Digital Transformation Is Foundational for M4.0 Maturity

Manufacturers should prioritize data-driven decision-making and IT infrastructure.

TAKEAWAYS:
● Seventy-seven percent of respondents to an RSM survey said they plan to increase their information technology budgets in 2024.
● Middle-market organizations may have some catching up to do when it comes to digital transformation.
● Strategic investment in advanced technologies should be a priority.

Embracing digital transformation is more critical than ever for manufacturers, especially those in the middle market. That’s because midsize companies across the economy are poised to invest more in technologies central to digital transformation, according to data from the 2023 RSM US MMBI Digital Transformation Special Report, an RSM US Middle Market Business Index survey. For the survey, the Harris Poll interviewed 404 middle-market senior executives from a broad range of industries and sectors in April 2023.¹ More than three-quarters (77 percent) of all MMBI survey respondents said they plan to increase their information technology (IT) budgets in 2024. Similarly, 74 percent of respondents indicated that digital transformation was the most important area or among the most important areas of investment for their companies.

Even with these priorities though, companies are not always clear about how to achieve their digital transformation goals, the survey found. According to the report, “Over half (52%) of all respondents have a clear and agreed-upon digital strategy that addresses their IT and digital transformation goals. But while one-third (33%) of all respondents have plenty of digital activities underway, they have not formalized their approach into a digital strategy.”

“Embracing digital transformation is more critical than ever for manufacturers, especially those in the middle market.”

For manufacturers, important factors behind a successful digital strategy include how organizations use data to drive decision-making, how they adopt advanced technologies in their supply chains, and how they prioritize enhancements that will make their IT infrastructure more resilient.

We examine some of the most important digital transformation considerations for manufacturers zeroing in on their journey toward M4.0 maturity.

Building a Digital Strategy

Manufacturers need to have technologies and processes in place that enable them to harness, filter, and analyze data with relative ease. This is foundational to digital transformation efforts, especially as factories become more connected with the use of Internet of Things (IoT)-enabled devices, sensors, and other machines. Governance, system architecture, and analytics are the three most critical data prongs for developing a strong digital strategy.

Data analytics in particular is central to helping manufacturers adapt to supply and demand changes, shifting geopolitical risks or myriad other ebbs and flows in the market. Analyzing sales, production, and supplier data can shed light on how customer preferences are changing, identify product backlogs, help with quality assurance, and more.

As noted in the RSM article “Modern manufacturing: Embracing the digital future,”² “In truly digital factories, real-time metrics make adjusting to supply chain disruptions easier, connected devices make operations more seamless, and a variety of advanced technologies make scenario modeling more accurate.”

Manufacturers can tap into their data to develop comprehensive inventory dashboards, for instance, that can pull real-time information into one place. That can make it easier for companies to

Monitor inventory, in terms of both quality and quantity;
Adapt distribution and warehouse capacity as needed; and
Forecast demand trends.

Artificial intelligence (AI) also offers many promising features like data analysis and financial forecasting to enhance efficiency, streamline processes, and improve decision-making.

At the time of the MMBI survey in April 2023, “Fewer than half of executives polled (44%) said they or someone they worked with had personal experience using ChatGPT or a similar generative AI platform,” Also noted in the report, “Broader company adoption was similar: Just 28% said their business was currently using AI and machine learning, and another 20% said they were planning on using it within the next year. Since that time, it would appear the adoption of this new technology has quickly risen, with numerous polls, news releases and public company earnings transcripts citing the ubiquity of AI.”

“Governance, system architecture, and analytics are the three most critical data prongs for developing a strong digital strategy.”

For many companies, though, digital transformation doesn’t mean upgrading platforms or using new technologies like generative AI. According to the MMBI report, “Many organizations are simply focused on securing their assets and strengthening their IT infrastructure.” In addition, “An overwhelming 88% of all respondents said they currently employ cybersecurity or data security in their businesses or plan to do so within the next 12 months, making it the most popular choice in the survey. Increased concern over cybersecurity was the top motivation respondents gave (65%) for changing their IT budgets.”

Manufacturers need to make sure their IT infrastructure is scalable and flexible for future growth. They also need to enhance it as needed to ensure compatibility with Industry 4.0 technologies that are becoming more common on factory floors and throughout operations.

Questions to Frame the Path Forward

Looking to the future, manufacturing leadership teams may find it useful to address these four questions to assess where they are and identify their ideal future state when it comes to digital transformation efforts:

How are you evaluating your existing IT infrastructure and upgrades it may need to be able to support advanced technologies?
Where might there be opportunities for your business to analyze data that are already at your fingertips?
How are you making sure your leadership team is aligned on digital transformation priorities and implications across the organization?
How might outsourcing some of your IT services help your broader digital transformation efforts?

If it feels like there is an overwhelming amount of work ahead for your business, know that it’s a common position. “Just over a third (38%) of respondents say they have substantially achieved their digital transformation goals,” the MMBI report said. “However, a slightly larger percentage (41%) say they are way off from achieving their digital transformation goals.”

Wherever your organization is on its digital maturity journey, it’s important not to lose sight of the fact that digital transformation will never truly be “finished.” Instead, consider it a constant evolution. M

Footnotes:
[1] Information from the RSM US Middle Market Business Index survey was originally published on RSMUS.com.
[2] This paragraph was originally published in the RSM article “Modern manufacturing: Embracing the digital future.”

About the authors:

Kendra Blacksher is a partner and industrials senior analyst at RSM US LLP.

Katie Landy is a principal and industrials senior analyst at RSM US LLP.