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How U.S. manufacturers can become technological front-runners.  

TAKEAWAYS:
● The future of manufacturing is digital, yet despite the influx of capital investment in U.S. manufacturing recently, many U.S. manufacturers still struggle with breaking through the performance ceiling of analog operations to achieve industry-leading operational performance.
● One big barrier for U.S. advanced manufacturing is limited operational scale. For U.S. companies to compete, they need to begin with scale in mind.
● There’s much U.S. manufacturers can learn from how “Lighthouses” are deploying transformative technologies to transform their own factories into Lighthouse-level powerhouses — including network-level thinking that must be called for by CxO leaders.    

Adopting and scaling digital technology in manufacturing has become increasingly urgent in today’s dynamic and highly competitive manufacturing landscape. Five years ago, the struggle for factories scaling digital lay in getting out of the gate. In 2019, 70% of manufacturing companies we surveyed named “pilot purgatory” as their biggest barrier to realizing the benefits of digital. Today, the Global Lighthouse Network — a World Economic Forum initiative co-founded with McKinsey & Company — has identified 132 global factories, representing 80 companies, that have escaped pilot purgatory and achieved industry-leading operational performance.

These plants, in industries ranging from aerospace and medical devices to food and car manufacturing, show us that at least 80 companies have figured out the “lean + digital” blueprint needed to break through the performance ceiling of analog operations. On average, site-level improvements achieved by these Lighthouses include 10-25% reductions in production cost, 20-50% increases in productivity, and 30-70% reductions in lead time. Now, these same 80 companies are well underway in scaling these benefits across their full production networks.

With such levels of savings and productivity gains on offer, and as more manufacturers see peers like those in the Global Lighthouse Network accelerating digital transformation efforts, it’s no surprise that 89% of respondents to the NAM’s 2022 transformative technologies survey expected their company’s rate of adoption of M4.0 technologies to increase over the following two years.

Five years ago, the challenge was in getting from pilot to factory. Today, the goalposts have moved: companies across the globe, including many within the Global Lighthouse Network, are focused on scaling transformative technologies from factory to network.

U.S. Manufacturers Need Advanced Manufacturing

The U.S. is experiencing an unprecedented manufacturing boom on the back of favorable domestic policy incentives and geopolitical trends. In the past year alone more than 100 new factories have been announced in the U.S., including more than 50 semiconductor and electric vehicle factories and more than 60 greenfield announcements across other clean technology verticals. Together, these represent a doubling in planned capital investments since 2022, including $166 billion in announced investment in semiconductor and electronics manufacturing. Often, policy incentives are a core part of the business case for these new factories.

“Five years ago, the challenge was in getting from pilot to factory. Today companies across the globe are focused on scaling transformative technologies from factory to network.”

Policy incentives won’t last forever. According to McKinsey analysis, for U.S. manufacturers to be competitive in the long term across new or near-shored goods, manufacturing cost reductions of 30-40% will be needed, likely through strategic deployment of advanced manufacturing technologies. And with such technology critical to the long-term competitiveness of the U.S. manufacturing base, it’s concerning that only 11 out of the 132 sites in the Global Lighthouse Network are in the U.S.—a number which underrepresents U.S. contribution to global manufacturing GDP by a factor of two.

Why Are so Few Among the Technological Elite?

First, talent — and especially digital talent — is expensive. The most talented technologists are those likely to be capable of the biggest and most transformative impact, and they are also likely to be well aware of their skills’ market value. Against big-city tech and finance companies able to offer high pay, rapid advancement, and flexible working models, manufacturers will need creative solutions. Their traditional hiring approaches, evolved in a different talent environment, often require in-person work in smaller towns — with unclear career paths because the existing base of digital roles has been so small.

Furthermore, upskilling workers for the challenges and opportunities offered by digital transformation is a muscle few manufacturers now have. Building it will be increasingly critical as more U.S. manufacturers find themselves without enough — or the right — skills to grow or digitalize. This will only be amplified by 2030, as manufacturers face:

• An increasing shortage of workers. As of January 2023, there were 803,000 openings for manufacturing roles – a number projected to swell to more than 2 million + by 2030.
• A rapid loss of industry knowledge. Over a quarter of the U.S. manufacturing labor base is composed of workers over the age of 55, and attrition rates remain as high as 40%.
• An accelerating skills shift. Digital manufacturing requires a different set of skills than analog approaches. According to analysis by the McKinsey Global Institute, by 2030 the U.S. manufacturing sector will require 259,000 more engineers, but 479,000 fewer production workers—resulting in transitions for around 1 million workers, or roughly 8% of the workforce.

Finally, the deployment of U.S. advanced manufacturing is limited by operational scale. US factories tend to be smaller, both in physical and workforce size, than at comparable sites in China, for example, with far fewer employees per U.S. factory. Digitalizing a facility carries several one-time costs that are incurred whether a facility is large or small, such as setting up cloud infrastructure. In the U.S., there are smaller economies of scale to overcome these fixed costs of site-specific digitalization programs — it is less economical to embed the tech teams needed to support transformation at smaller, more numerous sites.

“We can learn from how Lighthouses are deploying transformative technologies, which primarily focus on business needs.”

Together, these points help to explain why the U.S. has comparatively few manufacturing Lighthouses. At the same time, we can learn from how Lighthouses are deploying transformative technologies, which primarily focus on business needs such as productivity via workforce augmentation, matrix manufacturing via cross-site scheduling, and throughput maximization via digital twins and predictive maintenance.

Focus on Network-Level Strategy

If scale is part of the challenge for transformative technologies in U.S. manufacturing, then the solution must be to start with scale in mind. Siemens Digital Industries provides a good example of the possibilities. Its two Lighthouse factories serve as anchors for a network-level digital implementation strategy. Like every other factory in the Siemens network, each of these two sites maintains its own strategic posture for digital innovation. That allows some sites to prioritize factory operations improvements, for example, while others can focus on end-to-end connectivity.

Yet at the same time, common resources mean that use cases, once proven, can be rapidly deployed across the network. All sites use a modular reference architecture that lets use cases plug in easily, with central digital teams providing expertise for local implementation. This approach to scale can make the economics more palatable than the one-factory-at-a-time transformation model — which in the U.S. too often simply can’t be done.

A Role for Leaders

CEOs and their CXO colleagues are the ones who can elevate the vision to network levels, rather than dwelling on site-specific plans, delivering real-world benefits of better customer experiences, lower costs, and accelerated innovation. And they have the playbooks to help them do it, built from evidence, data, and analysis from hundreds of digital transformations. They are the ones to get the board on board with such long-term, capital-intensive journeys, and to dedicate time and resources to making the necessary talent and capability upgrades.

“CEOs and their CXO colleagues are the ones who can elevate the vision to network levels, rather than dwelling on site-specific plans.”

• Invest in capabilities with a longer time horizon. Our analysis finds that the best-performing digital manufacturing sites are those that “go slow to scale fast,” spending a year or two strategically building a data and technology foundation for deploying use cases and training analytics models. Once established, some Lighthouses deploy a dozen or more use cases in weeks, not months or years. Four years into its digital transformation, one Lighthouse company deployed a standard operating procedures (SOP)-interfacing chatbot for workers in just 1.5 weeks.
• Cultivate a tech-forward workspace for eager technologists. Attracting and keeping the right profiles will require innovative workspace models that exemplify the tech-forward future of work — providing fast-paced, problem-solving heavy environments with significant real-world impact and clear pathways to learn and advance. Because this talent can be expensive, the economics may work only by keeping network scale in mind.
• Build scale into the business case from day one. Though most use cases will need to be piloted within a specific site, this is just the first step in a plan to achieve end-to-end value. Such solutions are most effective when they address critical bottlenecks across the production network, such as cross-site production scheduling for matrix manufacturing. Likewise, factory-specific use cases, such as vision systems, can be designed to address business needs that a majority of the production network also faces. Think too small, and the ROI dwindles.

