture
The biggest impediment to adopting modern architecture is monolithic and outdated applications. Companies need to invest in modernizing applications to have access to data in real time, be agile in introducing new products and services, develop the ability to change business models often, boost transparency in interactions with business partners, and conduct business in compliance with local laws in a secure environment. The best way to modernize applications is to adopt a composable architecture so that latest technology can be consumed in a ‘plug and play” way. This also removes the need for all legacy applications to be replaced at once.
2. A strong digital core
A modern ERP system like SAP S/4HANA brings multiple benefits to manufacturers looking to digitally transform their business. Some of the key benefits include process simplification, an open architecture to create edge solutions, faster data processing, and a modern user interface. Many manufacturers, however, are still living with older SAP ECC systems. But, to fully leverage the benefits of digital technologies, organizations will need to migrate to SAP S/4HANA.
There are two primary ways to get there: reimplement or upgrade. Reimplementation gives manufacturers a unique opportunity to modernize but for some, technical conversion with a phased adoption of SAP S/4HANA innovations may be more suitable when measured in terms of cost, speed, and risk.
3. Innovation at the edge
The current trends in digital transformation have caused significant market disruptions for late adopters. Innovation at the edges of the digital core is the best way to bring make organizations agile and efficient. This means making strategic investments in cloud-based solutions in areas that are fast evolving, such as supply chain management and planning, digital manufacturing, supplier collaboration, warehousing, transportation, and configure-price-quote (CPQ). Enterprise leasers must implement these capabilities with a fail-fast, agile approach to application development.
Kickstart your digital journey now
If you have missed the digital boat during the great acceleration, now is the best—and possibly the last—time to kickstart a digital transformation at your organization. In the post pandemic world, the rules of digital manufacturing and digital supply chains are being rewritten. Capitalize on this revolution by building a strong digital core as your foundation. Then, add layers of innovations in manufacturing and supply chain by harnessing the power of data/analytics, machine learning, and artificial intelligence in the cloud with faster response times enabled by 5G networks.