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From Model T to Generation Y: How new technologies are remaking manufacturing

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Capitalizing on new technologyThe humble couch has gone high-tech on the factory floor of American Leather. This Texas-based furniture manufacturer is embracing technology like no other company in its space. “We’re probably the most automated manufacturer of furniture in the U.S.,” says Chairman Bob Duncan. “We are utilizing all the design tools that are out there today and integrating those with the factory floor — all the way down to having terminals at every sewing station. That gives us real-time access to tens of thousands of pages of diagrams. I don’t think we could manage the amount of complexity in our process without those types of tools.”

Technology plays have been a winning game plan for the company. “In order to scale and be able to handle more transactions and more variation, you’ve got to go to a more robust information systems product,” says Duncan. The company’s current enterprise resource planning (ERP) system, for example, has enabled the business to double in size and quadruple in complexity.

Midsized firms are playing a strong role in manufacturing’s tech transformation. They are agile, able to reinvent processes and start from scratch. And that’s what shapes the environment where technology innovation can flourish. What’s more, it also creates an environment of increasing competition for manufacturers. John Quille, vice president and chief accounting officer at leading electronics player Littelfuse, points out that companies also need to keep one eye on the competitive environment because companies can quickly seize an advantage through new technologies. “We’re spending a lot of time deploying technologies. And we're doing a lot more work in terms of actually just monitoring our competitive environment too. Technologies can be deployed, new products launched and disruptive technology can come in very, very quickly. You have to be very much on top of the business in a real-time way.”

Brian Larsh, a director at Grant Thornton LLP, believes that U.S. manufacturers have an innate advantage, given the country’s world-leading technology ecosystem, from innovation pioneers like MIT to its thriving digital business community. “Being in the U.S., we have access to a ton of technology, cloud capabilities, and low-cost computer and information systems,” he explains. “That represents a competitive advantage and allows us to get answers at a low cost before some of our competitors.”

The factory of the future
For Rob Tague, managing director at Grant Thornton, the reinvention of the factory offers exciting possibilities. “Today, manufacturers have systems that push out monitoring data to an iPad. This gives you real-time visibility, no matter where you’re located. It means you don’t have to be standing next to the machine to be monitoring it. This also increases quality and efficiency as you can spot an issue earlier and react faster. And where does this lead to in the future, with the Internet of Things and smart technology? The plant floor will become a manufacturing system where machines talk to each other throughout the process. There’ll be more automation, heavy robotics with a smart system installed and limited human intervention. It won’t happen overnight, but it will increase manufacturing efficiency significantly over the coming years.”
Rebooting U.S. manufacturing
Technology is turning a traditionally analog industry on its head. Fully 98% of U.S. manufacturing executives we surveyed say they expect to see new technology-driven disruptions in the next three years. Robotics/automation and the Internet of Things (IoT) are among the top two technologies likely to have an effect on operations in the future.

These, and other technologies, are enabling manufacturers to streamline production, identify problems in equipment before they affect performance, manage quality control throughout the production life cycle and increase productivity. As Chad Moutray, chief economist for the National Association of Manufacturers (NAM), explains: “We continue to see manufacturers doing a lot more with less, and finding ways to increase output with fewer resources. Technology and innovation are a large part of that conversation.”

Such technology advances are viewed as overwhelmingly positive. A strong majority of manufacturers surveyed (86%) believe new technologies will bring new opportunities. Of this group, half consider it “much more of an opportunity,” compared with a handful that see it as a threat. This is especially true among high-growth companies. “These companies realize if they’re not advancing technology throughout their products and practices, they’re going to lose out to the competitors not only here, but around the world,” says Brian Raymond, director of technology and domestic economic policy at NAM. “It’s absolutely a key differentiator for success in the marketplace.”

This impact is being felt across the manufacturing spectrum. One executive surveyed for our study noted that innovations in the fields of robotics and big data have “completely changed the telecoms equipment industry.” Another remarked that artificial intelligence, mobile technology and the IoT are technologies that have “completely revised” the electronics market that they compete in.