The future of manufacturing is digital. To compete, U.S. manufacturers can start with scale in mind. This requires network-level thinking that must be called for by CxO leaders.  M

About the authors:

Rahul Shahani co-leads McKinsey’s Industry 4.0 efforts in North America including the Innovation & Learning Centers and focuses on digital manufacturing transformation design and execution. He is a partner in McKinsey’s Operations Practice, based in New York.

Dan Swan co-leads McKinsey’s Operations Practice globally, and helps manufacturing and service companies transform their operations performance and capabilities.

Henry Bristol focuses on Industry 4.0 technology adoption strategies for industrials, electronics, and new energy manufacturers. He is a Fellow with the World Economic Forum and an Engagement Manager in McKinsey’s Operations practice.

By adopting a PE lens, companies can transition more smoothly from legacy internal combustion engine business to the EV market. 

TAKEAWAYS:
● The $1.9 trillion global auto supply sector will experience a shakeout in the changeover to EVs, and the slowest movers risk losing opportunities or bankruptcy.
● Companies that have hesitated to initiate change can benefit by assessing future options using the relentless, enterprise-value based approach of private equity firms.
● Lessons from early movers highlight the value of planning the funding, rigorous execution and governance, and workforce transformation.  

The global automotive industry is undergoing existential disruption as the world market embraces electric vehicles (EV) over internal combustion vehicles and hybrids. At this point—in the early stages of the transition and with a long way still to go—some challenges facing the diverse auto parts supplier industry are becoming clearer; however, many companies are still figuring out how quickly to embrace those changes.

The market transition to EVs is gaining momentum due to advances in technologies such as batteries and charging stations, and growing buyer interest thanks to the success of Tesla and other electric models. The U.S. and other governments are doubling down on commitments to transition to EVs. Recently proposed federal emissions limits in the U.S. would effectively require two-thirds of cars sold in the country to be electric by 2032; California will require that all new vehicles sold in the state after 2035 be zero-emission vehicles.

Parts suppliers—from gas tanks to fuel injectors—for traditional cars are already seeing their market shrink, and the decline will only worsen. This $1.9 trillion industry will see a painful slowing of growth in coming years as internal combustion engine (ICE)-based product lines are phased out. About one quarter of profits currently generated from legacy ICE components will be the most adversely affected, resulting in a 50 percent decline from current levels by 2030. For some suppliers, the market will eventually resemble a game of musical chairs, with fewer and fewer safe economic places to land—and the slowest movers losing the game.

Segments of the ICE market will remain, such as parts for existing vehicles, and suppliers can continue to earn some revenue in this area long after production of new ICE models is phased out. Also, commercial vehicles have lagged passenger cars in the EV transition, so far, and are likely to offer another “long tail” of continuing opportunity for parts makers.

“About one quarter of profits currently generated from legacy ICE components will be the most adversely affected, resulting in a 50 percent decline from current levels by 2030.”

The impacts are hitting auto suppliers in different ways and at different velocities, depending on the parts they make and the size of the company. For example, many larger makers of powertrains and other ICE components, whose production lines require long development lead times to transition, have embraced the need to change. They are developing transformation strategies and making operational changes, announcing new manufacturing strategies, new partnerships, and new product lines. Public companies also benefit from the involvement of boards of directors and stockholders that push them to adopt transformation strategies earlier while balancing risks.

In contrast, small, medium and privately held companies, with traditional, risk-averse management styles and fewer resources tend to lag. Companies that continue to delay adoption of an operational transition strategy may soon find themselves at risk.

Julie Fream, president and CEO of the Motor & Equipment Manufacturers Association – Original Equipment Suppliers (MEMA), says that one of the biggest challenges companies face is estimating when the growing market for EV products will overtake the ICE components they are replacing. This uncertainty is causing many executives to hesitate as they plan their company’s operational transition from ICE to EV.

“Suppliers know they need to be able to do both, but they are asking, ‘How do I know the volumes?’” Fream says. “How do they manage the crossover point, knowing that you can’t accurately predict at this point where the two lines will cross—where EV becomes dominant, and ICE becomes a secondary product line. That’s the question they are all asking.”

Companies that invest in EV too early could end up financially overextended, with excess capacity and a market that is not ready for their new products. Late arrivals could lose opportunities completely if faster competitors beat them to the punch.

Companies seeking ways to exit ICE businesses also face challenges as certain, carved-out legacy ICE assets will become steadily less attractive to buyers. Without successful consolidation or divestiture, many will be forced to shut down, particularly if cost cuts and efficiency improvements cannot keep pace with commercial declines. At the same time, suppliers wishing to embrace new technologies must invest heavily in new product and service innovations targeted at EVs. Often, these competing priorities absorb cash while also preventing the bold action that is needed in today’s market.

The Private Equity Mindset as Transformation Catalyst

Many auto suppliers, especially those that are small or mid-sized and often privately owned, have relied successfully on a traditional management approach of incremental improvement and risk management. This approach, however, is ill-suited for the current market upheaval. Tomorrow’s winners will innovate and reinvent their whole business, embracing their initial entrepreneurial spirit.

Fortunately, a ready model for bold decision-making exists that can serve as a model for the aggressive approach these companies will require—that of the private equity (PE) investor. Two aspects of the PE mindset stand out as the essential, outside-investor viewpoints that many ICE suppliers urgently need:

• The ability to make bold decisions, without attachment to unprofitable “sacred cows”; and
• A relentless focus on enterprise value.

For companies accustomed to incremental change that need to become unstuck, the PE lens can be a catalyst for the swift cultural makeover needed to get moving.

“The PE mindset is something many suppliers should consider,” says Fream. “There’s a lot of money on the sidelines right now that could eventually come in. This would create some opportunities if you accurately analyze your business and understand what needs to be done.”

“For companies accustomed to incremental change that need to become unstuck, the PE lens can be a catalyst for the swift cultural makeover needed to get moving.”

This is not easy, she notes: “Suppliers need the skill set to assess what’s happening in the marketplace. The PE firm is ultimately trying to drive the company to be more focused on the marketplace. Generally, they don’t tolerate anything outside of that. But this can be very difficult for some suppliers, especially smaller, privately-held companies.”

Typically, PE has a variety of strategic approaches to generate profits from companies in either fading industries or startups in new technology fields. PE investors can improve enterprise value and prepare an asset for profitable sale through organic upsides—topline growth and bottom-line improvements—as well as inorganically, through a potential portfolio play (Figure 1).

Figure 1: Private equity value creation approach

Leadership can use the PE agenda to conduct a data-based assessment of how their business creates value today and its potential future role in the developing EV ecosystem. Based on this deeper understanding, leaders can adopt and implement a transformation strategy that aims to maximize enterprise value, as highlighted in the 2022 EY article “How auto suppliers can navigate EV technology disruption in four steps.”

Identify the Appropriate Operational Strategy Using the PE Approach
Not all traditional product components are expected to decline in the near term. Many product lines can be suitable candidates to pivot to other markets, and some can continue as sources for income that can be invested in new EV product development. Strategic approaches for how companies are managing their existing ICE businesses can be grouped in three broad categories:

• Exit (cash out and focus): One clear option is for suppliers to wind down or sell their ICE products businesses to a buyer that can squeeze value from them, for longer, than the original owners can. The spin-off strategy can reduce exposure to the declining demand for ICE products and can raise capital for reinvestment in new market opportunities.
• Consolidate (double down): Suppliers can prepare for the coming shakeout by consolidating existing ICE-only businesses to create synergies and scale so they can continue to derive value from their operations for as long as possible, with the option to continue to operate them alongside new EV businesses.
• Pivot (parallel pursuit): Companies can wind down their ICE businesses according to a clear step-down plan, while pivoting product lines to new EV products. This may require massive investment in R&D, innovation, and digitization to develop new EV products and services. It could include acquiring EV startups or niche players to expand product portfolios and acquire new skills or technologies.

The Transformation Journey So Far: Signs of Success and Warnings

Quite a few original equipment (OE) suppliers have identified enterprise EV transformation strategies and begun to execute them. Based on these OE suppliers’ track records, other suppliers can ascertain the challenges of redesigning value chains or operating models.

