Digital Transformation for Manufacturing and It's Importance in a Digital Era

Author Steve Adams - CEO, July 3, 2023

At this age when the competition has never been tighter and technological developments are taking place at a rapid rate, all businesses must continually adapt to stay in the competition.

One of the most important and effective ways businesses and manufacturers can adopt to achieve such adaptation is digital transformation– which refers to the integration of technologies into all aspects of a manufacturing process or a business.

In practice, digital transformation involves leveraging the latest technologies to improve a business’ production, improve efficiency, and enhance overall business performance to be more effective, efficient, and profitable. Digital transformation may involve a wide variety of different technologies: data analytics, cloud computing, IoT (Internet of Things) devices, machine learning (AI), robotics, and more. 

In this guide, we will explore all you need to know about digital transformation for manufacturing and its importance in this digital era.

By the end of this guide, you’d have learned about: 

  • What is digital transformation in the context of manufacturing
  • Characteristics and components of digital transformation in manufacturing
  • Importance and benefits of digital transformation in manufacturing
  • Challenges in implementing digital transformation
  • Strategies and best practices in implementing digital transformation for manufacturing

Let’s begin this guide from the very basics: what is digital transformation?


What is digital transformation?

Digital transformation, simply put, is the process to transform a business by integrating digital technologies into it. Ideally, the transformation should be thorough, meaning technologies should be integrated into all aspects of the business, but 100% digital businesses and manufacturers are still pretty rare. 

Various implementations of technologies may be involved in a digital transformation process: analytics, cloud computing, AI, automation, IoT, and so on, but all of these digital technologies must be integrated to achieve the same objective: transforming businesses to become more efficient, more agile, and adaptable to the evolving preferences and needs of their customers.




Digital transformation in manufacturing

In manufacturing, digital transformation involves the integration of digital technologies to transform various aspects of the manufacturing process: from the initial design of products to the actual production to the distribution of finalized products. 

To be effective, digital transformation in manufacturing must be holistic and not merely about introducing new technologies to the workflow. Yet, it should involve the adoption of new cultural changes, new processes, and even new business models so the manufacturing company can leverage all these technologies introduced.

In manufacturing businesses, the main objective of digital transformation is to improve the manufacturing process to leverage technology to improve the manufacturing process’s efficiency and product quality, while at the same time improving the manufacturing process to become more flexible, agile, and responsive to the rapidly changing customer demands. This can be achieved by implementing various technologies, from AI/machine learning, robotics, data analytics, and more.

For example:

  • Data generated during the manufacturing process can be analyzed by AI and machine learning so it can identify patterns and predict potential hazards and issues before they occur.
  • Various implementations of robotic technologies can help automate repetitive tasks and tasks with high error rates.
  • Data analytics can help companies improve their inventory management processes and optimize their supply chain, reducing waste and improving cost efficiency.


Characteristics of digital transformation in manufacturing

In implementing digital transformation for manufacturing businesses, there are several key characteristics that can be observed:

  • Integration of technologies: at the core of any digital transformation is the integration of various digital technologies, from robotics to data analytics to AI. Ideally, digital technologies should be applied to all aspects of the manufacturing process.
  • Customer-centricity: implementing digital transformation in manufacturing must involve a customer-centric approach. That is, how can the manufacturer leverage technology to create an improved, personalized, and seamless customer experience? Every new integration and adoption of technology must have the objective of adding value to customers. 
  • Innovation-focused: digital transformation in manufacturing should be driven by a focus on innovation. That is, how can the manufacturing business leverage new tools, technologies, and business processes to solve more problems and unlock new opportunities? 
  • Data-driven decision-making: a core aspect of digital transformation in manufacturing is how the manufacturing company can leverage data analytics to make more informed, data-driven decisions. 
  • Collaboration and partnerships: a holistic implementation of digital transformation in manufacturing would require collaboration and partnership with relevant suppliers, technology vendors, and other stakeholders capable of facilitating the adoption of new technologies and driving innovations. 


