This paper explores the impact of digital transformation in the manufacturing sector.

1. Digital Transformation in
the Manufacturing Sector
A white paper that explores digital transformation in the manufacturing &
technology sector
2016 ARUN NATARAJAN,

3. Introduction
Digital transformation is not a term that is normally associated with
manufacturing; however, that perception is changing fast, with traditional
manufacturing firms like GE aggressively pursuing digital opportunities in
the industrial sector.
Manufacturing sector is not a monolithic one, it stretches from metals,
minerals and chemical companies at one end of the spectrum to
semiconductor, software and consumer electronics firms at the other
end. Focus and adoption of digital varies widely within this sector. For
instance consumer electronics companies, with their large B2C business
are more focussed on digital in customer engagement, while process
manufacturing firms are more focussed on digital in operations. Only a
few manufacturing firms have really adopted digital at the very core of
their products and business models.
Most digital transformation discussions, revolve around the technology
dimension; Social, Mobile, Analytics and Cloud being some of them.
Technology is definitely the primary enabler for digital, but ignoring the
business implication provides an incomplete view.
The intent of this document is therefore to explore digital in
manufacturing not only from the technology perspective, but also the
business one and most importantly explore the outcomes and impact
that digital can have on firms and businesses. A final dimension that
unique to manufacturing is digital in the factory shop floor. Industry 4.0
or Smart Manufacturing as it is popularly called is another topic we will
explore.
Arun Natarajan
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5. Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Digital In
Manufacturing An oxymoron ? . . . . . . . . . . . . . . . . . . . 6
Digital - The new possibilities . . . . . . . . . . . . . . . . . . . . . . . . 9
Reimagine Business models . . . . . . . . . . . . . . . . . . . . .10
Recast Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . .10
Enhance Customer Engagement . . . . . . . . . . . . . . . . . . . 11
Digitally remaster products . . . . . . . . . . . . . . . . . . . . .12
Optimise Operations . . . . . . . . . . . . . . . . . . . . . . . . .13
Digital in the factory floor . . . . . . . . . . . . . . . . . . . . . . 14
Digital - Through the technology lens . . . . . . . . . . . . . . . . . . . .16
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6. TRADITIONALLY MANUFACTURERS HAVE BEEN LAGGARDS IN ADOPTING
DIGITAL TRANSFORMATION. THIS IS IRONIC BECAUSE MANUFACTURING
SECTOR HOLDS THE MOST PROMISE FOR DIGITAL OUTCOMES.
If sweat and grime, sparks flying from huge cauldron’s of molten metal;
massive railways engines being hauled by men in greasy overalls or
menacing aircraft engines that can suck the life out of you come to mind
at the very mention of the manufacturing sector, then you are prob-
ably right; but only if you have been living under a rock and stuck in the
year 2000. If you thought that digital transformation is a vocabulary that
belongs to the people in the telecom, hi-tech and
media sectors, then you can’t be further away
from the truth. The manufacturing sector is the
new frontier for digital transformation.
Being a human capital intensive sector, digital
has the potential to impact not only the products
and businesses but also our livelihood. Digital
is viewed as the revolution that will finally bring
manufacturing back to the developed economies.
This can have far reaching implications for fac-
tory workers both in developed and developing
economies. So vast is the potential impact that
Institutions like the World Economic Forum have
adopted ‘Industry 4.0’ as the theme for this year’s
conference. Sustainable green manufacturing is
another area that will greatly benefit from digital.
However, the focus of this document is on the
technology and business dimensions of digital rather than the societal
implications. Take the case of an aircraft engine, everything about it is
massive. It is a huge piece of machinery, it costs a lot of money to buy
and is equally expensive to run and maintain. Until recently the only
way to acquire one was to buy it for a huge amount of money. But today
thanks to digital it is possible for airlines to acquire an aircraft engine on
a pay per use model. Software as a service is passé, how about aircraft
engines as a service !
Digital In
Manufacturing An oxymoron ?
Digital transformation, is it really relevant for a traditional sector like manufacturing, we explore...
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7. According to some estimates a 1%
saving in aviation fuel translates to
a 30 billion $ saving over 15 years.
A 1% optimization improvement in
healthcare adds 63$ billion over 15
years. A 1% reduction in capex in
the oil and gas industry translates
to a 90$ billion saving.
If you guessed that the company
enabling these possibilities is
Google, Amazon or one of the
new age silicon valley firms, then
you would be dead wrong. The
company that makes these things
possible is General Electric. A tra-
ditional manufacturing firm from
the pre digital era.