Example: A Supplier Divests ICE Divisions and Invests the Proceeds in EV Partnerships
A German powertrain company with ICE and EV products that was spun off in 2021 is following a two-part strategy of divesting its remaining internal combustion divisions to help fund its growing EV business, which is focused on EV innovation and growth through investments and partnerships.

“Companies must take care to minimize the impact on employees. . . . Employees should have the option of transitioning to new business roles, where possible. Companies should develop and activate a clear engagement strategy for unions early in the process.”

The company is selling its catalyst and filters operation and intends to divest its ICE division, which has been profitable since 2021 after years of losses. Meanwhile, it is bolstering its EV business through partnerships with automakers to jointly develop power electronics and electronics companies for access to semiconductors. The company’s electronic mobility business has significant orders from Hyundai and is expected to break even in 2024.

Enablers of Transformation: Risks and Opportunities

Once organizations have determined the strategic way forward, they will face significant challenges in executing the agreed-upon roadmap. The experiences of companies that are already making progress, coupled with recent EY work with automotive supplier clients, can make it easier to identify which strategic enablers companies will need to carry out the transition, as well as useful observations and lessons (Figure 2).

Figure 2: Strategic enablers

Rigorous Execution and Governance

Companies will need to review and adjust their governance so they can manage a rapidly growing, subscale new business and another business in slow decline. Many larger companies are opting to carve out their legacy EV business into a separate division.

Cash flow must be tightly monitored as, given the likely scale of costs, budgeting can be extremely sensitive to small changes in assumptions. Companies should implement robust short- and medium-term forecasting processes during the transition period where cash flow may be tight.

Active portfolio management is equally critical, so that only products with profit potential continue to receive investment. Companies should tier their governance to match the investment and uncertainty levels and to ensure they maintain appropriate controls. They should also take care to avoid excessive reporting and bureaucracy, which can steal oxygen from innovative new ventures.

Workforce Transformation

Staff who will be transferred to new products will need retraining. In cases where companies require new skills that are hard to find within the sector, they can recruit from adjacent industries where employees have transferable skills. In addition, companies will require creative solutions to retain key staff from the legacy business, for as long as is required, to ensure a smooth transition.

Companies must take care to minimize the impact on employees. Open and transparent communication and change management are important, as communication vacuums tend to be swiftly filled with rumors and uncertainty and that can raise stress levels and harm operations. Employees should have the option of transitioning to new business roles, where possible. Companies should develop and activate a clear engagement strategy for unions early in the process.

Funding

Once a company sets its strategy, it needs to fund it, and change can be costly. New products will require expensive capital equipment purchases, and the new business is likely to lose money at first. Companies will need to write down legacy machinery and obsolete stock and take special care to avoid large customer and supplier claims.

Cost control will also be critical during this period, particularly given the long timeframes involved. It is important that companies understand the combined costs of legacy products being ramped down and new products being ramped up. They should do sensitivity analysis to stress-test this requirement, identify budgets, and fund them appropriately. Companies should establish and implement their strategy soon to avoid facing simultaneous closure and setup costs.  M

About the authors:

Joern Buss is an EY-Parthenon Partner, Advanced Manufacturing and Mobility, Ernst & Young LLP. Focused on strategic growth, product technology, transformation, and turnaround, he supports manufacturing and mobility companies, alongside private equity and investors.

Jon Slatkin is an EY-Parthenon Partner, Turnaround and Restructuring Strategy, Ernst & Young LLP. He is an Ernst & Young – United Kingdom Strategy and Transactions Partner.

James Nicholson is an EY-Parthenon Partner, Advanced Manufacturing & Mobility, Ernst & Young LLP. He is one of the leaders in the EY UK&I Strategy practice. He helps clients plot successful paths to growth, adopt new business models and evolve their core capabilities and global footprints.

Kevin Rebbereh is Director, Automotive Strategy, EY-Parthenon GmbH. He is a director with EY-Parthenon in Hamburg, Germany and  is in the leadership team of the automotive strategy practice in Europe West.

Lloyd McRitchie is EY-Parthenon Partner, Turnaround and Restructuring Strategy, Ernst & Young LLP. He is a partner on the Turnaround and Restructuring Strategy team.

Johnson & Johnson’s Bart Talloen shares his thoughts on meeting and exceeding customer expectations, supply chain as a competitive differentiator, and why manufacturing leaders need to focus on curiosity, continuous learning, and shaping the ecosystem of the future. 

Recently named the Manufacturing Leadership Awards’ Manufacturing Leader of the Year, Bart Talloen Vice President, Operational Services and Standards for Johnson & Johnson, has been instrumental in leading an innovation-driven shift in J&J’s supply chain. He has had a significant impact on J&J’s standing as a global leader, as demonstrated by the company’s record 11 lighthouse designations from the World Economic Forum.

In this interview he discusses how technology plays an essential role in exceeding customer expectations, the importance of upskilling and training the leaders of the future, and why it’s necessary for every leader to build and leverage a diverse, far-reaching network of internal and external collaborators.

Q: You have been with Johnson & Johnson for 27 years. How has your role evolved during your career there?

A: For 19 years I had different operational supply chain roles with increasing responsibility in our J&J pharmaceutical, over the counter and consumer businesses. This included engineering, planning, manufacturing operations and general end-to-end supply chain management in Europe, Asia, and North America. I have also acquired and divested business operations, built five and closed three manufacturing facilities and was also responsible for the supply chain during the successful execution of a consent decree for McNeil Consumer Healthcare, J&J’s U.S. over-the-counter business.

For the past eight years I have been responsible for J&J supply chain strategy, driving innovation and overseeing large-scale transformation programs encompassing all three of J&J’s business sectors. The overarching evolution of our supply chain is going from a focus on cost and operational excellence to making supply chain a business enabler and competitive advantage. My role has evolved accordingly, from initially building and deploying supply chain strategies that were centered around foundational improvement capabilities such as lean, Six Sigma, and operating systems to bolder strategies built on major capability transformation programs. This includes technology, go-to-market models and channels for access to care, such as supporting outpatient clinic-based settings and telemedicine, as well as customer centricity and personalization.

In the last couple of years I have also been focused on technology and digital innovation, next-generation customer enablement solutions to drive differentiating experiences and outcomes as well as the whole value chain from suppliers to customers.

Q:  What most excites you about the role you are in now?

A: It is really about the difference we make as supply chain for our customers, which is twofold:

One is that we are building and deploying cutting edge customer strategies and solutions that transform the experiences and outcomes for the customers and patients that we serve every day. One example is a solution called Advanced Case Management, which uses case schedules and patient data to manage inventory at the point of consumption – ensuring we have the right orthopedic implants for the right patient at exactly the right time. Another example is an autonomous order fulfilment and inventory management system deployed in hospitals, which is supported by an AI engine that suggests operating room improvement opportunities, simplifies and automates healthcare practitioner work, and helps reduce inventory and logistics costs. Connecting that to our supply chain planning enables real-time alignment of the supply to the demand from hospitals.

Second, risks are no longer an isolated event, they are interconnected. That is why we are moving toward multidimensional and proactive approaches to resilience. We are making significant advancements in supply chain resilience, enabling us to always provide our customers with the products and solutions they need whenever, wherever and however they are needed and expected, through whatever disruptions may happen. It strengthens our ability to consistently deliver products, providing confidence and assurance through times of uncertainty. And that is what our customers expect.

“We are strengthening our ability to consistently deliver products, providing confidence and assurance through times of uncertainty.”

Our proactive resilience capability is centered around a resilience engine that leverages data science and analytics for multi-dimensional risk evaluation. Combined with network and product-specific data, it enables improved velocity and quality of trade-off decisions at supply chain, product and network levels. This results in proactive risk identification and mitigation while ensuring continuity of our product supply.

Q:  Beyond innovation, what are some of the other main supply chain initiatives underway at J&J?

A: Currently there is a strategic focus on customer anticipation, resilience, and end-to-end supply chain orchestration. This translates into new supply chain capabilities we’ve been building and deploying such as advanced customer enablement solutions, smart operations with the adoption of advanced I4.0 technology innovation, end-to-end supply chain control towers to give us real-time visibility and tracking across the supply chain, and digital connectivity with our customers and suppliers. There is also a focus on proactive supply chain resilience and how we leverage digital capabilities.

