Paul Wellener—Vice Chairman, Deloitte LLP, and U.S. Industrial Products and Construction Leader, Deloitte Consulting LLP—provides early insights into Deloitte and MAPI’s collaborative research on technology adoption in manufacturing, being released at the ManufacturED Summit happening September 16-18 in Chicago. He shares which factors are critical to success in digital transformation, along with different approaches to implementing digital practices in the context of Industry 4.0—offering manufacturers a way forward regardless of adoption level.
Embracing Industry 4.0: Technology Adoption in Manufacturing Transcript:
Announcer: You’re listening to The Kula Ring, a podcast made for manufacturing marketers. Here are Carman Pirie and Jeff White.
Jeff White: Welcome to The Kula Ring. My name is Jeff White and joining me today, as always is Carman Pirie. Carman, what’s going on?
Carman Pirie: You know Jeff, not too much. I think we’re well into the throws of summer here on the East coast. Everybody’s just in good moods-
Jeff White: Yeah, I know.
Carman Pirie: …and things like that, so it’s kind of nice. It’s good to be chatting with today’s guest. The media partner for the folks at MAPI and their upcoming ManufacturED Summit in Chicago in September—and one of the platinum sponsors of that Summit—are the folks at Deloitte. I’m really excited for this conversation today because I think that it’s going to help our marketing audience put their digital transformation efforts into some sort of broader context of the digital transformation that’s happening more broadly in the manufacturing enterprise.
Jeff White: For sure. It’s pretty fantastic. We’re pleased to have Paul Wellener who’s the Vice Chairman of US Industrial Products and Construction with Deloitte Consulting, and as you mentioned, a platinum sponsor of the ManufacturED Summit being held in Chicago, September 16th to 18th. Welcome to the program, Paul.
Paul Wellener: Well, really glad to be here today, and also experiencing nice weather and a nice summer here on the East coast.
Carman Pirie: Paul, good to be chatting with you. I wonder, why don’t we just get right underway, because I know that the study that you’ll be releasing at the summit is really talking about the adoption levels of smart factory technology, and certainly digital transformation of the manufacturing enterprise has been a focus of Deloitte. I wonder if you might just unpack that significant disruption for us, and tell us about some of the more important market trends that you’re seeing.
Paul Wellener: Well, glad to. The study’s been a several-month collaborative effort between Deloitte and MAPI. We kicked things off back in the spring. As we structured the study and we went out for research both direct through survey mechanisms, as well as interviews with many members of MAPI’s councils, as well as other Deloitte clients, and really pulled together the entirety of the study. I think, as you’ve alluded to, we’re seeing a couple of different things in that study. We were trying to understand how rapidly people are adopting as manufacturers, adopting digital or smart manufacturing, or Industry 4.0, depending on what terminology you might use in your organization, how they are adopting those technologies, and if they are adopting those technologies, are they making a meaningful difference from a business standpoint?
Part of it was definitional, so we could help our survey participants, as well as the interviewees, understand how we define things and how we defined levels of adoption. But it was also really exciting to see the kinds of things that organizations are doing out there in the North American manufacturing industry. We’ve seen a wide range of technologies being adopted, ranging from relatively standard type things these days that might be classified as internet of things, or very connected manufacturing devices inside of factories, to more advanced techniques that might end up utilizing augmented reality or virtual reality type capabilities in organizations, utilizing various technologies connected to additive manufacturing, or 3D printing, that people are beginning to use at scale.
We’ve seen kind of a wide range of things. If you think about it though, in terms of adoption, we kind of have three buckets of… and frankly, this applies to lots of parts of life. But we have the early adopters, we have a big chunk of folks in the middle who are leaning toward following what those early adopters are doing, but taking a teeny little bit of a wait and see approach, and then we have a chunk of folks that are the laggards, or who are jokingly from Missouri, and they need you to “show me the benefits” before they even put their toe in the water.
