It is possible to transform a factory into a smart factory much more quickly and inexpensively than most executives realize.
When many people imagine a smart factory, they envision something complicated and expensive – the kind of massive “manufacturing execution system,” or MES, that can take more than a year and millions of customers to implement. dollars. If you’re Elon Musk, you can invest money in advanced automation and robotics – and keep pouring money in. But you don’t have to be Elon Musk. Many of the biggest benefits of smart manufacturing require much less time and money.
Many smart factory advocates, dazzled by the technology, overlook the biggest potential sources of value creation. We’ve seen it during visits to hundreds of manufacturing sites over the past five years: Most manufacturers make far too little use of readily available data. Working hours, for example; these numbers are collected for payroll, but rarely extracted from clock-in/out systems and analyzed to discover ways to operate more efficiently. Similarly, commercially available RFID technology can trace the origin of waste, and simple Internet of Things (IoT) sensors can provide real-time information on utility usage. The ability to see, analyze and immediately act on information can have as much impact on a factory’s profitability as advanced robotics, at a much lower cost.
The low-tech, low-cost path to a smart factory works for businesses of all sizes and is particularly well suited to the appetites and capabilities of mid-sized businesses. Mid-market executives say they are intimidated by disruption, particularly in technology. In an unpublished survey conducted by AlixPartners this summer, 55% of companies with revenues of less than $500 million per year said technological change was happening too quickly to keep up; only 24% of large companies said the same. They don’t need to be afraid. Instead, the middle market may be the main beneficiary of the revolutionary democratization of the digital domain. In recent years, cloud computing platforms have brought sophisticated capabilities within reach of almost every business, and sensors and cameras that once had to be custom-built can now be acquired and adapted more cheaply. These changes enable businesses of all sizes to have cutting-edge tools for smart factories.
When properly designed and deployed, a smart factory strategy can accelerate efforts to solve the labor shortage, close the skills gap, decarbonize operations, shorten delivery times or to carry out local operations. The key is knowing where to start.
Start by identifying the business problem you’re trying to solve. Companies need to focus on the plant P&L and identify the KPIs and metrics that directly impact it. The next step is to determine how to apply smart factory concepts and tools to improve performance on these specific criteria, which typically include overall equipment efficiency, machine/asset utilization, productivity and throughput .
Consider, for example, a commercial bakery in the northeastern United States with annual revenues of approximately $200 million.
The company achieved $1.5 million in annual savings, which increased EBITDA by 4.8%, thanks to targeted smart factory solutions focused on three business challenges: scrap reduction and others waste, improving labor costs and reducing energy consumption. The company managed to solve all three problems with relatively simple technology.
A major cause of waste, for example, was baked goods that came off the line underweight (which had to be thrown away) or overweight (which used more dough than necessary). By installing digital scales and sensors on the existing manufacturing line, the company captured this waste before it was (literally) cooked, reducing scrap by 25%. A homemade labor visibility and utilization dashboard provided a similar real-time view of labor presence in the factory, revealing that a significant number of workers remained at work after their shift; Without a way to track behavior in real time, managers were unable to enforce work schedules; with this tool, overtime hours fell by 50%.
Finally, by installing IoT sensors and connecting the data stream to existing systems to monitor utility consumption, annual utility spending was reduced by 5% because it notably revealed when equipment was operating unnecessarily.
What made this progress possible – which took less than six months? In our work with manufacturers, we have identified four best practices that help make smart factory projects affordable and successful.
Focus on the plant P&L.
Most practitioners define “smart factory” in terms of software technologies (such as AI, machine learning, and warehouse management systems) or intelligent hardware (such as connected devices and computer vision). Any or all of these elements can be part of a smart factory, but focusing on tools or technologies risks missing the opportunity. In our experience, an approach that defines a smart factory from a factory P&L perspective provides the pragmatism necessary for factory success.
Identify all cost drivers.
Most smart factory initiatives focus only on operations within the four walls of a factory, and in particular the production lines themselves. A program that looks only at overall equipment effectiveness (OEE) covers less than a quarter of total plant costs, which are distributed among company departments. In a typical consumer goods operation, ingredients represent about 45% of the cost and packaging 20%; direct labor, indirect labor and overhead are approximately 10% each (each managed by different teams); and utilities make up about 5%. All of these elements can be sources of digital value creation.
Leverage existing factory assets.
You don’t need to replace existing equipment with a monolithic digital platform. Adding digital capabilities to existing equipment will achieve most of the benefits of rebuilding at lower cost, in less time, and with less need to resolve the problems that new platforms always encounter.
Put manufacturing leaders in the driver’s seat.
The best leaders for smart factory projects are experienced executives who combine manufacturing pragmatism and digital knowledge. Too many balance sheets show depreciation for factory modernizations which did not give the expected results – sometimes literally. In this regard, many mid-market companies have an advantage over their larger rivals in that their senior leaders are closer to operations, both experientially and physically.
We’ve seen this combination of abilities work time and time again. A few years ago, we worked with a metal products manufacturer on the East Coast of the United States that had about $100 million in sales and had been overwhelmed with orders when Covid hit. disrupted the supply chains of its foreign competitors. With no time for a major overhaul of the factory – and no way of knowing how long that increase would continue – the company installed IoT meters and screens costing about $100 apiece on the plant’s machines. cutting, which allowed plant supervisors to monitor and assist operators in real time. At the same time, meter data was integrated with the ordering system, so that orders could be instantly integrated into production planning, tracked and matched with shipping, which significantly streamlined the process order taking and execution.
This example of a practical digital solution helped double production and revenue in one year without any capital investment or physical factory expansion. Two years later, even though global supply chains had returned to normal, the company’s sales had still increased by 15% because its increased efficiency allowed it to better respond to global prices and benefit from changes in “buy American” policy.
When a company’s smart factory approach is defined based on business priorities and executives seek the simplest solution, low-cost and quick tactics can improve throughput and quality, increase plant productivity. labor and machinery, save energy and materials used, reduce lead times in receiving, in-store selection, packaging and shipping, and more.
Measures like these are better suited to the financial constraints faced by mid-sized and smaller manufacturers. They deliver results faster and match the ability of mid-sized businesses to act quickly, unencumbered by corporate bureaucracy.
And they offer something else. Large multinationals – with many divisions and factories in many locations – are better able to set up pilot projects, experiments or Skunk Works. They can try, fail, learn and adapt with less danger than a company that has only one or two factories and an income statement.
A low-tech, low-cost approach to smart factories offers mid-market companies low-risk gains while providing valuable learning and experience – for executives, managers and production workers – that can pave the way to bigger and bigger growth. technologically advanced investments later.
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