Aviation is not the only industrial
sector being transformed by digi-
tal. Today massive wind turbines
can communicate with each other
and automatically orient them-
selves in the right direction for op-
timal power generation. They can
communicate with the smart grid
and the charging system to ensure
a steady output. Further down the
power distribution chain, smart
meters can communicate with
smart electric vehicles to schedule
charging during low power rates.
The healthcare sector with its
expensive assets like MRI scan-
ners is another area that is being
transformed. Just as with aircraft
engines, connected medical equip-
ment allows for new usage based
business models, remote monitor-
ing and preventive maintenance
ensures that these critical systems
are kept running. Even the humble
hospital bed is becoming smart,
thanks to GE Health Care’s “Agi-
leTrac”. AgileTrac enables hospi-
tals to tag and track beds and
other mobile assets like heart rate
monitors, wheel chairs etc., thus
improving the efficiency of the
hospital staff and ultimately the
quality of patient care.
If you thought Google’s driverless
car is the epitome of great engi-
neering, think again. How about a
smart train ? GE transportation’s
Rail Edge Movement planner al-
lows railway operators to combine
logistics with traffic control sys-
tems. Operators can monitor the
progress and pin point the exact
position of the locomotive from a
central location. Cruise control for
smart trains continuously moni-
tor the terrain. Depending on the
slope & other terrain information,
speed of the locomotive is in-
creased or decreased to maintain
optimal fuel efficiency.
»» Image attribute - Morgue file
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8. At first glance small optimisations in fuel
consumption and improvements in efficien-
cy may not seem like much. But given that
massive scale of the industrial sector, even
a 1% saving translates into a huge amount.
According to some estimates a 1% saving
in aviation fuel translates to a 30 billion
$ saving over 15 years. A 1% optimisation
improvement in healthcare adds 63$ billion
over 15 years. A 1% reduction in capex in
the oil and gas industry translates to a 90$
billion saving.
Almost all the examples quoted here are
from General Electric. While it is true that
most of the manufacturing firms are slow to
adopt digital, General Electric is an example
of benefits that digital can bring to this
sector.
»» Image attribute - Morgue file
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9. DIGITAL FOR MANUFACTURING HAS THE POTENTIAL TO TRANSFORM THE
INDUSTRY LANDSCAPE. FROM NEW PRODUCTS & BUSINESS MODELS TO
BETTER CUSTOMER ENGAGEMENT AND PROCESS OPTIMIZATION THE POS-
SIBILITIES FOR DISRUPTION ARE ENDLESS.
In recent years companies like Uber and Airbnb have made headline news.
They have disrupted the taxi and hospitality industry respectively just as
Amazon and Apple have disrupted the publishing and music industry. In-
terestingly neither amazon or apple were from the publishing or music
industry. They were both new comers from a totally unrelated industry
segment. Digital has the ability to blur the industry boundaries,
allowing non-traditional competitors to trounce incumbents.
What happened in the consumer segment could well happen
to incumbents in the industrial segment.
Tesla & Google are already emerging as competitors for
the traditional automotive companies. Unless traditional
manufacturers disrupt themselves, they may find themselves
competing with digitally savvy new entrants.
Forward thinking companies in the manufacturing sector like
General Electric and BMW are doubling down on their digital
transformation efforts to ensure their survival. Digital opens up
a number of possibilities for traditional manufacturers. Customer
Engagement and Process Optimization through digital are low hanging
fruits. However to fully exploit the potential of digital, companies must take
digital to their very core; by reinventing products, services, by re imagining
business models and optimizing operations with digital.
Digital - The new possibilities
This section explores the new business possibilities enabled by digital transformation.
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10. Reimagine Business
models
Customer / End user trends are the single
most important aspect tracked by fast mov-
ing consumer goods companies; their survival
depends on it. Firms in the manufacturing
sector have traditionally been slower to react
compared to their B2C counter parts, thought
there are some exceptions.
Take the case of the luxury automobile maker,
BMW. Some studies conclude that millennials
no longer see a car as a status symbol that
it once was. Increasingly it is being seen as a
mode of transport that can get you from point
A to B. This trend has far reaching implications
for the automotive sector. While most manu-
facturers are focusing on in-car entertainment,
diver assist and diver-less systems, BMW has
moved further ahead in its digital journey. They
are now offering cars as a service.
DriveNow is a joint venture between BMW
and Sixt that provides car sharing services in
several cities in Europe and North America.
DriveNow service began in Munich Germany
in June 2011. As of September 2015, DriveNow
operates over 4,000 vehicles in six countries
worldwide and with over 500,000 customers.