At J&J, we’re also heavily investing in the development of our workforce. Some examples:                                                                          We are enabling a digitally connected and augmented workforce program, developed with a worker-centric mindset, built around four capability components: worker assistive applications, immersive and wearable solutions, intelligent automation, and hybrid ERP + cloud-based technology platforms.

Also, we’re upskilling our people using a high-touch model of leadership training that includes our Global Operations Leadership Development program, our Compass Executive Quality Leadership Development program, our Plant Leader Development Program, our STAR programs to provide action-learning experiences for emerging supply chain leaders, and an entry-level program for recent graduates. We extended the program to include a well-being component. Last year alone, 600 new participants were enrolled in leadership development programs, with 30 participants in GOLD and more than 25,000 participants in other training programs.

Additionally, we’re partnering across Johnson & Johnson with schools, universities, and external partners through sponsorship of our Women in STEM program, which aims to ignite the power of women inside and outside of our company.  By 2025, we want half of our global management positions to be occupied by women; we have already achieved this goal in Europe, the Middle East, Africa, and Latin America and are on track for the same in other markets.

Q:  J&J is the recipient of 11 lighthouse designations from the World Economic Forum for advanced manufacturing, the most of any company in the world.  What are the essential components to becoming this type of global leader?

A: First, it is important to have a digital strategy, driven from the top and supported by senior management, with laser-sharp focus on execution and implementation driving tangible business impact. This strategy needs to be driven by the customer and business needs, not based on what I call a “tech push,” meaning you are just pushing deployment of technology solutions and tools into the business vs. pulling tech solutions that help address customer and business needs or pain points.

“It is important to have a digital strategy with a laser-sharp focus on execution and implementation driving tangible business impact.”

Second, data availability and visibility are critical, but for many companies still a challenge given the complexity of operational infrastructure with a lot of legacy systems that don’t talk to each other. We have a thoughtful data strategy, IoT systems and a defined digital stack – a combination of digital products and platforms that help us scale digital solutions faster. We have created a data lake where the data from different operational systems is ingested and made available for the digital stack and ML/AI algorithms and apps to “work their magic.” This infrastructure has been very helpful and a critical component of our digital strategy and its successful implementation.

Third, an important enabler and differentiator is leveraging external partnerships to complement the internal J&J capabilities. Over the past few years, we have established a broad external collaboration ecosystem with academia, consortia, startups, other industry companies, suppliers, etc. We are leveraging these ecosystems to advance capabilities in tech innovation, influence the global Industry 4.0 agenda and drive tech progress across industries. These partnerships were built and came to fruition in our innovation hubs, which are based in global tech hotspots, and technology capability centers that are focused on specific Industry 4.0 technologies such as 3D printing, smart sensors and vision systems, advanced materials, advanced robotics and so on.

Q:  Additionally, you were just named the 2023 Manufacturing Leader of the Year at this year’s Manufacturing Leadership Awards Gala. What are the leadership skills and attributes you believe to be most important in the era of Manufacturing 4.0?

A: It is of course important that leaders have a good understanding of Manufacturing 4.0 technologies, how they can be applied and the value and impact they can bring for your business. But in my opinion, there are three leadership characteristics, and differentiators, that are the most important:

First, supply chain leaders of the future will be more like “ecosystem orchestrators” vs. “managing a supply chain in a particular company.” To do this, you first need an understanding of the customers and markets you serve – an outside-in perspective that you can use to shape your strategy. Additionally, it’s about realizing that no one person or company can or should do it alone. If I take maintaining business continuity as an example, it takes a network of suppliers, governmental agencies, companies, third-party logistics providers and so on all working together. It’s about building those networks, internally and externally, and doing it with a focus on where the expectations of your customers are evolving.

Second, it is also critical for leaders to be creative and curious. Seek continuous learning and think about new ways to work together across functions and reach out to business partners to learn more about how you can work together.

“Supply chain leaders of the future will be more like “ecosystem orchestrators” vs. “managing a supply chain in a particular company.””

Third, keep seeking connections not just within your organization, but externally as well. We have to be intentional about cultivating professional relationships. This could include attending forums and conferences, joining industry associations and consortia, or creating collaborations with other companies inside or outside of your sector and/or suppliers. All these relationships and connections invite diverse perspectives and encourage thought sharing. For J&J, this offers better insight into what patients and customers want and need from us, but also provides insight into other industries and how they’re enhancing operations, innovating and engaging with their customers and deploying advanced tech solutions and innovation. It is important to approach collaboration broadly and holistically to get the most out of it – and it is dynamic; you are never done.

Q:  What do you feel is the most important lesson you’ve learned in your career so far?

A: Phenomenal things can be achieved via technology, but in the end it is all about the people. We can have the right process, the right technology and systems, but it is the people that are the differentiator. You need the right leadership – bosses that trust and believe in you. You need the right employees to get the job done, and you need the right peers and collaborators because you cannot do it on your own. I have seen this play out in my career time and time again.

Q:  What do you foresee as manufacturing’s greatest challenges and opportunities in the years ahead?

A: I believe there will be three great challenges:

One, making manufacturing an interesting place to work and a magnet for current and future talent will be key. So, we need to continue to enable and develop our workforce with regards to future capabilities and skills, talent acquisition, retention, employee engagement and development, culture, and so on. In the current dynamic environment and competitive labor market this will need strong attention and will be a critical success factor for manufacturers.

Two, having a robust data strategy, data availability and visibility isn’t easy for most companies given their complex system infrastructures and legacy systems. But it is critical to crack this nut to be successful in the digital era.

Three, supply chain resilience. The unpredictable and volatile world of today requires that we evolve from the traditional supply chain risk management and isolated risk approach to a holistic multi-dimensional and pro-active resilience approach.

The greatest opportunity I see is for manufacturing leaders to become end-to-end orchestrators vs. just leading the operations within the four walls. The differentiator to accelerate your value creation and impact is through holistic collaboration and by leveraging an ecosystem of partners. Manufacturing leaders need to own, shape, and drive this ecosystem.  M

FACT FILE: Johnson & Johnson
Headquarters: New Brunswick, New Jersey
Industry Sector: Diversified healthcare products
Annual Revenue (2022): $94.9 billion
Employees (2022): 155,800
Production: 97 manufacturing sites worldwide

EXECUTIVE PROFILE: Bart Talloen
Title: Vice President, Operational Services and Standards for Johnson & Johnson Services Inc.
Education: Katholieke Universiteit Leuven, Belgium; B.S. and M.B.A.
Previous Roles:
– Vice President, Strategy Innovation and Deployment, J&J Supply Chain
– Vice President, Supply Chain North America OTC, J&J Consumer
– Vice President, Supply Chain WW Nutritionals, NA OTC, Franchise Strategic Operations, J&J Consumer
– Vice President Consumer Supply Chain Asia Pacific, J&J Consumer

About the author:
Penelope Brown is Senior Content Director of the NAM’s Manufacturing Leadership Council.

Sudhir Arni

Senior Vice President, Customer Success
Sight Machine

sightmachine.com

https://www.linkedin.com/in/sudhirarni

Steve Boyd

Vice President, Manufacturing Strategy
Dover Corporation

dovercorporation.com

https://www.linkedin.com/in/steven-boyd-60786936

Gustavo Chohfi

Vice President, Quality Assurance and Continuous Improvement
Cornerstone Building Brands

cornerstonebuildingbrands.com

https://www.linkedin.com/in/gustavochohfi

Eric Murray

Vice President, IT/Digital
Cretex Companies

www.cretex.com

https://www.linkedin.com/in/eric-murray-mn

Jim O’Connor

Director of Enterprise Architecture
Graham Packaging

grahampackaging.com

https://www.linkedin.com/in/jim-o-connor-11022b10

Regina Salazar

CIO
Novelis Inc.

novelis.com

https://www.linkedin.com/in/regina-salazar

Sema Tekinay

Practice Partner – Transformation & Continuous Improvement
Messer

messer-us.com

https://www.linkedin.com/in/tekinay

Matt Townsend

Vice President, Digital Transformation
Medtronic

medtronic.com

https://www.linkedin.com/in/matt-townsend-05004319a

Dave Wingard

Global Leader Manufacturing Excellence
Westrock

westrock.com

To capitalize on AI, manufacturers must learn how to prepare and analyze their data.  

