Going Digital

GOING DIGITAL Presented by: i-Report How To Update Operations To Improve Efficiency Sponsored by: 2 Although technology is enabling manufacturers and distributors to recognize and implement more efficient and effective practices throughout their operations, it could also pose a danger for companies that are slow to adjust to the new digital world. Companies are wary of the often substantial investments needed to make digital upgrades. In addition, businesses are concerned about the costs to maintain digital systems and finding sufficient manpower to operate them. The growing threat of cyberattacks could also affect companies that are putting more and more of their sensitive data online and in the cloud. Without digitizing their factories and warehouses, however, businesses run the risk of falling behind their competitors, particularly as manufacturers embrace connect- ed technologies and distributors race to keep up with the demands of e-commerce. In this report, we’ll examine how manufacturers and distributors deploy digital technologies and the dangers that they could face without them. In late 2015, Deloitte and the Council on Competitiveness released the results of a poll of manufacturing executives and research directors. In one form or another, those in- dustry leaders identified analytics as the most important technolog- ical factor to their future competi- tiveness. Executives identified predictive data analytics -- which uses massive amounts of collected information to identify potential problems before they happen -- as the most critical to growth. Taking Advantage of Big Data Going Digital: How To Update Operations To Improve Efficiency 3Going Digital: How To Update Operations To Improve Efficiency The report estimated that the market for artificial intelligence and machine learning would climb from less than $1 billion in 2013 to $36 billion amid a boom in data capture technology, computing power, smart algorithms and other advanced systems. Advanced robotics, meanwhile, should grow from $28 billion to $38 billion between 2013 and 2019. “The impact of next-generation technologies on advanced industries will be significantly high,” one executive who participated in the survey said. “From creating high-value jobs to increasing worker prosperity and productivity, they will alter the way these industries operate.” 1 • Predictive analytics 2 • Smart, connected products (Internet-of-Things) 3 • Advanced materials 4 • Smart factories (Internet-of-Things) 5 • Digital design, simulation and integration 6 • High performance computing 7 • Advanced robotics 8 • 3D printing and scanning 9 • Open-source design/ direct customer input 10 • Augmented reality Council on Competitiveness List of Promising Advanced Manufacturing Technologies 4Going Digital: How To Update Operations To Improve Efficiency Another report from business software provider Exact and Pb7 Research found that the use of cloud computing was crucial to financial performance among smaller businesses. Businesses that utilized the cloud, on average, experienced a 25 percent increase in revenue growth and profits that more than doubled compared to counterparts that did not use the cloud. The report also said that more than half of U.S. businesses participating in the survey used some form of cloud software and that nearly 30 percent used three or more cloud applications. Recent surveys, however, also showed hesitancy among many manufacturers to embrace advanced technology. Accounting firm Sikich found that the number of companies using technology to improve production, business intelligence, reporting and customer service was increasing, but that more than half used spreadsheets and other manual processes to measure performance instead of software. The Exact survey, meanwhile, found that only 26 percent of participating manufacturers always wanted to maintain the latest in technology, and a 2016 survey from Accenture showed that 85 percent of respondents described themselves as “laggards, rather than leaders” in digital manufacturing trends. The ongoing digital revolution in manufacturing kicked into high gear with the proliferation of Internet-connected devices and equipment. The Deloitte-Council on Competitiveness poll listed those systems − known as the IoT − second to predictive analytics as the most critical factor for future growth. The report also estimated that the number of IoT-connected machines and devices would jump from nearly 5 billion to 25 billion over the next decade, and that the global IoT market would increase from $1.9 trillion in 2013 to $5.6 trillion in 2019. Deploying Industrial IoT 5Going Digital: How To Update Operations To Improve Efficiency Fellow consulting firm McKinsey found that under a best-case scenario − in which businesses and policymakers facilitate linking the physical to the digital − IoT could generate more than $11 trillion in economic impact, or more than 10 percent of the world economy, by 2025. Analysts said that the IoT is altering every aspect of commerce, from production to distribution to aftermarket service. “This is not a trend that’s overhyped,” said McKinsey report author Michael Chui. Manufacturers generally recognize the benefits of connected industrial equipment, but a recent survey found that they also broadly lack the confidence needed to successfully implement such systems. The Accenture poll of more than 500 senior executives found that 85 percent expected the Connected Industrial Workforce -- which links smart machines and human workers -- to be commonplace in their factories by 2020. Analysts said those systems could translate to hundreds of millions in additional profits while enhancing productivity and safety and mitigating rising labor costs. Just 22 percent of participants, however, signaled that they would take full advantage, with most worried about their technical challenges, the availability of skilled workers and the vulnerability of both the system and company data. The poll came on the heels of a warning from Department of Homeland Security officials about the increasing online exposure of industrial facilities. Experts said that although no single fool-proof method exists to prevent cyberattacks, companies that keep track of their data, detect problems early and train workers appropriately can significantly curb their risk. 6Going Digital: How To Update Operations To