Components of digital transformation in manufacturing

As discussed, to be effective digital transformation should be holistic, and ideally should cover these different components:

  • Digital strategy: having a well-planned digital strategy is critical before any digital transformation effort is adopted, or else we may waste time and resources without any clear direction. The digital strategy should take into consideration the manufacturing company's objectives, the scope of the transformation, and a roadmap for implementation.
  • Digital technologies: another key aspect of digital transformation is the integration of digital technologies such as data analytics, automation tools, AI, and others to optimize the manufacturing process, improve the quality of products, and ensure cost-efficiency.
  • Data analytics: data analysis is critical to enable informed decision-making in the manufacturing process to improve operational efficiency, reduce waste, and increase production quality. Involves the collection, analysis, and usage of data to inform various steps of the manufacturing process.
  • Process optimization: process optimization involves the integration of technology or even total re-engineering of manufacturing processes to improve production efficiency, reduce waste, and increase product quality.
  • Change management: another critical component in digital transformation is change management, which involves planning, executing, and managing changes resulting from the digital transformation initiatives to minimize disruption and ensure successful integration/adoption of new technologies or business processes. Change management enables cultural and organizational changes required for the implementation of digital transformation.
  • Talent development: it’s critical for employees, especially those directly involved in the manufacturing process to be equipped with the necessary digital skills to leverage the newly integrated technologies effectively. Strategic planning of employee training, onboarding, and other talent development activities is required.


The importance of digital transformation in manufacturing companies

In this section, we will explore the importance of implementing digital transformation and how it can deliver tangible and intangible benefits to manufacturing companies.

We will discuss six of the key benefits of digital transformation in manufacturing:

  • Improved efficiency

One of the primary benefits of digital transformation is how it can enhance manufacturing efficiency. Leveraging digital technologies allows manufacturers to reduce the time, effort, and resources required to produce their products, without sacrificing quality or even improving upon the initial product quality.

One of the main ways digital transformation can improve efficiency is by implementing automation to reduce the time needed to execute repetitive tasks such as data entry, order processing, and inventory management, freeing up valuable time and resources for more productive tasks.

Digital transformation can also optimize manufacturing workflows by leveraging real-time data analytics to identify inefficiencies and bottlenecks in manufacturing processes, enabling manufacturers to take corrective action quickly and improve areas where improvements can be made.


  • Enhancing quality

When implemented correctly, digital transformation can help manufacturers improve the quality of their manufactured products, especially by leveraging data analytics.

Data analytics allows manufacturers to gain valuable insights into their manufacturing performance. For example, real-time data analytics via the introduction of smart sensors can help manufacturers identify errors in the manufacturing process, enabling the company to fix the underlying issue as soon as possible. AI technologies like machine vision can also help automate quality control processes to ensure the products meet the desired requirements.

By lowering the risks of human errors and preventing potential errors, manufacturers can improve the overall product quality in a consistent way and increase customer satisfaction.


  • More optimal customer experience

Digital transformation can facilitate manufacturing companies to provide a more personalized and seamless customer experience.

For example, the manufacturer can leverage various technologies to gather and analyze customer data and gain valuable insights into their needs, behaviors, preferences, and more. Using this information, the manufacturer can make more informed decisions to tailor their products (or services) to meet these specific needs, resulting in a more personalized experience. 

Digital transformation can also allow manufacturing companies to leverage various technologies to create a more holistic, seamless experience across multiple channels. For example, manufacturers can provide real-time updates via mobile apps, allowing customers to track the status of their orders and receive notifications when their products are being delivered.

Various technologies like chatbots can also allow manufacturers to provide better customer service and support.


  • Enabling innovations

In today’s fast-paced business environment, innovation is key to staying in the competition.

Digital transformation can facilitate innovations in the manufacturing plant via the adoption of newer technologies and state-of-the-art processes, such as the Internet of Things (IoT), artificial intelligence (AI), robotics, and various forms of automation. These technologies and tools would allow manufacturers to leverage new business opportunities, lower their costs, and even develop new products and services.

The adoption of IoT sensors and equipment, for example, can enable a connected ecosystem in a manufacturing plant, where all pieces of equipment and infrastructure can exchange data, communicate, and control each other in real time. This connectivity can enable the manufacturer to gain clearer insights into their production performance, identify issues, and optimize the whole process to improve efficiency.