TAKEAWAYS:
● Manufacturers need to develop a thorough understanding of their data and the proper protocols for using that data.
● Manufacturers can use advanced technologies like AI to become more nimble, deliver better operational insights, and gain a more nuanced understanding of customer needs and relationships.
● To take full advantage of their data, manufacturers need to focus on data and system architecture, data governance, and data analytics.   

The manufacturing sector historically has been a slow adopter when it comes to investments in artificial intelligence (AI) and other transformative technologies that require a solid foundation of data and clear practices around data use. It’s common for organizations to have vast amounts of data but lack insight from that data for several reasons, including the persistence of manual data collection, information existing in silos, and failure to segment customers in meaningful ways.

There has been significant hype around generative AI in 2023, but feeding the appropriate data into such AI tools is critical if companies want to benefit from the technology. Manufacturers looking to exploit advanced technologies to their fullest extent need to develop a thorough understanding of what data they have and proper protocols for using that data. Companies must capture, curate, and cleanse the data they have before they can determine how best to monetize them.

By first preparing the data properly, teams will then be able to use data not just for day-to-day operational tasks or metrics—such as how much product shipped on a given day or how inventory levels have changed in recent months—but to think more creatively about what else they can learn from data sets.

“Manufacturers that foster curiosity among their leadership and employees about AI will better position themselves to creating a factory of the future.”

Manufacturers that foster curiosity among their leadership and employees will better position themselves to create a factory of the future. Being a leader in AI will be necessary to remain competitive. According to a June 2023 Manufacturing Leadership Council survey about AI in 2030, “while many manufacturers may only just be starting to leverage the possibilities of AI, they also have clear plans to accelerate that adoption significantly in the years ahead, with AI investment levels expected to rise in a substantial 96% of all the companies responding to the survey.”

Think Bigger: Developing a Research Agenda

The use of AI in a manufacturing setting goes well beyond the shop floor. Companies can harness AI to improve quote-to-cash and order-to-cash processes, identify revenue leakage in business models, and assess whether the business has effective contract procedures in place, for instance. Many of these applications come down to figuring out where the business lacks key processes, or where processes aren’t being followed.

For companies setting out to explore how AI can improve their business—whether via process mining, robotic process automation, or machine learning—developing a research agenda can help. That agenda should examine these key elements:

• Data outputs: Does the organization fully understand the key outputs/outcomes it is measuring? Are there other outputs that would be useful to capture?
• Correlations: How do various outcomes compare to each other, and are there indications that they may have a significant relationship?
• Explanatory variables: Which relationships between data outputs might be especially useful or informative going forward?
• Dimensions of analysis: What are the various ways teams can analyze data points to understand customer behaviors better? Are there seasonal or geographic implications?

Using internal and external data to support this research agenda can help companies identify new opportunities and reduce the amount of uncertainty they face in both the short term and long term.

Becoming a nimbler organization and delivering better operational insights to leadership are two important ripple effects of honing this agenda and reducing uncertainty. Perhaps even more critical is the ability to gain a more precise understanding of customer needs and relationships. Manufacturers can use AI to ferret out relationship patterns, meaningfully segment customers, and determine costs associated with various relationships. These insights can ultimately enable companies to develop more tailored approaches to their customers, partners, and vendors.

“Manufacturers can use AI to ferret out relationship patterns, meaningfully segment customers, and determine costs associated with various relationships.”

Optimizing supply chains, improving quality control, and making the shift from reactive maintenance to proactive, predictive maintenance are specific areas where manufacturers stand to benefit most from AI. Predictive maintenance, for instance, uses AI algorithms to analyze real-time data from sensors and other equipment to anticipate equipment maintenance needs and failures. By continuously monitoring data from the factory floor and comparing that data against key performance indicators, AI can detect anomalies or early signs of equipment malfunction. This allows for proactive measures to avoid costly, unplanned downtime and improve the life span of the equipment.[1]

Performing maintenance prior to failure leads to cost savings and minimizes costly repairs or replacements. By leveraging data analysis, pattern recognition, and predictive modeling capabilities, industrial organizations can optimize equipment performance, increase operational efficiency, reduce costs, and enhance overall productivity.[2]

Improving Your Data: Where to Start?

Manufacturers don’t always know where to begin to improve their ability to harness, filter, and analyze data. Connectivity among machines, products, employees, suppliers, customers, and processes across the value chain is critical to gaining actionable insights, but enabling that connectivity with Industry 4.0 technologies must be intentional.

To be able to take full advantage of the enormous amount of data they generate and collect, manufacturers need to focus on three foundational areas:

• Data and system architecture: Understand how to balance traditional system architecture with newer architecture such as cloud-based storage and Internet of Things devices.
• Data governance: Implement clear standards around the collection and use of information.
• Data analytics: Harness advanced analytics to go beyond pattern identification and develop truly predictive capabilities.

Manufacturers also need to make sure that teams throughout the organization have the same baseline level of data literacy, and provide training as needed to align that literacy. Data literacy makes it easier for teams to adhere to the same data processes, policies, and standards around information protection and security.

“Once manufacturers have created a solid data foundation and fostered a sense of curiosity among employees, they can determine how AI tools may benefit their business in the future.”

Ensuring that employees have a common understanding of data inputs, outputs, and applications will become increasingly important as members of the aging workforce retire, taking their institutional knowledge with them. Getting teams across the organization well-versed in how to identify and solve problems with data will be an enormous asset as experienced workers leave.

Looking to the Future

Once manufacturers have created a solid data foundation and fostered a sense of curiosity among employees, they can determine how AI tools may benefit their business in the future. They would need to consider the following:

• People: Identify worker-led tasks that generative AI could enhance, ultimately driving greater productivity.
• Revenue streams: Technological tools can help identify potential new sources of revenue.
• Data strategy: Collecting more proprietary data throughout operations can improve the company’s competitive advantage.
• Integration: Formalize best practices for merging generative AI with current workflows.

It would be irresponsible to implement AI in any function of the business, however, without addressing risks and challenges associated with the technology. These include ethical issues, job displacement, and data security and reliability. Any manufacturer looking to capitalize on the transformative power of AI needs to have a clear understanding and assessment of these risks if they want to reap any benefits.  M

About the authors:

George Casey is a principal at RSM US LLP.

Matt Dollard is a principal and an industrials senior analyst at RSM US LLP.

[1] The content in this paragraph was originally published in an RSM article titled “The potential for artificial intelligence to transform manufacturing.”
[2] The content in this paragraph was originally published in an RSM article titled “The potential for artificial intelligence to transform manufacturing.”

Thanks to the rising ease of adopting cutting-edge technologies like artificial intelligence, Internet of Things (IoT), big data analytics, and robotics, manufacturing is booming across the world. In the United States, for instance, a manufacturing boom has swept across the country in the last two and a half years, with the South and Mountain West having especially strong growth, according to Bureau of Labor Statistics (BLS) data¹. The U.S. economy has added some 800,000 manufacturing jobs nationwide in just the last couple of years. In terms of numbers, Texas is the top state for new manufacturing jobs, with 86,000 new positions, from January 2021 to May 2023, according to BLS data. Next comes California with 79,000 jobs; Florida with 37,000; Ohio with 31,000; and Georgia with 29,000. Nevada had the greatest percentage increase at 15%, followed by Montana at 11% and Wyoming at 10%.

Manufacturing has never not been a strong suit of the U.S. In fact, the country produces 40% more factory output today versus 20 years ago, but with 5 million fewer workers, per the American Enterprise Institute². In 2017, the U.S. produced about four times more factory output than in the 1940s with about the same number of factory workers, which is around 12.5 million! The “culprit,” if any, has been automation, including advances in technology and the rising productivity of U.S. factory workers.

