This post was co-authored with Drew Martin, Senior Analyst, and Reda Thaifa, Senior Analyst of Market Development, Connected Operations Solutions.
Digital Transformation and Industry 4.0 (I4.0) are top priorities in the factory and manufacturers are investing heavily in these areas. However, manufacturers have been inhibited by two prevalent occurrences: pilot purgatory and scale purgatory.
Pilot purgatory is when digital projects stall and seldomly reach production. This common result is attributed to manufacturers prioritizing technology-oriented use cases rather than financial-impact driven ones and/or pursuing too many use cases simultaneously.
Scale purgatory is a more recent detrimental digital initiative phenomena where manufacturers are troubled with duplicating initial successes across multiple sites in a timely and efficient manner. This lack of compounding growth from not achieving speed at scale can slow down program momentum and even lose executive commitments.
There are five practical steps for manufacturers to scale their I4.0 programs at unprecedented speed and skirt these common pitfalls:
1. Plan Value to align to business strategy
2. Program Design to get organization, people, processes and technologies orchestrated
3. Prove Value to illustrate real-world impact
4. Scale Value to create transformative waves
5. Program Governance to ensure ongoing and future success
In the whitepaper, A Practical Guide to Scale Industry 4.0, the specific parameters of these five steps are accompanied with real-world examples. In this blog, we’ll apply the framework in detail to a hypothetical manufacturer called the “ACME Corporation”.
ACME Corporation is a $5 billion industrial products company with 30 factories and annual operating costs of $3 billion ($100 million per factory). ACME executives are eager to adopt Industry 4.0 at scale in order to gain competitive advantages and recognize gains on their P&L statements, specifically by cost reduction.
The top business initiative determined in their shareholder and executive-level meetings includes optimization of production sites and lines to reduce operating costs by $200 million, which requires the company to improve production efficiency by 20% across their sites and lines.
ACME Corporation’s executives turn to the five steps to scale I4.0 across their enterprise.
ACME has decided to plan value around optimizing its entire production capacity by improving efficiencies from 50% to 60% in each plant. It can achieve this by reducing planned and unplanned downtime and improving both equipment speed and workforce productivity. ACME is enthralled by the universe of opportunities a digital use case could unlock in their plants and creates a short-list of the top eight. ACME executives then lay out a simple use case matrix that maps out the business value potential and the time estimated to achieve that value.
ACME prioritizes the real-time production monitoring use case for actionable performance insights into the efficiency of operations to increase throughput, reduce inventory, and unplanned downtime. This use case has been proven to deliver 5%-190% OEE improvement in a lighthouse site and can be a quick win given ACME’s digital maturity.
ACME is initially selecting the highest value production lines where performance has direct impacts on the largest bottlenecks detrimental to process efficiency targets. It is planning to implement real-time production monitoring to lines A, F, and I in the initial agile development sprint, followed by E, C, and G.
Prioritizing real-time performance monitoring in a key facility on a few high-value production lines gives ACME a concentrated scope to easily recognize initial success and spur momentum.
ACME forms a program that orchestrates a cross-functional team with executive oversight and creates resources, such as a how-to enterprise playbook with best practices on implementing real-time production monitoring, to reach its 36-month goal of scaling to 30 factories. This cross-functional team is a hive-mind of personnel led by a chief digital transformation officer and inclusive of operational technology (OT) staff such as Operations Executives and Plant Managers and information technology (IT) including the CIO. They recognize that organizations including operations stakeholders in their digital transformation team are five times more likely to have successful transformation programs.
The team continuously documents procedures and tracks key metrics, as well as fosters an external technology ecosystem with its initial digital implementation and future ones in mind.
Demonstrating the impact of the initial deployment is critical to validate the financial-impact value planned and program orchestrated. ACME Corporation planned on moving from 50% to 60% process efficiency in its inaugural I4.0 prioritized use case and put a measurement framework in place to benchmark the implementation. ACME recognized an improvement to 59%. Even after determining overhauling the final 1% (to 60%) of efficiency would be too burdensome from unforeseen outdated industrial connectivity issues, ACME recognized $6M in operational savings in the proof of value site.
ACME estimated that if it could generate an average of $6M in operational savings across each of its 30 factories, it would result in a total of $180M in cost savings across the enterprise.
With this value proven, ACME can justify implementing real-time performance monitoring across all factories and moves to scale the use case in waves with implementation sprints targeting factory-specific production bottlenecks. Adopting agile methods with parallel activities and iterative development processes across cross-functional teams empowers multiple sites to implement the use case simultaneously versus one at a time, common with traditional sequential waterfall development approaches. Only 27% of manufacturers rely on agile methods today even though it is proven to create greater impact (projects are 28% more successful than waterfall ones).
Additionally, forming an enterprise architecture is a required technological consideration for ACME to support this scaling. This includes emerging technologies such as the cloud as the increasingly predominant infrastructure of choice and industrial internet of things platforms as the flexible framework to manage applications across multiple sites.
ACME scales its real-time production monitoring use case across all 30 of its factories in multiple waves, with each wave taking one to three months and two to four sites implementing in parallel. ACME continuously refined this process with constant feedback and tracked metrics to increase the program in speed and scale as adoption increased rapidly.
ACME continues to build and expand its program with a formal I4.0 steering committee that prioritizes tasks, additional use cases, and initiatives. Formalizing a repeatable process and governance model is key to foster the compounding growth and speed with scale in industrial environments. With multiple parallel deployments across sites, this level of oversight can effectively manage internal and external stakeholders and adjust to unforeseen market headwinds.
Every organization is at a different point in their digital transformation strategy and each has unique parameters. This framework will be applied differently based on the organization’s current status but is flexible enough to benefit industrial companies just getting started and those further along.
Howard Heppelmann, PTC’s General Manager of Connected Operations, explains how to best approach the I4.0 scaling framework:
'This framework acknowledges the key challenges I4.0 holding companies back from achieving real levels of transformation that can ultimately be measured in impact on shareholder value. It looks across our ecosystem of 1000s of companies, leading management consulting firms and global system integrators as well leading industry organizations and extracts what we have seen to be the key elements, that when adopted, result in outcomes worthy of the title “digital transformation” Companies just getting started should pause to ask if they are really approaching their program through a value centric lens that begins with planning and proving transformational value. Simultaneously, they should be asking if they really have designed a program to capture that impact at enterprise scale within the 2-3 year attention span of a typical CEO. To accomplish this outcome key factors impacting deployment speed including the injection of external resources is almost a certain requirement.
Additionally, turning to real-world examples of manufacturers with more mature digital journeys including Carlsberg, Pfizer, and Pactiv should provide inspiration and guidance for achieving speed with scale. Find out more on how to implement this framework in your I4.0 and Digital Transformation program today:
David Immerman is as a Consulting Analyst for the TMT Consulting team based in Boston, MA. Prior to S&P Market Intelligence, David ran competitive intelligence for a supply chain risk management software startup and provided thought leadership and market research for an industrial software provider. Previously, David was an industry analyst in 451 Research’s Internet of Things channel primarily covering the smart transportation and automotive technology markets.