Digital transformation can also enable manufacturers to connect with partners, vendors, and customers in real-time. In turn, this real-time communication can facilitate more collaborations, for example, enabling them to develop new products together.


  • Cost reduction

Digital transformation can allow manufacturers to lower their costs in various different ways, especially: 

  • Streamlining/automating manufacturing processes
  • Reducing waste
  • Improving efficiency, allowing the manufacturing process to use fewer materials/resources in production

For example, the manufacturing plant can adopt automation–like using RPA (Robotic Process Automation) — to reduce the need for manual labor to perform simple and repetitive tasks, reducing labor costs in the process.

Digital transformation can also help reduce waste, another way to effectively lower manufacturing costs. Manufacturers can leverage data analytics to identify sources of waste and take the necessary action accordingly to reduce this waste production.

Last but not least, digital transformation can also help in optimizing logistics and supply chain processes, which can lower costs otherwise related to logistics, inventory management, and shipping. The manufacturer can, for instance, adopt blockchain technology to create a more transparent and efficient supply chain process. 


  • Creating competitive advantage

To summarize all the other advantages above: improving product quality while lowering the costs associated with production, facilitating innovations, and delivering great customer experience, manufacturers can ultimately leverage digital transformation to create a competitive advantage.

Manufacturers can also take advantage of new technologies to create a new product that can deliver more value to their customers, allowing themselves to stay ahead of the competition.

In short, digital transformation allows manufacturers to optimize their business processes and deliver high-quality products at lower costs with superior data-driven customer service. With all of these, manufacturers can find new ways to gain a competitive advantage in their market and differentiate themselves from the competitors, driving sustainable growth. 




Challenges in implementing digital transformation

Understanding the potential challenges in adopting digital transformation may help companies in tackling them and remove these barriers. Here are some of the key challenges manufacturers may face when adopting digital transformation: 

  • Resistance to change

Unfortunately, one of the biggest challenges in implementing digital transformation initiatives is the resistance to change among employees and stakeholders. This is especially true for manufacturing businesses that often involve a large workforce with many different levels and departments. 

It’s common—and natural—for people to resist changes, and along the way, when planning the digital transformation initiatives, you’ll find employees and even managers that may prefer to stick with the status quo: the old workflows and familiar methods.

In many cases, this resistance can lead to slower adoption of the new technologies introduced, slowing down the digital transformation initiative and, even worse, preventing the whole company from enjoying the benefits. 

Whether the manufacturing company can tackle this issue and secure the buy-ins for the digital transformation initiative will significantly make or break the company’s success in implementing digital transformation.


  • Compromised data security

Digital transformation involves the introduction of new technologies into a company’s existing ecosystem and typically requires connecting the system and network to the internet. All of these would translate into an increased attack surface for cybersecurity risks: online frauds (phishing, etc.,) malware infection, DDoS attacks, data breaches, and so on.

Even a single successful cyber attack can cripple the manufacturing company with compromised sensitive data, disrupt operations, and in some cases, may also result in legal repercussions. 

Before and during the digital transformation initiatives, it’s critical for any company to first establish adequate cybersecurity infrastructure and implement robust cybersecurity measures to protect its data, system, and network. However, in practice, this can be time-consuming, challenging, and costly. 


  • Skill gaps

Digital transformation won’t really bring any benefit to any company or any manufacturer if their workforce can’t properly use the new technologies introduced. 

Therefore, a critical aspect of digital transformation is the workforce that is capable of not only making the most of these new technologies but also leveraging data analytics to actually improve the manufacturing process’s efficiency. 

Unfortunately, at the moment, there’s still a shortage of skilled and experienced talent in this area, so it’s challenging for manufacturers to find and hire the workers they need to ensure a successful digital transformation.

In practice, these skill gaps can lead to delays or even errors in digital transformation initiatives, preventing the manufacturing company from reaping its benefits. 


  • Difficult integration of legacy systems

In this transitional period, many manufacturers and companies still rely on legacy equipment that doesn’t support IoT, AI, and other new technologies. 