New, smart manufacturing investments provide a perfect opportunity to build (back) smarter and stronger. Manufacturers now are unlocking new levels of efficiency, productivity, and competitiveness as they quickly adopt automation and digitalization. The combined power of OT and IT DataOps and domain-specialized AI and ML models is enabling manufacturers to unlock new levels of efficiency, productivity, and competitiveness. However, there are challenges to overcome on the path to realizing the full potential of smart manufacturing. In this article, and based upon the discussions we had at the recently held MLC Rethink Summit, we will explore some strategies to overcome these challenges and drive enterprise-wide transformation.

The adoption of advanced tools, solutions and processes in smart manufacturing is gaining traction across industries. It is projected that the global smart manufacturing market will grow from $297.2 billion to $787.5 billion by 2030, at a compound annual growth rate (CAGR) of 14.9% (source: Grand View Research). According to MarketsandMarkets, use of AI in the manufacturing market is projected to reach $16.7 billion, at a CAGR of 47.9% from 2022 to 2027. These figures highlight the immense business value of smart manufacturing practices.

What are some of the biggest obstacles that manufacturers face when it comes to unleashing full-scale digital transformation? Broadly speaking, they fall under the themes of legacy products and infrastructure, change and people management, and needing expertise that spans IT-OT data integration, analytical modeling and data management. Let’s take a closer look at each.

Product Legacies

One of the key challenges in scaling smart manufacturing initiatives is the complexity of integrating diverse systems and technologies. According to Deloitte, 44% of executives identified legacy systems as a barrier to implementing advanced solutions. Modern manufacturing environments are complex mixes of disconnected systems that do not communicate with each other. This lack of interoperability hampers data sharing and insights, preventing organizations from harnessing their full potential and measuring ROI. A Frost & Sullivan survey revealed that 79% of manufacturers face challenges in integrating legacy systems with new technologies. To overcome these, companies need to invest in a robust digital infrastructure that can seamlessly connect and integrate various systems.

Change Management

Change management is a critical factor that can and has sunk many smart manufacturing digital transformation projects. Years of experience working with multiple stakeholders in a manufacturing organization has revealed a near unanimous conclusion: if everyone in an organization is not onboard with clear expectations and benefits caused by the changes brought on by digital transformation, initiatives will fail.

Let’s consider change management inside the realm of dynamic scheduling. Much of industrial scheduling is reactive, where the shop floor adjusts to complete work as it comes in. Dynamic scheduling is proactive, with the schedule being adjusted to maximize production. A dynamic scheduling system adjusts production to minimize resource issues (like machine breakdown, tool failures, quality issues) or job-related (rush jobs or cancellations), and ensures optimal use of shop floor resources. Here’s an example where dynamic scheduling failed due to an overlooked human element (change management). A manufacturer had undergone a major investment in a dynamic scheduling system that failed to yield results. The change required employees who worked on a particular assembly line to swipe in to start work at their station. There were no incentives provided to workers that explained the need to swipe in because they had already swiped in for their shift at work. Since they were not on board with the value of this extra step, the system didn’t work and was abandoned.

Obstacles can abound, but a careful analysis of changes to all stakeholders can help sustain a digital transformation process.

Technologies like Predictive Maintenance (PdM) and Quality Control

Traditionally, manufacturers use reactive maintenance, fixing equipment only when it breaks down. By leveraging AI/ML-driven algorithms, including analyzing historical data, manufacturers can predict and prevent equipment failures before they occur. These algorithms can identify patterns and anomalies, enabling manufacturers to schedule maintenance proactively, optimize spare parts inventory, and minimize unplanned downtime. PdM also prevents waste by precluding the need for unnecessary maintenance.

Another key application of AI and ML is quality control. AI and ML algorithms can be trained to analyze vast amounts of data, including images, sensor readings, and production parameters, to detect defects and anomalies in real-time. By automating inspection processes, manufacturers can achieve higher accuracy and consistency while reducing the need for manual inspection. According to a study by Capgemini, AI-based quality control systems can reduce the cost of quality by up to 50% and increase productivity by up to 25%.

However, choosing the right technology partner is crucial to success. PdM and quality control are two areas where plenty of tools and providers exist, but few have found repeated and large-scale success. In reality, digital industrial transformation is a very high-touch activity: it takes much more than a software product or singular service that enables long-term, repeatable success. It takes a bridging of the IT, OT and business operations worlds with a portfolio of factory hardened industrial IoT solutions, versatile and easy-to-use software products, and professional system integration and advisory services and support.

Secure IT + OT Data Systems

As the use of IoT, analytics, digital twins and other advances facilitated by better gleaning of insights from contextualized IT and OT systems data proliferates, their impact on smart manufacturing is becoming more profound. However, continued success of AI and ML requires a wholesome approach, including investing in talent, data infrastructure, and robust OT cybersecurity. As more connected devices gather larger amounts of data, implementing robust cybersecurity measures to protect information needs to be a focus.

The risks are high. According to IBM, 61% of cybersecurity incidents at OT-connected organizations last year were in the manufacturing industry. Implementing strong cybersecurity and establishing strong governance frameworks are essential to protect sensitive data. This includes implementing strong access controls, encrypting data, updated software and firmware, and conducting rigorous vulnerability assessments. Establishing a strong governance framework to define policies and procedures for data handling, storage, and sharing is critical.

By utilizing secure AI-based edge computing and optimized multicloud adoption, manufacturers can create a unified, scalable ecosystem where data flows seamlessly and securely throughout the organization and its stakeholders.

The Experienced Leadership Difference

Since leading the Industrial IoT charge from its earliest days, the best providers in the industry, like Hitachi Vantara, have learned a few things. From hundreds of IoT projects deployed globally in manufacturing, energy and transportation sectors, they’ve witnessed that IIoT projects erase IT and OT data boundaries, and are almost always transformational, high-touch affairs. The truth is, no two customer projects are the same. Successful, scalable, repeatable, data-converged, edge-analytics-enabled delivery requires a trifecta approach – expertise and availability of three critical factors including:

1. Industry-specific AI/ML-based solutions and models
2. Tried-and-tested templates and accelerators that are secure and repeatable and can run where required, and
3. World-class ecosystem of group companies and a strong partnership expertise to deliver it.

That is what customers need: not just tools and software, but the ability to put it all together and bring it home for their business outcomes.

Consider the use case of Logan Aluminum. Over the past six years, Hitachi Vantara has worked with their plant in Kentucky to bring the optimal benefits from insights derived from the 4M sources of data: hu(m)an, Machines, Methods, and Materials. By definition, these data sources are from IT and OT sources. IT data examples are employee information, their training details, experience and expertise levels, clearances for different areas of the factory, shift information, management information and backup personnel, PPE use depending on the day’s shift or task, etc. Material and method data sources can include tags from databases that hold information on orders, suppliers, supplier quality, stock and lot codes, shipment and inventory on hand, and more. OT sources are asset and machine data: pressure, vibrations, temperature, oil viscosity levels, date of last service, and the how/what/when/who associated with past repairs, and hundreds of others.

Working within the customer’s existing processes and with their systems, 500,000 tags/second are organized and collected and ETL’d (Extract-Transform-Load) into a data warehouse of their choice, both on-premises and in their cloud vendor’s systems. Countless possibilities of combinations on these yielded information that helped the customer improve quality, energy efficiency issues, enhance safety indices, shift from scheduled to predictive maintenance, optimize coil rolling and finished goods handling, and many more.

With hundreds of vendors and platforms and solutions around, customers need expert guidance on integrating digitized edge technology with their IT backend quickly and cost-effectively more than ever. Hitachi Vantara combines OT DataOps capabilities – knowledge and experience in managing, handling and analyzing OT data – with software products, IT best practices and consulting-through-implementation offerings that are applicable to operations, IIoT-based accelerators, data catalog and ETL/ELT platforms, and versatile reporting dashboards that are customizable for multiple persona.