Carman Pirie: Yeah. That certainly mirrors what we see even just on the pure marketing and sales side. There’s a few early adopters sticking their necks out, but there’s certainly more than enough on the other side of that equation as well. I wonder, you mentioned the breadth of the trends that you’re seeing. How does that kind of wrap into how you define an Industry 4.0? I mean, what’s the fulsome some definition that you put to that these days?
Paul Wellener: Well, I mean the challenge is there isn’t necessarily one definition that’s been adopted by organizations in the field, but it does kind of run the gamut from the shop floor to having very connected customers on the sales and marketing side, and anything kind of in-between ends up being kind of what would be described as Industry 4.0. Think of it, how do you make the supply chain more connected? How do you make your customers more connected? How do you make the factory more connected? How do you enable white-collar processes inside of organizations to make your employees more connected? It’s a very broad definitional landscape if you think about it from an Industry 4.0 standpoint.
Carman Pirie: You mentioned that manufacturers span the gamut, if you will, from being slow to innovate, to eager to do so. I’d be curious, even if you’re seeing certain areas of the enterprise that are more keen to be innovative versus others where they’re a little bit slow to adopt. What does that look like?
Paul Wellener: Well, it also runs the gamut. I mean we are seeing I think, an uptake in what would be called robotic process automation, inside of the white-collar parts of manufacturing or organizations. How do they automate processes that might help them free up labor inside of an accounts payable, or an HR, or finance, or other kinds of processes that will help free up labor to do other things inside the organization? We also see automation being applied in the factory, and connectedness being applied in the factory with various different technologies to help improve quality, to help reduce lead times, to help reduce setup times inside of manufacturing. We’re seeing it in both traditional kind of, quote-unquote, white-collar environments, as well as blue-collar environments.
Part of it is driven by the skills gap that we’ve talked about in some previous studies that we did associated with other organizations here in the US. But we basically described a 2.4, 2.5 million jobs skills gap that would be in place over the next decade because of retirement, but also growth that’s taking place in manufacturing, and how do we go in and close those gaps? We’re seeing manufacturers investing in technologies that help free up resources to get redeployed in their organizations, or retrained, or re-skilled to be able to help continue growth in their manufacturing organizations.
Carman Pirie: Are you seeing that as the real key rationale that’s driving that move to digital transformation, more so than even market competitiveness per se?
Paul Wellener: It’s a good question. We are definitely seeing skills gap as a driver. I think we are seeing… Because in our consumer lives we’re seeing so much adoption of technology, on our mobile devices, linked to things that we do in the cloud, linked to things that we do in our own consumer world, we’re seeing so much of that brought into the manufacturing world. It’s almost that employees and customers inside of manufacturing organizations, or connected to manufacturing organizations, expect that. We’re seeing a skills gap component of it. I think we’re seeing some market-oriented component of it, because of all the things that are going on in the consumer world, and then I think we are absolutely seeing a competitiveness component of it, too. That helps provide more connected, better products to customers, in a more timely fashion.
Carman Pirie: I can imagine that in your work, for every organization that you see or work with that is at least somewhat down this path, there are others that just maybe haven’t gotten started at all. I’m just curious, how does an organization begin if they’re just getting started?
Paul Wellener: Another great question. I think if you think about starting any major change initiative, whether it is something that is connected to smart manufacturing or Industry 4.0, or it might be implementing other technology in your organization, generally we’re seeing people starting small, starting with a pilot. That pilot is in the context of the four walls of manufacturing. That quite often as a brownfield or an existing plant where you’re going to come in, and you’re going to revamp parts of the manufacturing process, the ones that might have the most short-term benefit connected to a digital transformation or a smart manufacturing implementation.
I was recently through a plant outside of Cincinnati, in Lexington, Kentucky, and it was a company’s brownfield pilot organization, that they were demonstrating to a lot of their customers. While they may have had some large percentage of that business, they applied sensors, they made it much more visual, they applied a lot of different connected technologies, they hadn’t done it in the whole facility. They definitely piloted it. We’re seeing the same kind of things in the white-collar environment, whether it’s robotic process automation, or energy management, or other kinds of technologies. We’re seeing organizations start with a pilot, demonstrate some applicability to their organization, gain some buy-in from leadership, build business cases, and then begin to roll things out. We’re absolutely seeing that as the approach. Start small, scale it as quickly as possible, fail quickly, if it’s not working in your organization, and then kind of move on to the next element.
