Digital transformation across the manufacturing sector
March 2021 | TALKINGPOINT | SECTOR ANALYSIS
Financier Worldwide Magazine
March 2021 Issue
FW discusses digital transformation across the manufacturing sector with Don Matthew at KPMG.
FW: How would you describe the way digital transformation is reshaping operations across the manufacturing sector? What opportunities do new technologies offer companies in this space?
Matthew: Digital transformation is more than just the ‘digitalisation’ of legacy analogue systems. It offers the opportunity to improve the entire enterprise value chain from the shop floor to the way people work, connect with customers, suppliers and the C-suite decision makers. New technologies offer companies the opportunity to make supply chains more flexible, become more customer-centric and ultimately drive growth and profitability. The i4.0 revolution includes the use of advanced machines and robots, sensors connected to high powered analytic engines, and cloud-based programmes to assess performance, manage production schedules and maintain inventory, supply levels and movements. There is also a big opportunity for 5G implementation in the manufacturing industry, as it provides an increased level of data speed and responsiveness at every step of the value chain. It will take manufacturing beyond the current 4G linear technology and allow for customisation to better meet consumer demand. 5G will allow for more dynamic, self-regulating and self-adjusting processes that will translate into agility, speed and higher productivity. Smart sensors will further drive automated processes, enabling machines to update themselves and initiate a new process when there is demand, assess the quality of components that are being manufactured in real time, and reduce reworking requirements.
FW: What benefits may manufacturing players gain by actively pursuing a digital transformation process?
Matthew: Digital transformation is a long-term journey, and while manufacturers around the world are making important progress, it is now an essential part of remaining competitive in today’s environment and critical to long-term growth. Consumers and stakeholders alike are expecting higher rates of productivity when it comes to the products they want. Manufacturers that invest in Internet of Things (IoT) technology will stand to benefit as they can use this technology to connect to current legacy equipment. In capital-intensive sectors, this type of transformation and investment is becoming a requirement. Manufacturing players who actively pursue their transformation agenda will find major benefits in terms of data speed, latency, efficiency, reliability, capacity and security. Opportunities from implementation include making supply chains more flexible, being more customer-centric and ultimately driving growth and profitability. One of the primary benefits of pursuing digital transformation is the ability manufacturers get to compete in the 5G world. 5G can help manufacturers that are struggling to drive growth, as it provides the opportunity to capitalise on new technologies such as machine learning, artificial intelligence (AI), robotics, IoT and machine-to-machine communication. With these technologies in place, manufacturers gain capabilities to speed up production, reduce downtime and costs, administer predictive maintenance, and achieve more visibility into their production and delivery lines.
FW: Given the complex nature of the digital world, what practical strategies can manufacturing companies deploy to help them initiate and plan for digital transformation across their operations?
Matthew: When it comes to planning for digital transformation, it is important to get beyond theory and concepts and pick one piece of your process that can be easily digitalised and start there. Not all parts of the digital transformation will be complex. Cloud technology, which is very effective when it comes to eliminating friction in certain business processes, has the potential to deliver quick and noticeable returns, and does not require a large amount of IT resources. It is important to start small by picking one problem you are trying to solve and focusing on it. Consider partnering and collaborating with other players in the ecosystem to develop viable 5G use cases. Through a combination of AI-based planning, edge computing, high bandwidth with low latency, connected machines, augmented reality (AR)-enabled workers and integrated logistics, 5G has the potential to transform the way manufacturers work. 5G technology must and will create tangible value by solving existing problems or creating new business models. This cannot be done in isolation but must involve other members of the supply chain that manufacturers operate in.
“The biggest challenge for manufacturers is preparing for and managing change. That is why it is critical to communicate.”
FW: What advice would you offer to manufacturing companies on identifying and implementing strategies to manage the risks they are likely to face during a digital transformation process?
Matthew: When it comes to implementing digital transformation, there will be challenges, mistakes and setbacks, but there will also be successes and triumphs that will be beneficial to the manufacturer, their supply chain, employees and processes and, ultimately, their customers. It is important to stay the course because not doing so will result in increased costs due to stocking higher inventory levels of both raw materials, to meet production requirements, and finished goods, to meet demand requirements, higher error rates which leads to an increase in waste and delivery disruptions to customers, and less ability to customise to meet specific consumer needs. The opportunities that digital transformation provides far outweigh the risks. Additional challenges that manufacturers may face include ensuring their supply chain is keeping pace, upfront costs to make the significant investment in digitalisation where the payback is not immediate and quick, and being left behind by competitors that are already adopting 5G.