Which of the following technologies do you expect to have a significant effect on how your company operates and produces goods in the next three years?

New technologies having a significant impact

Here’s a look at how things are changing on the factory floor.

Robots take center stage
A new generation has joined manufacturing. Walk through many manufacturing facilities today and instead of the chatter of workers, you’ll likely hear the quiet whir of robotic arms. These tools are bringing safety and cost savings to low-skill tasks, enabling manufacturers to reduce overhead and move human resources to more high-value tasks. “Advanced robotics has played a major role in uplifting (our) production rates,” says one industry leader surveyed for this report. A 2013 research paper from Stanford University found that the average hourly cost for a U.S. factory worker is $23.32. A manufacturer can buy a dual-arm humanoid robot, such as Baxter, for $27,000, with a three-year warranty. This equates to a cost of $4.32 per hour, based on an eight-hour workday and working 260 days per year over three years. The cost falls much more when your robots are working round the clock.

And, as the cost of robotics steadily falls, this technology is becoming increasingly accessible for midsized firms that might otherwise have seen it as too complex or cost-prohibitive. Robotics manufacturers — many of whom are innovative, midsized American companies — are increasingly seeking to offer new robotics-related products and services, beyond merely selling the equipment itself.

Turning big data into big value
While adoption of analytics is still in its infancy, it is already having a profound impact. For example, Lear, an automotive seating manufacturer, is one larger manufacturer that is embracing the opportunity. Its engineering team used big data analytics to design its new Lear Proactive Posture seat, identifying subtle differences that can be hard to tease out in the manufacturing process. “We picked over 100,000 data points to develop the posture and the profiles that we needed,” says David Kayzak, the company’s VP of global engineering. “Comfort and craftsmanship have more of a subjective nature,” he says. “Using big data helps us focus on what the right product is and where we need to go to target and satisfy the consumer.”

Bob Hersh, Grant Thornton’s principal in Business Advisory Services outlines how manufacturing and analytics have intersected in real time in the marketplace. “Information is driving the decision making at manufacturing companies and the extension of prescriptive analytics is helping companies make timely and informed decisions,” he says. The quality of the decisions are also impacted through the use of analytic tools that can model, visualize and produce real time analysis, resulting in improved profits. “Being able to run “what if scenario’s supported by the real time combinations of actual information, is changing how manufacturers can improve quality, while reducing costs across the supply chain. Senior management, operations and finance can work off a single set of consistent information, which improves customer service. The use of analytics and decision based modeling yields a new set outcomes for organizations willing to change their processes, resources and technologies through analytics.”

The IoT heralds a new manufacturing era
The IoT, where objects are networked through embedded sensors that enable the exchange of data in real time, is giving manufacturers a way to cut costs, time and waste from their operations. Being able to connect your devices and systems through sensors in the field enables you to make better decisions, reduce excess inventory and deliver a host of other benefits.

As one executive surveyed for this study put it, “The IoT is spreading rapidly, allowing companies to optimize assets, monitor performance and create different business models.” According to a December 2013 survey by the American Society for Quality, of the manufacturers who used smart manufacturing, including IoT, 82% experienced increased efficiency, 49% experienced fewer product defects and 45% experienced increased customer satisfaction.

Take Big Tex Trailers in East Texas. Their manufacturing facility utilizes new technology in their production process to track the finished product. “This data interaction between production and transportation optimizes our loading and shipping processes,” says Lance Reinhard, company president. That single technology improved delivery time by 50% and enables them to make better use of its internal trucking fleet. “Besides the reduced lead and delivery time, our cost per mile has reduced by 15%,” he says.

Up in the cloud
Blue-sky thinking is all the rage, but computing clouds also offer their own potential for the transformation of your business.

Many manufacturers are now implementing software-as-a-service (SaaS) or cloud-based systems, including customer relationship management (CRM), transportation management systems and ERP tools. All these help to streamline data management without the massive capital costs required for on-premise software solutions.