I think some of the organizations that are struggling with getting started the most might be the organizations that have frankly, been the leanest over the years, and they may have implemented their own kind of production system that may not have had a lot of technology, and it might’ve been much more visual in control with Kanban cards and other kinds of things. We’re seeing those organizations try to figure out, how do you sensorize those kinds of assembly operations that might’ve been very much driven by LEAN techniques?
Jeff White: The Kula Ring is proud to be a media sponsor of the 2019 ManufacturED Summit Conference, which is being held September 16th to 18th, in Chicago, Illinois. Carman and I will be live on site, recording interviews for future episodes of The Kula Ring. You can save $200 now with the discount code KULAPARTNERS200, manufactureredsummit.com. That’s manufactureredsummit.com.
Carman Pirie: I can’t help but wonder if that… I mean what you’ve described is in some ways a reasonably cautious approach, and I just can’t help but wonder in a global context, if that cautious approach can keep pace with the change that’s afoot. We know that of course, when you have more greenfield factories being started from scratch in Asia, for example, that can basically be a smart factory from the start, versus an evolution of an existing. I kind of wonder if manufacturers maybe need to be encouraged to be bolder in that transformation.
Paul Wellener: Good point. I mean, I think we’re seeing greenfield operations in the North American market as well. I mean, not all of the the the customers of MAPI’s that we surveyed were only doing brownfield operations. A lot of them had greenfield and they were comparing greenfield and brownfield inside their own companies, and seeing if they were getting the benefits that you could see in a greenfield operation. Could you get a brownfield operation there, at a lower cost? I mean, I see that taking place. I know we did a study in Germany with one of our smart manufacturing centers and a lot of their customers, and I think that cautiousness in Western Europe, I think, is probably similar to what we’ve seen in the North American market.
I think, as you kind of mentioned, maybe right, wrong or indifferent, but the hypothesis that the Asian markets have more greenfield operations. I don’t know whether that’s true or not. I think factories that were even started 5 or 10, or 15 years ago, now ended up being brownfield. Technology is changing pretty rapidly, so they’re probably having to think through how they’d change their factories as well. I think it’ll be interesting on a global basis, as we see how technologies get implemented in different regions, at different paces. I think different subsectors of manufacturing may have higher levels of adoption than others. Those kinds of results are also fleshed out in our study, that we’ll be releasing in September.
Carman Pirie: Very cool. Paul, I wonder, you kind of touched on it. Do you have more guidance around how to start thinking about investments in these advanced technologies, and how to potentially begin to choose a way forward, beyond the piloting approach? Can you put more texture to that?
Paul Wellener: Yeah, well, I guess there’s a couple things. First of all, it’s hard to think of an organization, whether they’re $100 million manufacturer or a $50 billion manufacturer, trying to do everything themselves. I think that we as a manufacturing economy, have to begin to think more extensively about partnerships, and an ecosystem, and collaboration, and how sharing may help us as an overall economy get to an endpoint faster. So I think that’s one thing that we’ve seen in a couple different studies is that the ecosystem is quite important.
I was presenting to a group of Canadian manufacturing CEOs a few weeks ago in Toronto. One of the things that we talked about at a dinner meeting was the importance of the ecosystem. Particularly, whether it’s Canada or the US, or Mexico, where it might be smaller to midsize companies, without the wherewithal of the $50 billion company, they’ve got to think about how they do things in collaboration with others. It’s not kind of being the inventor of everything. It’s being someone who can rapidly copy and learn from others, and apply things in their four walls, but also look to others who might be experts in something to do that for you, versus to try to do it yourself.