Thus, integrating these legacy systems and older assets with the newer technologies can be extremely difficult in practice and may require you to invest in expensive IT resources, including hiring experienced experts to perform the job. 

On the other hand, if the company decides to abandon the legacy systems, migrating the important data and the overall transition to the new equipment can also be time-consuming and potentially expensive. 

All of these can slow down the digital transformation and may lower the overall benefits of the implementation. 


  • Budget

As you might have guessed, digital transformation can be expensive. In most cases, you’ll need to invest in new technologies, talent (including training), and new infrastructure, all of which can be costly. 

This can be a significant issue, especially for smaller companies and manufacturers with limited budgets. Without an adequate budget and resources, implementing all the necessary transformations to achieve the desired benefits can be challenging.


Implementing digital transformation in manufacturing: key strategies and best practices

While as we can see, digital transformation in manufacturing is not without its challenges; with a clear strategy and planning, it’s definitely possible. 

In this section, we will explore some actionable strategies and best practices that manufacturers can follow in driving their digital transformation initiatives: 

  • Have a comprehensive digital strategy

It’s critical for companies to first develop a comprehensive digital strategy that is also aligned with the business’s overall objectives. 

To develop a digital strategy (and to be more specific, a digital transformation strategy), manufacturers should first assess their current circumstances and how digital-ready are the different aspects of their businesses, including but not limited to:

  • Existing workflows/business processes
  • IT Infrastructure
  • Data management practices
  • Data security

The digital strategy should cover: 

  • The digital transformation goals, priorities, and KPIs to monitor
  • Potential challenges and risks that may be encountered throughout the digital transformation efforts
  • Opportunities associated with digital transformation
  • A clear roadmap for implementation

Consider leveraging outside resources, such as available industry reports, case studies, success stories, and more to help you develop a more informed digital strategy. Also, consider collaborating with reputable consultants, partners, vendors, and industry experts so you can gain valuable expertise and insights that can help you in developing your digital strategy. 


  • Invest in relevant digital technologies

As discussed, a key aspect of digital transformation is investing and integrating new digital technologies into your business process.

However, you shouldn’t blindly invest in new technologies just because you do have the budget and the solution seems useful. Instead, carefully evaluate your needs and carefully weigh the potential benefits of different solutions. 

For example, if your manufacturing plant struggles with defects caused by human errors, consider investing in robotics to help automate the error-prone tasks. 


  • Establish a digital culture

To fully benefit from digital transformations, manufacturers must ensure everyone (at least, the majority)  in the company is committed to using data-driven approaches, capable to use data analytics results in their day-to-day tasks, and knowledgeable enough regarding data governance policies. 

Consider investing in proper data analytics solutions to aid in establishing your data-driven culture, regularly train employees on how to leverage data and analytics effectively, and establish clear data governance/authorization policies. 


  • Embrace collaboration

Within your organization, consider establishing a cross-functional team to oversee and drive digital transformation initiatives. 

Foster a culture of collaboration within your business, and make sure to encourage teamwork, knowledge sharing, and teamwork across all stakeholders. The more stakeholders involved in the digital transformation initiatives, the more likely you can secure buy-ins and participation from everyone. 

Collaboration should also extend beyond the organization itself, and consider partnering with vendors, partners, and other businesses/organizations to share knowledge, experiences, and resources. 


  • Prepare your human resources

To ensure digital transformation success, manufacturers need to ensure their employees have the required skills, knowledge, and experience to make the most of the newly integrated digital technologies. 

Identify the skills and knowledge gaps among employees, and arrange comprehensive training programs to assess these needs. Consider including diversified training programs, such as on-the-job training, workshops, and certification programs.

Regularly monitor and evaluate the outcomes of your training initiatives. Measure their impacts on your employees’ skills and adjust accordingly. 


Wrapping Up


In today’s digital era, digital transformation is crucial for the survival of your manufacturing company in navigating against the highly demanding competition. 

Integrating and leveraging new technologies and adopting a data analytics culture can help manufacturers improve their efficiency, improve product quality, and enhance customer experience, among other benefits. 

By following the strategies and tips we’ve shared in this guide, you are now ready to start planning and executing digital transformation initiatives in your manufacturing company. 

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