Improve Efficiency One report last year suggested that increased investment in employee training alone can reduce the risk of a company’s cyber security attack by up to 70 percent. If new technology is disrupting manufacturing, it is completely revolutionizing distribution networks. Advanced connected systems and analytics can provide solutions for warehouses that need to become more efficient at a time when online commerce is flooding them with heightened demands. In 2014, retail e-commerce sales amounted to roughly $298 billion; in 2018, that number is expected to climb to $482 billion. A recent report by tracking and labeling firm Zebra Technologies found that 76 percent of warehouse professionals expected rising consumer demand to bolster both the number of warehouse locations and the volume of their shipments by 2020. Three-quarters of those respondents planned to accommodate those changes by transitioning to modern warehouse management systems within five years. Roughly the same percentage are expected to invest in real-time inventory tracking systems and equip warehouse staff with technology over that span. Digitizing the Warehouse Retail e-commerce sales in the United States from 2013 to 2019 (in billion U.S. dollars) 600 500 400 300 200 100 0 260.67 298.26 340.61 384.89 431.84 481.94 534.95 2013 2014 2015 2016 2017 2018 2019 7Going Digital: How To Update Operations To Improve Efficiency Nearly 70 percent expected to add barcode scanning capabilities by 2020, with tablets and IoT also targeted by more than 60 percent of those participants. Zebra officials said that those investments could help shorten delivery times, curb stock shortages and improve fulfillment accuracy as manufacturers and distributors increasingly deliver products directly to customers. “Nearly half of respondents in the survey indicated a concern about labor performance in the order, pick and fulfillment process,” said Zebra’s Mark Wheeler. “We see this as an enormous area of opportunity.” The upgrades, meanwhile, are arriving not a moment too soon: the Exact-Pb7 report suggested that less than half of wholesalers reported knowing the loca- tion of every item in their warehouses. Less than 30 percent received real-time updates on supplies and deliveries, while just 17 percent were automatically alerted when stocks are low. One key component in both inventory tracking and data collection is likely to be radio frequency identification. Finnish researchers expect the global market for RFID tags to nearly double from $11 billion last year to $22 billion in 2020. And although high-profile tech startups -- such as Tile -- are utilizing RFID for consumer applications, manufac- turers and distributors will do their part as well. RFID picked up steam as a replacement for the barcode to track machinery, tools and other industrial equipment in recent years, according to analysts at supply chain company Barcoding Inc. Continued Growth in RFID Zebra Technologies Report on Warehouse Tech 76% implement real-time inventory tracking 75% transition to modern warehouse management systems 73% equip warehouse staff with technology 68% add bar-code scanning capabilities 66% invest in tablets 62% add Internet of Things capabilities According to poll of warehouse professionals, by 2020: 8Going Digital: How To Update Operations To Improve Efficiency Adoption of the technology, however, is likely to quicken as it becomes more reliable and more cost-effective. Just like other connected technologies, RFID could allow for greater data collection and better analyses of those numbers, which translates to improved accuracy and efficiency. Barcoding RFID Director Tom O’Boyle, in particular, singled out several emerging technologies likely to impact manufacturers, from passive, ultra-high frequency RFID to low-energy Bluetooth tags to hybrids of both. “In 2014 alone, retail companies were responsible for the use of 3 billion RFID labels, mostly used for apparel tagging,” O’Boyle wrote. “Now, as did barcodes, RFID technology is ready to take other industries by storm.” Despite business leaders’ hesitancy over costs, manpower and data security, investment in digital technology is expected to be a primary factor in the growth of the manufacturing sector. From cloud computing to the IoT to advanced analytics, digitizing the factory can bolster productivity, planning, safety and even profits. Distributors, in particular, can use connected systems to dramatically enhance the accuracy and efficiency of their operations and keep up with the e-commerce boom. Moreover, investments in technology will be key to developed nations sustaining a manufacturing advantage in an increasingly interconnected global marketplace. A recent Deloitte report suggested that investments in both talent and technology are helping the U.S. surpass other nations in manufacturing competitiveness. By 2020, the analysis expects advanced manufacturing technologies to push the U.S. to the top of the rankings. Those optimistic projections, however, are far from a sure thing. Manufacturers will need to maintain their emphasis on innovation in order to make it happen. “Though the U.S. remains a global advanced technology leader, retaining our leadership depends in large part on how successfully and holistically our innova- tion ecosystem operates moving forward,” said Deloitte vice chairman Craig Giffi. Conclusion 9Going Digital: How To Update Operations To Improve Efficiency About i-Reports About Advantage Business Media About the Author Advantage Business i-Reports present fresh research and analysis on compelling and timely industry topics. “Going Digital: How To Update Operations To Improve Efficiency” was prepared by ABM’s Manufacturing Group (MFG) Reporter, Andy Szal. Andy Szal writes about manufacturing, technology, energy, food, labor and regulatory issues for Advantage Business Media’s Manufacturing group. He previously spent nearly 10 years covering politics and business issues in Madison, Wisconsin. UXC Eclipse, a CSC Company is the Microsoft Dynamics Gold Partner delivering unified, end-to-end manufacturing solutions that help companies optimize operations and improve agility to better engage with customers and drive business growth. We recognize that long-term success is about more than software and technology – it’s about understanding our customers. 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