I think the other thing with getting started is just a plain, basic operational process improvement view that might start with, in a single factory organization, I’ll walk around the factory, to look at things that might be opportunities for improvement based upon the implementation of different kinds of connected technologies. Or if it’s a multi-factory organization, where factories are supplying each other with components, then there’s ultimately an end assembly organization, it’s thinking through that value chain at an enterprise level, and then doing those factory walks, if you will, and helping identify processes that might be applicable for improvement, and then building business cases around those and getting moving.
The approach is going to be different based upon your organization. But again, I think what we’re seeing is everybody is focused on piloting. Those leading organizations are way beyond piloting. They’ve piloted, they’ve come up with solutions, they’re beginning to roll them out in their organizations. It’s that big chunk in the middle that has really kind of still putting their toe in the water and piloting in various different areas.
Jeff White: I think it’s interesting too, something you mentioned a few moments ago about how there are a number of organizations that have factories that are 5 to 10 years old, and now those are brownfield operations, where they’re actually probably some of the things they’ve learned from the pilots and the different implementations that they’ve done and they’re beginning to even swap out equipment and change processes there. I do think it’s pretty interesting how the technology is changing so quickly, and the connectedness of those different technologies and applications is enabling people to iterate and improve on those processes. I’m just wondering, what do you think we’re going to see are the most critical factors for success as these organizations move forward?
Paul Wellener: Well, I mean again, like many major change initiatives, critical success factors include support from the top, having an enlightened group of leaders in an organization, hopefully like the ones that will see coming to the ManufacturED Summit in Chicago in September. Having those leaders continue to support the change initiatives in the organization and seeing the benefit of the migration to those Industry 4.0 type capabilities inside their organizations and inside their value chain. I think the tone at the top is super important.
I mean the second thing is just at the execution level when pilots are put in place, pilots have to drive some level of success or failure, and the organization has to learn from that success or failure, and rapidly adopt those successes and learn from those failures to help the changes move forward. I mean that may not be as crunchy as you might like to get in an answer, but it really is as simple as that, when we kind of see big programs being executed, it’s kind of tone at the top, and how do you rapidly learn from the things that you’re doing on the ground day-to-day?
Carman Pirie: Look, we see that on the, just on the pure marketing and sales side, the exact same success factors, frankly. Tone at the top is critical, and an understanding that the pilots aren’t necessarily about always hitting a grand slam out of the park each time. It’s about the pilots about drives learning, and provided you can learn fast from that and iterate to the next-
Jeff White: …and give enough runway for it to succeed or fail as well.
Carman Pirie: Exactly. It was just interesting to me how I think sometimes our marketing and sales folks seem can seem a little isolated from the rest of the enterprise, and they’re living in the exact same world, frankly.
Paul Wellener: You could almost say that about any of the functional disciplines in an organization. Sometimes it seems like finance is in a silo, or HR is in a silo, or engineering is in a silo. But really like sales and marketing or manufacturing, everybody’s got their marching orders from a change standpoint, and they’ve got to rapidly adopt new technologies to improve processes, to reduce costs, to free up labor, to support other areas of growth, one of the things that we talked a little bit about earlier.
Carman Pirie: Paul, I really appreciate you bringing your insight and overview to this topic, to our listeners today. I think it’s been very helpful, to help our listeners place their efforts into a broader organizational context, and really look forward to seeing the report that’s coming out in September at the Summit, and learning more about what you found in your work with the manufacturers and their adoption of technology and smart factory adoption. So really look forward to that in September, and thank you so much for being on the show with us today.
Paul Wellener: Really glad to be here.
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Paul WellenerVice Chairman, Deloitte LLP, and U.S. Industrial Products and Construction Leader, Deloitte Consulting LLP
Paul is a Vice Chairman, Deloitte LLP, and the leader of the US Industrial Products & Construction practice with Deloitte Consulting LLP. He has more than three decades of experience in the industrial products and automotive sectors and has focused on helping organizations address major transformations. Paul drives key sector industry initiatives to help companies adapt to an environment of rapid change and uncertainty—globalization, exponential technologies, the skills gap, and the evolution of Industry 4.0. Based in Cleveland, Paul also serves as the managing principal of Northeast Ohio.