Conclusions

Smart manufacturing is new manufacturing, a crucial driver of industrial success, with the global market projected to reach $787.5 billion by 2030. Overcoming integration challenges and investing in a robust digital infrastructure are essential to enable seamless connectivity and getting real-time insights. Change management is a significant hurdle in sustaining smart manufacturing practices, so organizations are addressing it by spending more time in articulating the value for all involved stakeholders earlier. Data security is a high priority, and strong cybersecurity measures and governance to protect sensitive information and build trust are essential for success and getting out of “pilot PoC purgatory”.

Customers need long-term partners that invest to understand their pain points from multiple viewpoints, offering secure, verticalized edge-to-multicloud solutions, templates and best practices to help them successfully and repeatedly achieve their high-touch digital transformation objectives.

¹ https://www.axios.com/2023/03/07/us-manufacturing-growth-outpaced-world
² https://www.aei.org/carpe-diem/the-us-produces-40-more-factory-output-today-vs-20-years-ago-with-5m-fewer-workers-technology-job-theft/#:~:text=The%20US%20Produces%2040%25%20More,Ago%20with%205M%20Fewer%20Workers.

About the Author:
Shamik Mehta is the Director of Industrial Digital Services at Hitachi Vantara with 25 years of experience in IIoT, AI/ML-based data analytics, semiconductors, renewable energy, and e-mobility. He specializes in thought leadership for technology applications in smart manufacturing, energy, and electrified transportation.

What exactly is the industrial metaverse? While the term sounds like something straight out of a science fiction movie, it’s already being used by manufacturers in the here and now. Put simply, the industrial metaverse is a collection of technologies that can create an immersive virtual or virtual/physical industrial environment.

The metaverse will contain virtual replicas of everything from complete factories down to individual components and parts, powered by evolving digital technologies like AI and cloud computing. As the metaverse develops, users will be able to access it from any internet-connected device, such as a smartphone, laptop or tablet, or using virtual reality headsets.

According to a new report released by the Manufacturing Leadership Council, the NAM’s digital transformation division, and Deloitte, 92% of manufacturing executives say they are experimenting with or implementing at least one metaverse-related use case. On average, the surveyed executives say they are running more than six.

How is it used? Manufacturers are using industrial metaverse technologies in four common areas: production, supply chain oversight, customer service and talent management.

• Production: Manufacturers are simulating key processes in order to evaluate them, creating virtual prototypes of processes or systems and creating simulated factories to optimize factory layout and setup.
• Supply chain: Other manufacturers are using the metaverse to track products and raw materials and to collaborate with suppliers.
• Customer service: Companies are also creating virtual showrooms and product demonstrations, which attendees can visit without leaving their own homes or offices.
• Talent management: Lastly, other companies are experiment with using the metaverse for immersive training, virtual plant tours and virtual recruiting and onboarding.

What are the benefits? Executives report that each of these use cases comes with significant benefits, including cost reductions. Respondents also said metaverse applications have improved employee attraction and retention.

• Immersive customer experiences and virtual aftermarket services, such as equipment service and maintenance, have also led to increased revenue, according to the survey.

The challenges: While the industrial metaverse offers many promising benefits, manufacturers are still finding some challenges, including:

• The high cost of metaverse technology and the cybersecurity protections it requires;
• A lack of employees with the right skills, along with the steep learning curve for those who must be trained; and,
• Insufficient digital infrastructure and other resources.

The solution: The report suggests that manufacturers can find success in the metaverse by building a culture of innovation, establishing leadership support and starting small by investing in a digital technology foundation. 

The last word: All in all, manufacturing executives are confident that the industrial metaverse will transform their operations. Learning to understand and use the metaverse will soon be essential for companies seeking a competitive future.

Download the full report, “Exploring the Industrial Metaverse,” to learn more. 

Flashback to 2015: “Hamilton” debuted on Broadway, millennials surpassed baby boomers as the largest U.S. generation and the term “Industry 4.0” was gaining traction in manufacturing circles. It was also when the Manufacturing Leadership Council created a conceptual framework called “Manufacturing 4.0.”

So what is the difference between Industry 4.0 and Manufacturing 4.0? While the terms may not sound all that distinct from each other, Manufacturing 4.0 represents the MLC’s commitment to a far-sighted, holistic approach to manufacturing’s tech-enabled metamorphosis—one that has served it well in over the past eight years.

The background: The 4.0 movement started in Germany in 2011 when the German ministries for education, research, economic affairs and energy developed a strategic initiative that would push forward the digital transformation of industrial manufacturing.

• They named this initiative Industrie 4.0. It featured an action plan that combined policy initiatives, public–private funding, strategies for technology implementation and the identification of business drivers and barriers.

The difference: For the MLC and its members, Manufacturing 4.0 is made up of transformations in three different arenas: technology, organization and leadership.

• Contrast this with Industry 4.0, which covers only technology topics—specifically nine pillars of technological innovation, which include autonomous robots, big data, cloud computing, IoT, cybersecurity, systems integration, simulation, AR/VR and additive manufacturing.
• “MLC, of course, covers all of these technologies, but, importantly, adds the dimensions of organizational and leadership change as part of its perspective on manufacturing’s digital transformation,” says David R. Brousell, the MLC’s founder, vice president and executive director.

MLC in action: While the MLC does provide member resources that focus on specific technologies and their uses in manufacturing operations, it also covers topics such as how leaders can prepare their workforce for digital transformation, how organizations should be structured to make business decisions based on manufacturing data and how leaders can ensure they set their teams up for digital success.

• Additionally, the annual Manufacturing Leadership Awards recognize not only high-performing digital manufacturing projects but also outstanding individuals who demonstrate both technological understanding and strong personal leadership.

M4.0’s continued evolution: Today, the MLC continues to use Manufacturing 4.0 as the overarching framework for its member companies’ activities.

• Its influence is apparent in the MLC’s annual Critical Issues Agenda, a member-created list of key business drivers and enablers of digital manufacturing.
• The agenda covers technological advances like smart factories and data analytics, alongside the organizational ecosystems that put such advances into operation—from the leaders who direct them to the cultures that make them succeed.

The Future of M4.0: As the MLC gets ready to set its 2023–2024 Critical Issues Agenda, it will continue to take a holistic approach to the technological changes sweeping the industry by recognizing the importance of people in making those transformations happen.

Go deeper: You can learn more about Manufacturing 4.0 by downloading the MLC’s white paper, Manufacturing in 2030: The Next Phase of Digital Evolution; reading a recent report, The Future of Industrial AI in Manufacturing; or attending its Aug. 30 virtual Executive Interview, Shifting from Disruption to Growth.

Extrapolating from the results of NTT DATA’s recent research report, Innovation Index: Shifting from Disruption to Growth, John Petrusick, Managing Director, Manufacturing — Data and Analytics Practice, offers insights into the future of data in the latest in MLC’s Manufacturing in 2030: Crystal Ball series.

Data-Driven Transformation and the Future of Human-Centric Innovation by 2030

By 2030, I envision a significant change where data flows freely from sources including the shop floor, enterprise resource planning systems and third-party external providers. Manufacturers will centralize, harmonize and analyze data to enable real-time action. This encompasses all actions, including automated actions, to maximize business efficiency. Doing so will impact aspects of the business ranging from daily production operations on the plant floor, to engaging customers in selling activities, to the development and testing of new products.

With respect to sales, products and services, manufacturers will create seamless customer experiences in which customers can purchase goods using their preferred interface. Infusing data into a design thinking-led approach will also improve overall experiences once the product is in use. From an operational data perspective, employees on the shop floor or within the business will see performance data in real time and act instantly.

Highly commoditized or repetitious manufacturing environments might function as a largely ‘headless’ or ‘dark’ operating environment. Such environments rely on processes that are highly routine, reproducible and repeatable. They will, therefore, be able to leverage physical robots in the ecosystem to take the place of today’s manual interventions. These environments will have a significant advantage in productivity and efficiency while improving safety. They may use technologies including robotic process automation for monitoring and control, generative AI for requests from outside observers, and physical robots to take actions when physical interventions are required. Nevertheless, I do not foresee a near-term scenario in which manufacturing is 100% automated with no human involvement. Through 2030 there will continue to be entire plants, production lines and core processes where the need for creativity will keep humans integral.

