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Going ‘smart’ helps factories make 12 per cent gains, says new report

Implementing smart technologies has enabled factories make gains of up to 12 percent, according to an authoritative new report by Deloitte and the Manufacturers Alliance for Productivity and Innovation.

The areas in which the gains were achieved include: manufacturing output – an important US economic indicator; and factory utilization; and labor productivity.

Looking ahead, smart factory initiatives could lead manufacturers to experience labor productivity increases of 4 percent, which represents a three-fold improvement over the past decade’s average annual growth rate of 0.7 percent (2007-2018).

Notably by 2030, the compound annual growth rate of US labor productivity is projected to be near 2.3 percent, a level last seen in the 1990s.

US manufacturers with smart factories will likely surpass traditional factories with 30 percent higher net labor productivity in 2030, and potentially higher profits.

Paul Wellener, vice chairman and US industrial products and construction leader, Deloitte, says: “Smart factory initiatives are delivering on many of the promised benefits of the fourth industrial revolution.

“Combining digital technologies with the automated solutions of the past is expected to jump-start manufacturing productivity and set a new trajectory of growth for the sector.

“For companies looking to capitalize on smart manufacturing as a key competitive advantage, now is a crucial time for action.”

Stephen Gold, president and CEO of MAPI, says: “Manufacturing output may be 11 percent of US gross domestic product, but its total value chain for the economy is three times that.

“And digital transformation will likely only increase manufacturing’s importance and competitiveness.

“This new research provides excellent insights for manufacturing leaders trying to propel their digitalization journey, regardless of the current state of their operations.”

The survey on which these comments and conclusions are based was conducted in the spring of 2019.

Deloitte and MAPI surveyed more than 600 executives at manufacturing companies with headquarters in the US and a global factory footprint to help quantify the impact of smart factories on key business metrics including manufacturing productivity.

Data analysis, economic forecast modeling and executive interviews with manufacturers conclude that smart factory initiatives could be the key to manufacturing competitiveness.

Although 2011 is considered the unofficial start of the fourth industrial revolution, US manufacturers have reported zero average growth in labor productivity over the past five years — despite continual improvements in equipment, software and management approaches.

As the industry grapples with a labor shortage, among other challenges, the study and forecasting model suggests smart factories could be key to boosting stalled labor productivity and unlocking overall productivity gains for manufacturers.

Implementing smart factory initiatives appears to be paying off for early adopters.

Self-identified in the study as “trailblazers” — the group is investing as much as 65 percent of this fiscal year’s budget on smart facility initiatives, which has led to twice the level of gains to labor productivity compared to other peer groups.

Smart factory initiatives are accelerating business value creation. Companies report up to 12 percent gains in areas like manufacturing output, factory utilization and labor productivity after they invested in smart factory initiatives.

Moreover, manufacturers with smart factories will likely surpass traditional factories with 30 percent higher net labor productivity in 2030, and potentially higher profits.

Implementing smart factory initiatives is helping to build resiliency and is often viewed as a competitive advantage.

However, while more than 86 percent of survey respondents believe smart factory technologies will be the main driver of manufacturing competitiveness in the next five years, only 51 percent of respondents are planning investments or have implemented smart factory initiatives.

Of those survey respondents who said they were investing in smart manufacturing, quality sensing and detection is cited as the most common smart factory initiative, with approximately 50 percent of respondents saying it’s currently in use.

Foundational technologies, such as data analytics, cloud networking, robotics and automation, are well invested – approximately 90 percent of respondents are currently investing or plan to invest in these technologies.

Meanwhile, promising interest is evident in emerging technologies, including active and passive sensors, internet of things and vision systems – greater than 80 percent of respondents are currently or plan to invest in these technologies.

One of the biggest challenges of smart factory adoption identified by respondents is that many organizations simply do not take any action on smart factory investment and initiatives.

Nineteen percent of respondents have not thought about smart factory transformation, and 30 percent are thinking about it but currently not planning any initiatives.

Operational risk was cited as top of mind for manufacturers regarding smart factory initiatives, followed by strategic and financial risks.

Additionally, cyber risk was a concern across the board, given its exposure despite digital maturity.