How Does Digital Transformation Affect Manufacturing Companies?

Ankita Tiwari

23 May, 2024

The digital transformation began only a decade ago. It has entered all business sectors. A few companies have begun their process of digital transformation, but most of them were still planning on it when Covid-19 hit the world. The entire world was hit by a once-in-a-lifetime disruptive event and to continue their operations, many companies opted for digital transformation. Now that Covid-19 has receded, we can witness a new structure of manufacturing companies with as high as 91% of the manufacturing companies investing in digital transformations.

Impact of Digitization

Few sectors have boomed due to digitization and few sectors have been adversely affected by Digitization. Some manufacturing companies have embraced digitization while some are still facing difficulty in implementing it. The basics of manufacturing are changing with the explosion in data paired with advancements in artificial intelligence, robotics, human-to-machine interaction, etc. Digitization is here to stay and will create a whole new world. So, the digital transformation of manufacturing companies becomes important to keep up with the evolving needs of the customer. Digital transformation in manufacturing would mean replacing the manual or machine or non-digital manufacturing process with a smart and technology-driven manufacturing process. It is also referred to as the concept of Industry 4.0. Manufacturing Companies have to invest in technologies and software to gain an edge over the highly competitive market. The digital manufacturing process will help adapt to changing conditions and requirements in real-time and optimize production. Digitization in manufacturing companies will automate the process of production and increase production capacity. This transformation can allow instant capture of data. It also raises the opportunity for up-skilling and re-skilling among the employees. This transformation inordinately affects a manufacturing company compared to data management or process improvement companies. A fully functioning digital transformation strategy changes not just the manufacturing process but the entire business structure and practices of the enterprise. Forecasting technology also improves inventory management, supply chain planning, etc.

Challenges of Digital Transformation in Manufacturing Companies

The entire manufacturing company is moving toward digital transformations however, there are still challenges that the manufacturing companies have to face. These challenges include:

1. Capital Expenditure
   Digital transformation involves a huge amount of capital expenditure. Each company has to analyze its Return on Investment (ROI) for successful investment. The ROI differs from company to company. There is also the problem of linking investment amounts to future profitability. Companies with low capital are struggling to arrange the upfront cost while also realizing that the cost of not transforming digitally is even higher.
2. Skill Sets
   Manufacturing companies usually employed skilled to unskilled labor who used to perform the work either manually or through machinery. Digital Platforms usually run using AI and machine learning algorithms which require trained professionals. Training employees require additional cost input. In some cases, it is not possible to retain employees as the work demands technically skilled professionals. Therefore, it becomes challenging to train people to deploy digital technology successfully.
3. IT Issues
   IT has been most affected by the skill-set issue. With cloud-based technology, the demand for expensive fiber optics, servers, and long cable runs has gone down. The extended software licenses which were used earlier have now become obsolete or useless after digital transformation. IT is mostly given the task of transferring data, ensuring security and access, and a host of other tasks. Sometimes the IT personnel might not be familiar with the tasks. These tasks may sometimes run contrary to what they’ve been doing traditionally.
4. Corporate Culture Issues
   The manufacturing industry has always been predominantly composed of manual workers. While some manufacturing industries may still require manual labor, many new skills, and training are required for them to operate at the technician’s skill level. The new technologies often use interactive screens, tablets, and other human-machine interfaces, to input and receive data the operator needs. For this training should be imparted to develop the skills of workers to understand and use systems.
5. Data Security Concerns
   While digital transformation is important and comes with current and future benefits. The cause of concern is to protect and ensure security. Most of these systems are cloud-based and operate over the internet. There is always a risk of breaking into cloud-based data without being caught. Such an event of hacking may lead to the leak of confidential data and trade secrets. In Industries such as pharmaceuticals incidents of a break-in can be life-threatening. These risks are real however they can be mitigated. The security protocols are getting better which ensures tightened security.
6. Improper implementation
   Many manufacturing companies create independent delivery teams that are separate from site operations and manufacturing which makes the digital transformation limited and theoretical. On the other hand, some manufacturing companies fail to recognize the complexity of larger networks because they concentrate too much on reproducing a single-site experience. Without a proper digital transformation in all departments of a company, there will be no harmony in work, and the entire transformation might collapse.
7. Failure to adopt
   Digital transformation is not the same for all companies. It depends on various factors such as the nature of the business, and the size of the business. Applying a one-size-fits-all strategy will not work in digital transformation. Every manufacturing company should have its customized transformation and should adapt in a way the manufacturer can take advantage of the distinct conditions, cultures, and values of its company.
8. Analysis
   Many companies directly run digital transformation without any proper analysis. This could be due to the lack of awareness and the lack of industry standards to guide. Directly undergoing digital transformation may yield adverse outputs. Network checking and customization are required. Therefore, it becomes important for every company to analyze the complete network and do an in-depth assessment of the network, before undertaking digital transformations. It can also do a demo run to ensure it will yield reliable and accurate results.
9. The focus is more on technology rather than value
   The deployment of solutions without a clear connection to real value opportunities, business difficulties, or competency requirements is known as a technology-first rollout. This leads to undermining crucial buy-in information from key personnel in charge of making deployment successful was undermined.
10. Attaining a stable state of performance
    After digital transformation, the manufacturing companies have to wait to attain an ideal state and for the IT/OT architecture to be fully defined to roll out Industry 4.0 solutions. In this, the manufacturers, lose out on the shorter time taken to make an impact through a proven and pragmatic minimal viable architecture.
11. Lack of Standardization
    Digital Transformation is still a fairly new concept. No industry-wide standards have been set up which makes it difficult to compare the performance of different solutions and select the best approach for one’s needs.

Conclusion

Even though digital transformation is the need of the hour still it is a new concept, and there are no industry standards to guide new digitally transformed companies. With no proper industry standards, the situation becomes similar to firing a gun in the dark. It is difficult for companies to evaluate their performance post-transformation. It becomes a big undertaking for a company due to its high cost and risk.  However, due to the rapid rise in digital transformation, we can hope to see new laws and regulations on it to guide the businesses undergoing digital transformation.

Also Read: Digital Banking Transformation – Future Path of Banking