Empowering Manufacturing through Data-Driven Insights

Data’s role will evolve naturally, and part of the role will entail solving problems. But the primary function data will serve is to enable insights that guide the actions of individuals, software or machinery so that they deliver increasing business value.

Currently, the data sphere focuses on providing high-quality, reliable data to manufacturing business actors — humans, software, physical robots and so on. These actors need specific analytics or insights in forms such as real-time or near-real-time Key Performance Indicators from a production line on quality to make value-adding decisions. When such data indicates deteriorating quality, we may need to halt the line and perform a root cause analysis to remediate the issue to re-gain performance with thresholds.

In a preventive maintenance scenario, telemetry data from machinery might show that a machine will fail within two hours. A worker would then receive an alert prompting them to reallocate capacity from that line to others, if possible, to allow for necessary maintenance. Alternatively, in a product development scenario, we might be able to design and test a product virtually. This will help manufacturers create the right product to the correct specifications the first time around, thereby reducing time to market.

As the right analytics become available in 2030 and beyond, manufacturers will gain the real-time insights to deploy end-to-end automation using autonomous tooling. Automation may extend even to the point of delivery, potentially with no human intervention. This data-driven automation will create additional value through improved efficiency and shorter time to revenue generation.

Unlocking Future Manufacturing Success for Enhanced Plant Operations

Currently, we are observing advantages in various aspects of plant operations such as preventive maintenance and quality improvement. For example, vision robotics is already providing assessment data at all stages of manufacturing, from raw materials to finished products. Moving toward 2030, we see manufacturers that start or continue to follow data and analytics best practices gaining significant benefits. These benefits will be in part due to the advantages of an expanded role for AI and the benefits it can provide, enabled by continuously improving data quality. In combination with the Internet of Things (IoT), AI will have the potential to help manufacturers build factories that are more agile, transform their workforce, make significant progress against sustainability objectives, improve security and compliance, and more. Again, this is contingent on establishing the right data standards and practices.

Building Technology Ecosystems that Unleash Data’s Power

Realizing the potential of data as we are discussing it here will not require any singular technology, but rather an ecosystem of solutions working in concert.

Even today, when we consider the data stack, we emphasize cloud-native data solutions that shift away from monolithic platforms towards an ecosystem of best-in-breed, loosely coupled and high-use technologies and tools.

Data in 2030 will similarly require an array of elements. These range from IoT sensors on machines — many of our clients already have such systems in place or are testing them — to the ability to centralize this data and provide global visibility to it. To cite just one example, manufacturers will increasingly implement machine vision, which involves converting video into data for analysis across a wide variety of use cases from quality inspection to safety compliance.

Finding Future Success by Navigating Data’s Complexities to Overcoming Storage, Reliability, and Analytics Challenges

Data storage and reliability challenges I alluded earlier to the need for data centralization. Many of our clients have already conducted pilot projects or have implemented some of the technologies previously discussed in various plants. But most have yet to successfully centralize their data for global visibility. At the heart of this issue will be the need for investment as, historically speaking, manufacturers have not made the significant investments in their data ecosystem needed to resolve this key dependency.

On the flip side, despite the importance of data centralization, there are cases where manufacturers will need to balance their need for centralization versus a need for rapid analysis and action. In such cases, the challenge will be how to embed intelligence into a local system and thereby enable machine-learning-based decision-making at the edge.

Both challenges will be pervasive. Consider a global manufacturer or a multi-site operator aiming to achieve visibility across all their operations. They may have plants that are almost entirely automated with minimal human intervention and others that have a larger human presence. Both environments present the need for clear visibility into each plant’s operations via data, so the different plants might all require a sort of “control room” view. The first step to enabling that view is to store the data on which to base the view. The data may reside in a centralized location or at defined edge locations.

The next step is to ensure the data’s reliability, whether the data is in storage or in transit. This phase involves a data management component that underpins everything before proceeding to the analytical stage.

Data analytics challenges

After overcoming data storage and reliability challenges, manufacturers can shift to the challenge of data analytics. For most manufacturers, the data management in place today is not at a level where they can trust the data without question.

At the same time, there are potential solutions to these challenges from which two separate elements come to mind. First, from a data management perspective, manufacturers could use machine learning algorithms to conduct quality checks and make recommendations on how to master the data. This process is crucial to effective analytics.

The second element pertains to both the techniques of analysis and the human factor involved. Often, achieving success with analytics depends on clearly defining the question we are trying to answer and the action we aim to take. When discussing data and analytics, our shop floor personnel may say they lack the needed technical knowledge. But the reality is, they do not need to understand all the complexities of data. Instead, as data professionals or leaders, we should focus on the actions they take and the decisions they must make in their roles, and develop analytics capabilities accordingly.

Traditional data analytics versus decision-based analytics

Anticipating the evolved and central role the workforce will play in manufacturing in 2030, decision-driven analytics is about determining the necessary actions the workforce must take to create value in a business. First, we need to ask the right questions to guide these actions. We then identify metrics or measures to establish decision points and gauge results. Lastly, we must determine the type of data needed to create those metrics and measures.

The decision-driven approach to analytics can be simplified to four elements: actions, questions, metrics and data. The goal is to understand the actions that create value in a business, then enable these with data strategies and analytics that also yield value.

Fostering Data Literacy and Collaboration to Bridge the Gap Between IT and Business for Action-Oriented Analytics

From a technologist’s perspective, it is essential to understand what is happening in the business and what actions or decisions we are informing or enabling with the technologies we are deploying. As such, IT organizations must enhance their engagement with the business. Simultaneously, business actors might need to upskill their data comprehension.

This does not mean that all business actors must learn to write SQL queries and Python scripts or be up to speed on the latest data science modeling techniques. Rather, it means they must have the requisite level of data literacy to understand the actions they take in their business and how data could help them make better decisions. Approaching it from this angle will help manufacturers find success, in part because business teams and IT organizations are thinking similarly and working towards achieving specific business outcomes.

Infographic. Aspirent, an NTT DATA Company.

To bridge the gap between IT and business teams, we have found success using a structured Decision Architecture framework focused on the following critical topics:

1. What actions do we have at our disposal to drive value for the business?
2. What questions do we need to answer in order to decide which actions to take?
3. What metrics will help us answer those questions?
4. What data do we need to construct those metrics?

This decision-driven framework offers manufacturers a more targeted, action-oriented approach to data and analytics that enables the creation of specific business cases and a clear path to unlocking their data’s potential.

Empowering Manufacturing Excellence by Navigating Data-Driven Insights for Collaborative Success and Outcomes

Ultimately, data analysis and subsequent actions depend on the workforce. It is essential to ensure that we provide data in a format that the workforce can use effectively. Similarly, the speed and effectiveness with which currently top-of-mind technologies can grow is constrained by the need for data that is accurate, complete, reliable, relevant and timely. Data and analytics reside at the core of high-value business outcomes — whether driven by the workforce, AI or combinations thereof. Potential outcomes range from creating more resilient supply chains to accelerating innovation and delivering new services to engaging customers in new ways.

In short, although we have covered a lot of ground here, my single most important piece of advice is to create and maintain a focus on driving collaboration at the intersection of IT and business teams with a focus on the business context and outcomes of data usage. By doing so, manufacturers will be able to increase the business value that data solutions create and avoid complications preventing the realization of that value.

If this data discussion has sparked your interest, we invite you to check out our infographic “Innovate Confidently with Data-Driven Decisions.” It features relevant data from the 2023 NTT DATA Innovation Index.

About the Author
John Petrusick is a Data and Analytics Managing Director at NTT DATA, serving as the Manufacturing Industry Lead. In his role he advises manufacturers on how best to leverage their data to create business value-driven, actionable, and analytic insights to increase efficiency, sustainability, and competitiveness. He is passionate about helping clients solve their data challenges, specifically in data governance, architecture, engineering and integration, advanced analytics and business intelligence, and intelligent automation, as well as helping them implement strategies to drive digital transformation.