Rather than stalling strategic investments in automation and digital technologies in order to control costs, some high-value manufacturers are accelerating such plans in a bid to gain market share or drive additional enterprise value in recovery.
However, playing the automation advantage requires careful consideration at the outset, writes Alec McCullie of Vendigital.
Among the key drivers for investment in automation and other Industry 4.0 programmes are often cost reduction and increasing market share through doing more with less. A global study by McKinsey published in July 2020 found that one in four industry leaders is fast tracking automation programmes to limit the impact of worker shortages due to Covid-19, but this is by no means the only driver.
When considering such investments, businesses should start by first defining what ‘automation’ means to them, to ensure they understand what it will involve and the value it will bring. Ultimately, the business case for investing in any digital technology such as automation, AI or the Internet of Things (IoT), must be rooted in a clear objective to either improve decision making, streamline processes, or potentially both.
If cost reduction is a primary objective for example, industry leaders will need to ensure that they have access to reliable data-based insights. To achieve this, they may first need to invest in improving data maturity, which is likely to mean being able to quickly access agranular level of detail around what they are spending, where and with whom.
Once data maturity has been realised, the business will be better placed to make decisions about how and where to invest. Rather than preparing a business case for investment in automation however, industry leaders should view it as a business case for investment in agility. The unprecedented nature of the pandemic and the scale of disruption caused to many OEMs and their supply chains, has underlined the importance of equipping the business to move quickly to adapt to shifting market conditions.
The response of manufacturers to the Government’s ventilator challenge highlighted the speed at which some businesses were able to pivot to adapt to new market needs. Now, with the vaccine rollout underway and many supply chains back up and running, manufacturers are keen to apply the same agility to deliver a commercial advantage on the path to recovery. Those businesses that take action now to fix any data issues and invest in the right automation at the right time, can improve enterprise value significantly.
Some Industry 4.0 initiatives can often be accelerated without large upfront investment. For example, many initiatives are focused in areas such as performance management, operational assistance or condition-based maintenance. In the case of the latter, condition-based maintenance systems could be introduced relatively easily by retrofitting sensors to monitor the performance of large pieces of machinery or processes, thereby enabling maintenance and servicing only when needed, rather than on a periodic basis, which can deliver cost savings without risking process downtime.
When considering investment in automation or other Industry 4.0 programmes, industry leaders should take a strategic and planned approach, focusing on internal analysis and future state planning. For the internal analysis, it is important to have a clear understanding of the current state of manufacturing processes; what is generating value and what isn’t and where improvements can be made. For example, there may be an opportunity to drive value at the same time as enhancing customer service by exploring ways to streamline delivery operations. Once an appropriate lever has been identified, data-based insights can be applied to accurately predict the performance contribution it could make. In this early planning phase, it is also important to consider the impact any investment could have on people within the business and the human capital requirements.
Once the internal analysis is complete and the highest impact business KPIs are fully understood, future state planning can get underway. Industry leaders should start by exploring the tools and techniques that could bring the identified improvements. At this stage, the business should have a robust understanding of the return on investment the initiative will bring, over a defined pay-back period considering both tangible and intangible benefits. They should also consider how optimisation and continuous improvement could further enhance enterprise value over time, often in unexpected ways due to their increased level of data maturity.
In the current climate, manufacturers that have already armed themselves with access to reliable data-based insights, are well positioned to capitalise on any opportunity and protect against future changes in demand.
For those that are yet to invest to achieve data maturity, there is always an opportunity to do so. Making well-timed and well-informed decisions to invest in agility and get closer to the customer, will always bring lasting value.
Alec McCullie is partner and head of digital platform at management consultancy, Vendigital