Impact of Digitalisation in Factories

Published on September 2, 2021 by Jigyasa Arora

Digitalisation is gaining ground in all aspects of human life and has been expanding its footprint in factories as well. Digitalisation has the potential to go beyond automation, helping factories achieve “smart production”. It offers many benefits and efficiencies, but challenges as well. We present a 360° view of digital factories in this blog.

What are digital factories?

A digital factory uses different technologies to automatically share information/data digitally across people, machines and materials. These technologies link systems and processes across different areas of production to create an integrated approach to manufacturing. Some of these technologies are highlighted below:

Growing adoption of key technologies

Investment in digital technologies will almost double over 2018–23, according to a survey conducted by Kantar, a market research and data analytics company. Hence, an industry/organisation should focus its strategy on investing in efficient technologies and initiating the process of conversion to digital factories. This can allow them to obtain first-mover advantage, achieve economies of scale, compete with crucial market players and achieve significant return on investment (ROI).

Benefits of digitalisation

There are many benefits of factory digitalisation, the main one being customer satisfaction. Constantly changing customer demands could be met in the shortest possible time when entire production processes are optimised by incorporating technologies such as automation, humanoid robots and drones. Other key benefits of digitalisation are highlighted below

  • Significantly reduces energy use: Tracking the energy use of each piece of equipment helps make significant process changes and save money on energy costs, boosting profit margins. Technologies adopted include IIoT, big data and AI.
  • Boosts efficiency: By removing inefficient human decision-making processes, factories can produce more in less time and with fewer material resources, malfunctions and scrap parts. Technologies adopted include humanoid robots and drones.
  • Reduces overall costs: Digitalisation could result in lower labour costs and direct costs, such as capex and logistics- and inventory-related costs. Technologies adopted include IIoT, big data, AI, automation, humanoid robots and drones.
  • Reduces production time: Connected systems, data-driven and strategic processes, and real-time tools and data points lead to less production time. Technologies adopted include automation, humanoid robots and drones.
  • Provides additional time for innovation: With digitalised systems and real-time analytics, factories have more room to experiment and find solutions to new problems and test ideas at scale without spending unnecessary resources. Technologies adopted include IIoT, big data and AI.
  • Increases ROI: A 2017–20 survey conducted by Kantar Emnid found that if a company invests in a digital factory and adopts most of the key technologies highlighted above, its ROI is likely to increase by 48% in four years, with an average increase in ROI of 11% in the first year, 12% in the second and 22% in the third.

Investment in digitalisation has grown as more sectors realise its benefits. Several leading organisations, belonging to sectors such as electronics, industrial manufacturing and consumer goods, have invested in digital factories.

Organisations planning to convert to digital factories intend to invest, on average, 6% of their total annual revenue in digitalisation over the next five years, i.e., 1.2% per annum. Companies in the consumer goods sector are at the higher end of the scale (8%) and those in metals and mining are at the lower end (4%).

Challenges in factory digitalisation

The biggest challenge is doing away with traditional operations and being flexible in terms of funding initiatives to implement new technologies.

This requires detailed planning and substantial integration among processes, technology and labour. Each operation is considered a single unit for digitalisation and must be tested for smooth integration with existing processes until all the operations are digitalised and streamlined. Key challenges in the process include the following:

  • Lack of integrated strategic planning
  • Technology not fully considered
  • Implementation of technology
  • Need for technical talent

Key steps towards factory digitalisation Digital transformation can be broken down into the following steps:

1. Gap assessment

2. Developing a strategy for digitalisation

3. Streamlining and optimising processes

4. Scaling up operations to take full advantage of digitalisation

We detail these key steps below:

  • Assess digital readiness
  • Discover new businesses and revenue streams
  • Be ready for and accept culture change
  • Implement, scale and optimise

How Acuity Knowledge Partners can help

As digital factories offer a range of benefits in various phases of consideration and implementations, it is imperative that manufacturing firms adopt them. Acuity Knowledge Partners has a strong team of subject-matter experts who can leverage their expertise to provide solutions for industries and companies that are looking to invest in digitalisation.

Originally published at https://www.acuitykp.com.

About the Author

Jigyasa Arora is a Delivery Lead within Private Equity practice at Acuity Knowledge Partners, and has about 9 years of experience in analyzing and executing research projects. She is proficient in different aspect of research such as research planning, secondary research using public as well as paid source. Her previous experience includes tenure with one of the Big Fours, where she assisted in business research, development of the search strategy, including researching potential target industries and construction of company target lists across different industries and geographies.

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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