Our survey shows that sales, marketing and customer service are among the top areas of the business most affected by technology-driven change, as manufacturers look to automate key market-facing areas. This shows the degree of opportunity to also drive improvements in areas such as operations and production. Cloud-based systems allow manufacturers to capture and utilize the knowledge and intelligence that’s flowing through the organization. They can improve collaboration with partners and suppliers, accelerating new product development. And they can drive greater efficiency in areas such as supplier management or materials planning.

Rebooting U.S. manufacturing for a digital age
You have to pay to play if you are going to capitalize on these exciting technology opportunities. It’s going to take time and resources.

These opportunities can only be realized if you are willing to invest money in new technology and drive the culture change necessary to make them a core part of your operational strategy. That can be a short-term challenge for cash-strapped business leaders wary of major capital expenditures, but it can pay huge dividends in the long term if you invest in tools that promise to deliver efficiencies and agility to your operation.
 
When asked about the biggest barriers to using technology to transform the business, the leading obstacle is economic uncertainty. This highlights the fact that many midsized manufacturing leaders have the ambition to take their operations to the next level, but lack either the resources or the confidence. This view is shared across both finance and nonfinance respondents, highlighting widespread concern over making significant investments in an uncertain environment.


Barriers to using technology

To its credit, the U.S. government is trying to assist, investing millions of dollars to help manufacturers adopt new technologies. These efforts include $20 million in innovation vouchers from the Department of Energy (DoE) to help small manufacturers gain access to technologies under development at five of its national labs. These investments are designed to spur growth and competitiveness across the U.S. manufacturing sector, while easing some of the risk smaller companies face when pursuing such innovations.

Fears about adopting “unproven” technologies rank No. 2 among the biggest barriers they face to using technology to transform their performance. Every company has a different “tolerance for risk,” Moutray says. That said, the midsized market often falls between two camps: they’re too large to attract direct government support, but too small to have internal capabilities to push ahead on this.

This reflects ongoing caution about the economic recovery, particularly in key segments of the customer base. Big Tex Trailers’ Reinhard notes, for example, that shrinking oil prices could actually negatively affect sales in North Dakota and Texas. “Less than 10% of our revenues come out of oil and gas, but that still ends up impacting some of our stores and dealers who are based in [these states],” he says.

The age of the smart machine is here — and you should embrace it
Manufacturers’ concerns about technology implementation reflect understandable caution about making significant investment plays. However, what is clear is that new technologies are changing the value chain in manufacturing, and all manufacturers need a clear strategy in response. These technologies offer significant value in terms of efficiency, competitiveness, ROI and resilience, driving a fourth industrial revolution in the sector. This age of the machine is an exciting opportunity for midmarket manufacturers to turn their innate agility into a global competitive advantage.



Key takeaways
Innovative technologies can cut costs and improve the quality and value of products and the production cycle, but it requires executives to make major investments. To ease the risk and uncertainty, and make the most of these new tools, leaders should take the following steps:

  • Define the bottom-line benefits of new technology upgrades. This process should include related risks and time to profitability, creating a clear path to ROI.
  • Hire or develop the skills to perform data analytics. One of the biggest challenges manufacturers face today is figuring out how to harness and analyze their vast data stores, and how to make predictive decisions based on that information.
  • Deploy IoT devices to collect strategic data designed to deliver actionable data. Such tools can drive cost savings, increased revenues and/or improved efficiencies.
  • Identify tax incentives, rebates, and government-sponsored programs to lessen the cost — and risk — of implementing innovative technology. From the DoE program to R&D tax credits, these incentives can make new technology investments more feasible.
  • Consider moving software to the cloud. Replacing on-premise systems with SaaS is a powerful way to access more sophisticated CRMs, ERPs and other operational tools. These can be implemented quickly, require no on-site support and allow a switch from capital expenditure to operational spending.