FW: What steps can manufacturing companies take to overcome any resistance to change that may prevent digital transformation being embraced throughout their organisation?
Matthew: The biggest challenge for manufacturers is preparing for and managing change. That is why it is critical to communicate. You need to bring your employees along with you on the digital journey. Automation and digitalisation do not eliminate headcount. Instead, they require you to have a more skilled, educated workforce. The future of work requires both upskilling and reskilling. You will either need to retain your existing workforce to prepare for new roles, hire new staff with the right skills, or take a hybrid approach. Leadership is needed to make it happen, show the benefits to the workforce and to start, lead and continue on the journey. If ‘change’ is not a constant topic of discussion, then fear and concern for the future success of the organisation can and will develop.
FW: Could you provide any examples of digital projects that have significantly transformed manufacturing operations? What lessons can other companies learn from how digital strategies were rolled out?
Matthew: Just-in-time (JIT) manufacturing has played a role in transforming manufacturing operations. Using historical data and trends, as well as technologies such as blockchain and data analytics facilitated by 5G to predict customer demand, it removes the need to pre-order and store large quantities of raw materials and finished goods. We see this happening to varying degrees in many manufacturing operations starting in large-scale applications, such as automotive manufacturing, right down to the manufacturing and supply of diapers. Digital capabilities based on the IoT, AI, autonomous operations, virtual reality and drones are delivering big gains in productivity and accelerating innovation, and will also help mitigate some of the JIT supply chain issues going forward that were brought to light as a result of the coronavirus (COVID-19) pandemic. Additive manufacturing, such as 3D printing, is a key technology for sectors like aerospace, particularly in prototypes and low-rate production. Digitalisation will facilitate territorialism to the extent that it occurs for manufacturing on home soil for domestic consumption and supply chain security. It will also allow supply chains to be more robust – knowing who your suppliers are, where they are, what supply chain diversification options are available, what alternatives there are and, finally, how to simplify supply chains and channels.
FW: Are there any legal or regulatory considerations that manufacturing companies should consider as they undertake digital transformation? Is there an opportunity to enhance compliance, for example?
Matthew: Manufacturing companies must stay compliant with the rules and regulations that currently impact them but do need to address confidentiality of digital information, cyber security and risks, data ownership and responsibility issues, some of which are still not clear. An example is the traceability of parts from manufacturers that can be used to track service requirements, performance, failures and tolerances to not only maximise performance but also to monitor compliance with rules, regulations and specifications. The transformation to digital does not change the obligations related to that data, but it does come with different risks and exposures along with tremendous opportunities. Rules and regulations will continue to evolve so it is key to embed the related data and cyber considerations in the company’s continuous risk management process.
FW: Looking ahead, do you expect to see greater demand for digital transformation among manufacturing companies throughout 2021 and beyond? What are the potential consequences for companies that delay?
Matthew: We are already starting to see greater demand for digital transformation. The behavioural shifts and rising demands first seen in the business-to-consumer space are now reshaping business-to-business relationships and expectations, driving the need for greater transparency throughout more integrated value chains. The COVID-19 pandemic has also highlighted the value of greater automation and having more resilient supply chains and, as a result, progress to digitalise has accelerated. To thrive in this changing environment, it is not enough for manufacturers to take a ‘catch-up’ approach to technology investment. Delaying digital transformation puts manufacturers behind the rest of the world, including their competitors and the opportunities in front of them. The world is changing fast, especially with the use of data and technology. This is what is making the difference and without being a participant, you will get left behind.
Don Matthew is the national sector leader for KPMG in Canada’s industrial manufacturing practice. Since joining the firm, he has held a number of leadership positions, most recently as partner-in-charge of KPMG’s Fraser Valley Abbotsford, Chilliwack and Langley offices in British Columbia. He also serves on the board of directors and as the chair of the finance, audit and risk management committee for the Canadian Manufacturers & Exporters Association. He can be contacted on +1 (604) 455 4002 or by email: dmatthew@kpmg.ca.
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