Expanding digitalisation throughout the manufacturing sector
17/09/2024 ThoughtSpark
by Paul Lindsell, Managing Director, ThoughtSpark
Everyone’s telling us that the adoption of digitalised technologies in manufacturing industry has the potential to create multiple benefits in terms of performance, value, savings and sustainability goals. So far, so good. But digital transformation requires pretty hefty investment. And that comes at a time when we’ve had several years of uncertain markets, supply chain disruption and geopolitical conflict. Investment confidence is not exactly riding on a high – however compelling the argument for digital technologies might be.
Where, then, are we in the process of digital transformation?
To date many studies have created the impression digitalisation is already widespread across the industry. Yet talk to any SME manufacturer (and actually quite a few larger companies) and a sceptical eyebrow is raised. This may be because much previous research has often examined only the largest most pioneering corporations creating a disparity between perceptions and reality of the adoption of these technologies throughout the sector.
ThoughtSpark’s analysis of 1,200 manufacturing companies across Europe and North American found that only 25-30% had achieved significant adoption levels of digitalised technologies - defined as implementing digital capabilities in at least half of a manufacturer’s production environment. SME manufacturers – who had somewhat lower levels of adoption – can therefore feel encouraged that there is still time to invest and gain the competitive and commercial benefits that come from expanding digitalisation. But how do we provide a landscape for all manufacturers to thrive in the industry and leverage digital platforms? In this article we’ll discuss four key areas that can support digital evolution for companies of all sizes.
Extending government policy
Government policy has already set important foundations to aid the expansion of digitalisation both in the US and Europe. In 2022, the US government’s National Strategy for Advanced Manufacturing[i] looked to address disruption experienced throughout the pandemic through renewed investment in the latest technologies. The strategy also explicitly acknowledges the need to accelerate the transition of digital manufacturing to enable advanced sensing, control technologies and machine learning across the sector.
Meanwhile in Europe, a €750 billion EU investment plan was agreed in a similar move to reinvigorate a sector stalling from the pandemic. Twenty percent of the scheme is to be targeted at digital transformation to improve the competitiveness and resilience of manufacturers. Prior to this, the EU 2020 Industrial Strategy sought to encourage green and digital transitions of the EU industry, designing a regulatory framework to achieve long-term aims.
Even as we account for these strong initiatives our research suggests that additional support is needed to drive greater adoption of digital technologies within the industry, particularly among SME manufacturers. Policymakers may want to consider further incentives such as tax breaks or subsidies and special development zones to encourage greater uptake across the entire sector. Noises from the new UK government about re-establishing a meaningful industrial strategy are welcome – so long as it is followed up with specific actions.
More broadly, distribution of information to guide best practices and help companies build their investment business case should also promote transformation. Various commentators are also calling for standards and processes to be simplified, again in a bid to create digitalisation opportunities for a greater number of manufacturers.
Striving for sustainability
Policymakers and industrial commentators see a clear connection between digital transformation and sustainability goals as integration of digital technologies enables the removal of inefficiencies and reduces production and supply chain waste. Despite recognition of this within the industry, meeting ambitious climate targets relies on digitalised platforms. However, the capital cost of installing digitalised upgrades to deliver sustainability gains may deter many manufacturers - particularly those with more limited budgets.
With strong government advocacy for sustainability (still!), manufacturers feel obliged to embrace new models to ensure their success and compliance with existing regulations if they wish to stay relevant in the industry.[ii] While this policy intervention is helping to drive digital transformation, more work is needed to share clear evidence of the success of these technologies in achieving sustainability goals to encourage further adoption.
Adoption journey guidance and experience sharing
In the drive to see further digitalisation of the manufacturing sector there has already been a number of helpful materials distributed by national associations. The Manufacturing Leadership Council in the United States, Make UK, Germany’s VDMA and ZVEI, and France Industrie have all provided member guidance to assistance digital transformation. Yet, encouraging faster uptake of digital platforms and digitalised production technologies relies on continually producing and updating these guides.
An overwhelming body of shared experience is likely to be necessary to encourage businesses to identify, evaluate, invest in and measure the benefits of digital transformation. Likewise commentators are just as interest in getting insight on any failures or challenges of projects to illustrate key learning curves for the industry.
The government cannot build this wealth of real world experience without significant assistance from industry. Manufacturers really must put aside competitive sensitivities to a certain extent (no mean challenge) to build a more collaborative approach that will help to achieve more positive results for all. Safeguarding the anonymity of companies is a critical measure to ensure manufacturers feel secure sharing their experiences and should probably be handled by independent established trade associations for greater security. Without this collective effort, the industry may struggle to meet mandatory sustainability goals in the coming years. Certainly, our respondents told us that much more of this shared experience needs to be made available to truly move the dial.
Access to finance
There is a consensus within the industry that third party capital will be needed to enable wholesale transformation of the industry and meet ambitious targets. [iii] Access to finance is key to allowing financially sustainable investment in new digital transformation initiatives. With the improved flexibility offered by third-party capital, businesses can afford more powerful digital solutions accelerating the transition to new technology. Financial tools also help vendors to manage their own cash flow and offer clients an easier path to investment. Moreover, the potential cost of moving from one product environment to another can be vast, so having flexible finance to embrace the cost of the transition is invaluable.
Key research takeaways
Overall, while there has been progress towards increased digitalisation in the manufacturing sector more work is required to get the whole industry to a suitable standard. There must be a significant amount of collaboration from key stakeholders in the sector to create an environment that stimulates further transformation. This relies on the continued development of government policy, sharing of detailed knowledge of the successes and failures of previous digitalisation drives, and considerable financial backing to ensure all businesses are suitably supported. Should these factors all fall into place, we should see the creation of an industry that is effective, competitive and meets the sustainability considerations of the future.
[i] https://www.whitehouse.gov/wp-content/uploads/2022/10/National-Strategy-for-Advanced-Manufacturing-
10072022.pdf
[ii] https://www.mdpi.com/2071-1050/15/4/3010
[iii] See, for instance, https://www.oecd.org/about/secretary-general/private-finance-for-sustainable-
development-conference-paris-january-2020.htm
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Paul Lindsell
ThoughtSpark
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