The Manufacturing Enterprise – Five Reasons for Digital Business Transformation

There continues to be a lot of press about Digital Transformation. Many people will say it is very important, although they likely struggle to

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Chet Harter

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A. Cost Reduction Through Automation

There continues to be a lot of press about Digital Transformation. Many people will say it is very important, although they likely struggle to describe it without sounding like a marketing tag line. Descriptions like “Digital Transformation is the glue that connects experiences and simplifies digital trust” most likely will result in blank stares from most manufacturing people.

B. Process Consistency

I would like to give you some solid reasons for why manufacturing companies need to adopt a digital strategy and accelerate their initiatives focused on Digital Transformation. My intent is to keep it short and sweet.

Obviously, process automation for cost reduction is not a new idea. Manufacturing companies have been using computers for years to automate business processes that had previously been manually executed. We all know of past efforts to reduce headcount by automating manual tasks. The only point I will make here is that far more can be automated today than what was possible just a few years ago. It is time to revisit past process reengineering efforts.

Practically all modern manufacturing companies recognize the benefits of establishing standard manufacturing processes for producing high quality products. Process variations are seriously frowned upon and adherence to established processes is enforced. In many cases, for example in the automotive industry, it may be required to get the customer’s approval before a process variation is permitted.

C. Performance Management

More and more companies are recognizing the need for establishing standard business processes across their enterprises. If a company with multiple facilities allows each plant to establish its own processes, it is inevitable that some plants will perform better than others. Unless there are valid reasons for process differentiation across facilities, standard processes should be identified, monitored, and enforced.

Managing business process compliance is practically impossible if the processes are not digital. Not only can business processes be digitized, but applications for monitoring process compliance are available for revealing process variations along with the associated incremental costs. For example, if the creation and approval of a purchase requisition prior to a major purchase is bypassed, an estimate of the additional incurred costs can be determined. Management can then analyze the process variation to determine if the standard process needs to be changed, an acceptable process variation needs to be determined, or if action needs to be taken to assure process compliance. As was stated already, this is all possible in a digital environment and nearly impossible in a non-digital environment.

You can’t manage what you can’t see! This was a common marketing statement I recall from a previous position when I worked for a performance management company. Managers at all levels of an organization need to be able to see the results of their work or of their team’s work. Key performance indicators (KPI’s) are essential for determining what is going well and what needs fixed. This is another one of those obvious things.

But without digital processes, diagnosing performance issues can be very difficult if not impossible. Accurate root cause analysis is required to ensure broken processes are addressed effectively. If the end-to-end process is not digital, there will be blind spots that will force people to make assumptions as to what is really happening or not happening. The digital thread needs to stay unbroken in order to effectively monitor, control, and enforce business processes effectively. Without the digital thread, drilling down into process details is challenging to say the least.

D. Enterprise Versatility (Ability to Quickly Adapt and Change)

Paper-based processes are notorious for being inefficient and error-prone. If someone prints a document with errors (i.e. part numbers, quantities, prices, etc.), those errors may not be detected until a person with a keen eye just happens to see it and recognizes the data as possibly inaccurate. This approach to data quality management places too much reliance on the human element, or tribal knowledge, to ensure data and process quality. Too many errors will sneak through to pollute enterprise data assets.

Performance management is a key reason for digitization and why paper-based processes (or sub-processes) are rapidly being replaced with digital processes. The emphasis is on beginning the digital end-to-end process as early as possible and maintaining an unbroken digital thread to the very end. Paper-to-digital conversion applications are quickly becoming more prevalent and effective for converting paper documents to digital documents.

Advances in information technology are resulting in rapidly changing industries; both in terms of the products being produced and the business processes that companies use to manufacture, engage with customers, develop new products, etc. The rate of these changes is accelerating and companies need to be nimble enough to adapt to industry changes and opportunities, and also equip themselves to take advantage of the innovative ideas their own employees generate.

E. Prepare for Competition

In a workplace with non-digital processes, not only is process consistency an issue, but attempting to roll out a new process is difficult when each person or team does things differently. For example, if a new product quality process is available, but each plant has a different set of quality procedures and processes, it may be necessary to implement the new processes differently at each location. This takes far too much time to deploy new innovations and reap the desired benefits.

On the other hand, if every plant has the same standard digital process, the new process components can be digitally deployed and a single approach can be used to educate the impacted employees. Compliance with the new process can then be monitored for adherence, consistency, and effectiveness across all operations. Performance management is more effective as all operations are measured against the same criteria in the same way.

The development and application of new technology continues to offer improved processes for ensuring product quality, reducing manual labor, improved customer interaction, and the list goes on. A great example of this is the utilization of machine learning or artificial intelligence to create intelligent ERP processes. This is the dawn of a new set of ERP packages that will quickly leave older traditional ERP packages obsolete. S/4HANA and Machine Learning.

There was a time when some companies were categorized as “laggards” when it came to information technology. A laggard hesitated to adopt new technologies until they were proven out by others. Perhaps they were too busy with keeping the lights on to consider new, evolving technology and the potential benefits. I am reminded of a cartoon showing an army general in the throes of battle who is too busy fighting the enemy to pay attention to someone offering a weapon that could provide a big combative advantage.

Conclusion

The advances in big data technology, machine learning, connectivity, blockchain, and other new capabilities will continue to change the way we do business for years to come. In an environment of manual, inconsistent, unreliable, and uncontrolled processes, taking advantage of these digital capabilities will only be available to the companies with an aggressive digital strategy. The others will remain laggards, but with an impaired ability to catch up once they inevitably fall too far behind.

Likewise, new data sources are emerging for inclusion in business processes. Products are communicating with companies that will use the data to improve their products and better understand how consumers are using their products. Customer service departments have far more customer data from both internal and external sources to better provide their customers with post-sale service and enhance their “customer for life” programs. Supply chain managers have accurate real-time knowledge of material locations before they are received as well as after they are shipped to an important customer. Innovative companies are turning these new technical capabilities into real applications and real solutions to real problems. They are creating true competitive advantage!

I have attempted to convey five solid business reasons for why manufacturing companies need to aggressively adopt a digital strategy. My hope is this writing may help management understand some very tangible reasons for why and how digital business transformation benefits them, and enables their companies to excel in a world where new technology is quickly evolving, and increasingly being leveraged by the most innovative companies to gain competitive advantage.

Chet Harter is a member of SAP’s Digital Business Systems team with primary focus on automotive and industrial machinery manufacturers. He can be reached at chet.harter@sap.com.

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