As Industry 4.0 has transformed manufacturing, a new kind of participant has emerged: the “reborn in digital” company. These are manufacturers that were forged during the digital age (within the past 10 to 15 years), and built their companies with Industry 4.0 tools and technologies embedded throughout their operations. Or they were legacy manufacturers who quickly embraced Industry 4.0 techniques. Digital manufacturers not only have the technology to improve efficiencies, but they’ve also reimagined their business models, including pursuing direct-to-consumer sales, social media advertising, e-commerce, subscription models, customer portals and mobile apps.
Digital manufacturers can respond to shifting customer demands more quickly, are better at detecting and adapting to disruption, and are more agile when it comes to identifying and seizing emerging business opportunities. By contrast, many legacy manufacturers have yet to fully embrace Industry 4.0 processes. And if these organizations don’t pursue the necessary transformation soon, they may find themselves being outpaced by digital manufacturers.
According to BDO’s 2021 Industry 4.0 Survey, 33% of digital manufacturers said their company is thriving, compared to just 18% of legacy manufacturers. Just 13% of digital manufacturers said they were struggling, compared with 28% of legacy manufacturers.
Legacy manufacturers do possess some advantages. They have decades of business experience and a roster of close client relationships. While some former legacy manufacturers that kept up with the pace of innovation have these same advantages, many digital entities are relatively young, both in company lifespan and leadership. Legacy manufacturers will need to adapt quickly to the Industry 4.0 revolution that digital manufacturers have already embraced.
Who Are Digital Manufacturers?
Throughout the COVID-19 pandemic, digital manufacturers proved that they were better positioned for resilience. Digital supply chains used tools such as the internet of things (IoT), blockchain and robotic process automation (RPA) to spot supply chain disruptions in real time. They’ve also been able to respond more effectively to recent issues such as the microchip shortage and Suez Canal blockage. By drawing on customer intelligence and analytics, data-driven personalization and cloud-based collaboration platforms, they’ve been able to meet and exceed customer expectations of order status.
In the months ahead, digital companies are likely to outpace legacy competitors in growth. Seventy-one percent of digital companies expect their investments to increase revenue over the next 12 months, compared with just 43% of legacy manufacturers, according to BDO’s recent survey.
Nevertheless, digital manufacturers can’t afford to rest on their laurels, as competition for market share is guaranteed to intensify. To retain existing customers and acquire new ones, they must focus on delivering an excellent customer experience — the number-two digital priority for manufacturers, according to BDO’s survey. Priorities for improving customer experience include new products and services (23%), improved quality (23%) and product enhancements (18%).
Transforming From Legacy to Digital
Legacy manufacturers will need to ramp up their Industry 4.0 capabilities in order to remain competitive and take full advantage of economic recovery. But they could face obstacles to this transformation. Legacy companies might not be aware of all the digital innovations that could benefit them, and could harbor the false perception that Industry 4.0 transformation requires a significant upfront capital investment. They might struggle to create a culture that embraces change and the risk that comes with new technologies and processes. In addition, there could be personal risk involved for leaders who advocate for digital transformation if those projects aren’t successful. Fifty-three percent of legacy manufacturers say their digital initiatives either failed to launch or weren’t fully adopted.
But all hope is not lost. Legacy companies have decades of industry experience and long-term client relationships on which to rely to kickstart their Industry 4.0 transformation. Implementing machine learning and analytics, for example, optimizes delivery routes and speeds up customer orders. Sensors and IoT can detect if equipment is at risk of failure, helping to avoid production delays.
The transition to digital doesn’t happen overnight. Frequently, it requires a phased approach and Industry 4.0 roadmap. The first step entails an assessment of the maturity of current technology. It’s important at this point to involve both business and I.T. executives, to ensure that decisions to upgrade technology are in alignment with broader business priorities. This stage is important for establishing confidence in technology investments and strategy with leadership, while revealing opportunities for boosting internal efficiencies. Instead of multiple systems, the tech stack can be streamlined into one integrated system. This allows key processes to be automated, and frees up employee time to focus on more value-added initiatives.
Once upgraded technology is in place, the company can focus on improving the customer experience by implementing a customer relationship management (CRM) system. This initiative might also require revamping of the enterprise resource planning (ERP) system, along with other improvements in business intelligence. Ultimately, tackling these process improvements will help to improve the customer experience and drive value.
No matter their level of Industry 4.0 maturity, it’s not too late for legacy manufacturers to transform into digital companies. By committing to investments in Industry 4.0, including revamping the tech stack and working toward improving the customer experience and business processes, they’ll able to compete with their digital peers for the long term.
Eskander Yavar is national leader of the manufacturing practice of BDO.