The challenges facing the manufacturing industry in 2020 are many. To survive and ultimately thrive, companies must increase profitability, supply chain resilience, and embrace new technologies.
The recent Industry Insights webinar, "Global Challenges in 2020 for the Manufacturing Industry," brought together Mo Abuali from IoTco and Sean Cook from Group Purchasing Resources. Also present was IoT Marketing's research analyst and writer, Jennifer Davis, alongside Tiffani Neilson, who planned and moderated the event.
Together they contributed to a great discussion around diversifying supply chains, getting started with automation, and, most importantly, business strategies for creating cash flow without taking on more debt.
Reduce Overhead to Increase Profitability
Access capital without a loan
The list of daily operational expenses necessary to keep any production facility running is long. Because of this, the first place to look when it's time to boost cash flow is overhead. With revenue projections contracting around the world, the ability to save money on P&L statements can be crucial to maintaining business continuity. Companies dealing with excessive overtime and high workers’ compensation premiums can use automation technology to cut down on paper-heavy and labor-intensive processes. For other departments, already stretched staff may be great at keeping the books balanced, but they may not have the skills or the time for research to ensure the company is getting the best rates on utility, data, and insurance costs.
Firms like Group Purchasing Resources help streamline the process of renegotiating maintenance and vendor contracts. Members of their group network have the leverage to get competitive pricing because they represent such a large volume of clients. In some cases, companies have been able to reduce merchant fees by more than half. Due to the company president, Sean Cook, and his team developing relationships with hundreds of vendors over the last two decades, they can often help without changing companies from their existing service provider.
Ways to invest new funding
With new cash flow, companies can reinvest into other areas of their business. These areas can include anything from payroll to new equipment, facility upgrades, or staff training. As a result of the recent supply chain disruptions and staff reductions, most companies will likely need to invest in solutions for production efficiency and stabilizing inventory.
Diversify Suppliers to Increase Supply Chain Resilience
Phasing out of just-in-time manufacturing
Toyota established the universally common practice of just-in-time manufacturing in the 1960s. It was a perfected version of Fords' assembly line that eliminated waste by making smaller batches of parts to be used as needed as opposed to stocking larger quantities. Also known as the Toyota Production System (TPS), it was later coined lean manufacturing in the MIT study-turned-book, The Machine That Changed the World. Unfortunately, in the current economic climate, this system of production has become entirely inefficient.
During periods of sustained supply chain disruption, companies can't risk aligning raw material orders with production schedules. If one of their suppliers runs into an issue and can't deliver, it could reduce order fulfillment and affect profits. Sean suggested taking the path of safety by having multiple vendors for backup. "It may sound extreme, but I would suggest having at least three different vendors for all major components and materials." Just this year, a PPE vendor who didn't heed advice to spread out their sources geographically, came up short at the height of the outbreak. "It's not about having just one [supplier], and it's not about price, it's about diversifying your portfolio so that you are properly prepared to deliver to your clients."
Socially responsible sourcing
When it comes to identifying new suppliers, companies must undertake due diligence to ensure all vendors have been thoroughly vetted. "[Vendors] go through a gruesome background check, and it takes about six months to a year before they get approved. They check finances, references, they actually go to the manufacturing plant and do site surveys to see how they are operating to make sure they are meeting industry standards." There are too many recall stories that have stayed top of mind to take on products that don't carry the appropriate regulatory approvals. The payoff is too short, and the risk too great for companies to put themselves and their clients in jeopardy.
Start Small and Act Now for Digital Transformation
Create a digital strategy
Even though the environment is getting more competitive, the process can't be rushed, and every successful strategy starts with a solid business case. There are plenty of technology platforms, devices, and apps to choose from, but the ability to understand what data you need to get out of the system to bring the most ROI is priceless.
"Education is key, and I think education is a precursor to any strategy and any technology selection that a client might go through." Mo helped develop the company's IoT Academy to help executives understand that each of the building blocks of an IoT solution requires a process of assessment, elimination, and refinement that stays aligned with the business case strategy to ensure achievement of the highest ROI.
Dr. Mo Abuali, the IIoT expert on the panel, got his start in maintenance and engineering working for companies like Toyota before founding IoTco to work as a manufacturing consultant and evangelist for Industry 4.0. Together with IoTco, he serves clients in automotive, aerospace, and discrete manufacturing by creating a digital strategy and guiding them through the transformation.
Evaluate digital readiness
There were several points in the discussion where the topic came back to digital maturity, an apt phrase that reaffirms digital transformation as a process rather than a destination. According to Mo, "If you can find a way to go up the digital curve and achieve a near-zero downtime and a near-zero defect operation rate, you've hit the holy grail. But it's a journey, and you have to find the right tools, the right vendors, and the right partners to work with along the way to achieve that level of excellence."
Many system integrators start with a consultation, like IoTco, who charges no fee for the initial digital discovery. During this time, they suggest clients look at three main elements: people, process, and technology. Figure out which tools are needed to help gain digital maturity, be transparent with staff and be open to feedback, and finally, be sure that any newly implemented processes are a balanced collaboration between technology and the people.
Put one foot forward
Adopting smart factory technology doesn’t mean going 100% digital, but it's better to be at the bottom of the digital curve than not at all. There are plenty of opportunities and solutions on the market to help manufacturing companies keep pace with their competitors. By reducing costs and freeing up capital to invest in new technology, profitability can be increased through efficiency and the ability to create new services. For under $500 a machine, companies can retrofit IIoT devices onto legacy machines and still produce valuable data.
Moving forward into 2020 and beyond, there will be challenges around workforce training and outdated systems. Avoid complicated solutions and start small with a simple and well-tested business case. After that system has been fully integrated and slowly expanded to scale, it is possible to advance on the digital curve. However, more technological complexity isn't always the right answer. Sometimes, the answer is people. In a technology-driven world, human input is fast becoming an overlooked resource. For companies with a digital strategy already in place, the next level of advancement should be innovation. Those who work closest to the product and the customer are the best resources for new ideas based on the current system. Whether it’s reassessing customer needs, discussing potential collaborations, or creating new revenue streams with enhanced services, the best advice is to think ROI first and think ROI always.
Click here to watch the full recording.