Disruptive markets require innovative solutions, and the market has never been more disrupted than in recent years. According to the IMF, in 2020, the global economy shrunk by 4.4%, the worst decline since the Great Depression of the 1930s. But the forecast for 2022 looks rosier: 4.4% is the current estimate. How can manufacturers manage–and even benefit from–this rapid pace of change? Research suggests that digitization, AI, and automation will be the key drivers of productivity and profitability over the next three years. Companies that embrace digital transformation in the manufacturing industry will rise to the top while others around them fail.
The Transformation Cycle is a powerful concept that demonstrates how digital transformation in the manufacturing industry improves customer experience and drives profitability. It shows how efficiency, productivity, sales, quality, margins, and revenue are interconnected and, crucially, how the benefits of effective digital transformation compound rapidly over time.
To find out more about the Transformation Cycle and its impact on digital transformation in the manufacturing industry, read on as we explore:
- Why US Manufacturing Is Under Threat
- The Stages of the Transformation Cycle
- How the Transformation Cycle Can 3X Your Profitability
- How the Transformation Cycle Is Bringing Back US Manufacturing
US Manufacturing Under Threat
US manufacturing accounts for 8% of the workforce and 11% of GDP. But the manufacturing sector makes a disproportionate contribution to the US economy and innovation: 35% of productivity growth comes from manufacturing, as do 55% of new patents, and 70% of R&D spending.
Manufacturing is critically important to the continued success of the United States in the face of increased global competition. But it’s under threat. 50% of businesses reported “a large negative effect from the COVID-19 pandemic,” and 71% of manufacturers are concerned with the financial impact on operations, liquidity, and capital. Other leading concerns include:
- A potential global recession
- A shortage of skilled workers and reduced productivity
- Decreased consumer confidence
- Supply chain disruptions
Sound ominous? That depends on how you choose to interpret the current market environment. Sure, manufacturers are facing unprecedented complexity. But there are new solutions to these new problems, and–through digital transformation–your business can be a leader in this new digital era.
The Transformation Cycle
The Transformation Cycle is the key to understanding digital transformation in the manufacturing industry and getting US manufacturing back to its most robust. It consists of five dimensions, each of which feeds into the next, creating a never-ending cycle of improvement that drives profitability.
Let’s take a look at each dimension in turn:
It all begins by improving efficiency by introducing new digital technologies and culture–not just on the shop floor but also organization-wide. Only by focussing on driving efficiency in every functional department and at every level can you break down silos, harness the value of your data, and achieve maximum efficiency gains.
Greater efficiency boosts the productivity of processes and people. Liberated from the burden of repetitive tasks and with instant access to clear and consistent data, your skilled employees can fully leverage their knowledge and experience, producing more, innovating better, and deriving greater satisfaction from their role at your company.
Quality (Product and Data)
Digital solutions let sales reps (and customers under self-serve scenarios) design for manufacturability and product performance, increasing output quality. Systems data quality improves too, becoming more accurate, complete, consistent, reliable, up-to-date, and, above all, usable.
Highly efficient processes enable sales reps to serve customers (and customers to serve themselves) more quickly at a lower cost. Improved product quality and data-driven insights lead to better sales performance. At the same time, automation takes the pressure off sales reps, reduces the frequency of design mistakes, and makes training new hires easier.
Margins and Revenue
Enhanced efficiency, greater productivity, increased product/data quality, and improved sales performance combine to produce higher margins, revenue, and profitability. Higher profits can be reinvested into digital transformation to improve efficiency further, and the flywheel effect soon takes over.
The Transformation Cycle Can 3X Your Profitability
Digital transformation in manufacturing is no longer just a differentiator; it’s critical to the success of your business over the medium term. According to a study from Deloitte, digitally mature companies are three times more likely to report annual net revenue and profit margin growth.
So, where should you focus your digital transformation efforts to experience the full force of the Transformation Cycle? Research and experience tell us that to become a digitally mature manufacturer, you should target the following three areas:
1. The Product Lifecycle
Digitally mature companies connect every stage in their product lifecycle via a seamless flow of data. This digital thread gives employees instant access to the data they need to excel in their positions and provides management with a single source of truth for analyzing data and implementing change across every department.
2. The Value Chain
Digitally mature companies apply digital technologies to products, services, and experiences to deliver added value to their customers and build additional revenue streams. Hannibal Industries (one of our partners at KETIV) is a prime example. The company has transformed from a traditional manufacturer of warehouse racking systems to a full-service supplier, consulting with customers on warehouse design and layout as well as automating parts replacement. By digitizing its value chain, Hannibal Industries has improved customer experience, profitability, and flexibility, while protecting itself from future market changes.
3. The Smart Factory
Digitally mature manufacturers invest in intelligent and automated smart factories that require lower staffing costs and suffer less downtime. Smart machines with embedded networked sensors analyze performance and solve problems automatically before they become critical. Autonomous robotics and additive manufacturing enable rapid prototyping and product customization at scale.
The Transformation Cycle Will Bring Back US Manufacturing
US manufacturing drives the US economy. It creates jobs, fuels innovation, and provides a competitive advantage over other countries. As the COVID-19 pandemic has demonstrated, US manufacturing is also central to health and national security. But it’s a sector under threat. Sky-high customer expectations, increased global competition, and weak supply chains are constant challenges.
Manufacturers that embrace digital transformation and harness the power of the Transformation Cycle will be the ones that weather the storm and emerge as leaders in the new digital era. These are the companies that will bring back US manufacturing to its best. 91% of manufacturers have increased their investments in digital transformation since the pandemic–a strong indication that we are on the right track.