A similar service, ReachNow, was established
in April 2016 by BMW in Seattle, Washington.
Similarly, GE Aviation has evolved its business
model from the outright sale of engines to pay
per use. In the process they have also tapped
into new revenue streams by offering moni-
toring and after-market services preventive
maintenance services.
Recast Value Chains
One of the biggest impacts of digital is on
the existing industry value chains. Traditional
manufacturing value chains were pretty straight
forward. A manufacturer sourced raw materials
from suppliers, produced finished goods and
sold them to the end customer through their
distribution network. Though every player in
this value chain was economically compen-
sated for their efforts, the lion’s share of the
profit went to the manufacturer.
However in a world where physical
products are digitised and connected,
new players enter the value chain.
For instance manufacturers of mobile
phones, source chips and hardware
from their suppliers at competitive
prices, manufacture a mobile phone
and sell it in a very competitive market
place. Manufacturing a phone is cer-
tainly a value creation activity.
Over the top players like Google, App
developers & Analytics players also
create value by providing the operat-
ing system, apps that make the phone
usable and finally the analytics that
make sense of the enormous amounts
of data generated.
Though each of the players in the val-
ue chain; semiconductor companies,
phone manufacturers, Google, app develop-
ers and analytics service providers all create
value for the customer, the value captured
is not proportionate. The lion’s share of the
profits no longer go to the manufacturer of
the device, instead it is split between the over
the top (OTT) providers. This fate awaits every
manufacturer, unless they learn to transform
»» BMW DriveNow Service
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11. themselves into digital players and find ways
to capture a larger chunk of the value.
JCB is an example of a company that is doing
just that. Adding a set of sensors and hooking
them up to an analytics backend, has enabled
them to sell aftermarket services like predictive
maintenance, geo fencing etc. Building digital
capabilities has enabled them to expand the
value chain and also capture a larger chunk
of the value.
Enhance Customer
Engagement
Customer is King, is a cliché, yet it has never
been more true. Today customers are no longer
satisfied with mass produced undifferentiated
products. They are demanding customizing,
personalization and increasingly co creation.
Customer awareness of price, service and
quality are also at an all-time high, thanks to
social media and mobile. They no longer trust
or even rely on manufacturers for product
information. User groups, Social connects
and online forums are their primary source of
product and service information. To connect
with this digitally savvy customer, companies
are looking beyond surveys and focus groups.
Engaging them before the sale (cus-
tomer understanding), during the sale
(through Omni channels ) and after
the sale (service & after market) is
key to winning.
Customer understanding
To understand the new age customers,
and to keep pace with them, firms can
no longer rely on focus groups and
surveys. Instead they must listen to
conversation on social media, user
groups etc. They must engage custom-
ers in conversations, listen to them and
even co create products with them.
Such intimate knowledge of customers
is now possible through online chan-
nels and social media. Further, with
products becoming smarter and con-
nected it is possible to, not only listen
to customers, but also collect data
on product usage. For instance, a connected
car can give manufacturers volumes of data
on driving patterns, usage, fuel consumption
among other things. This information can
be used in new product design, preventive
maintenance etc.
Listening to customers and reacting to them
quickly can help
companies stay
competitive. It
was customer
research that
led Philips to
introduce the
wildly success-
ful noodle maker
in Asia. But the
same product
failed to take off
in the European
market. Based on
social media conversations, Philips soon re-
alized that, there was a problem; customers
were using the product to make pasta rather
than noodles; an application for which it was
not designed. Based on this insight, designers
at Philips re engineered the noodle maker to
make pasta.
»» Connected JCB
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12. Customer Sale
Today’s customer is no longer restricted to
the brick and motor store. A modern customer
may start his buying journey by researching
the product / service online, collect feedback
from current customers in user groups, followed
by a visit to the physical store to experience
the product hands on. And finally make the
purchase online and perhaps have the product
delivered to a convenient collection point. Ca-
tering to this digitally savvy customer requires
implementing systems that map the entire
customer journey from the initial research to
the final purchase. A digitally savvy customer’s
journey cuts across various online and offline
touch points, providing this ‘Omni Channel’
experience is best done through digital.
Zara is a fashion retailer known for its fast
fashion. By connecting their designers, inven-
tory and point of sale systems in retail outlets,
Zara was able to respond quickly and replenish
popular products. Digitizing the entire sales
channel and integrating it with their design and
manufacturing systems helped Zara quickly
introduce new designs, study their popularity
and restock popular designs in record time.
Zara manages a turnaround time of 3-4 weeks
compared to 2-3 months for other fash-
ion retailers.
Customer service
Customer service is being revolution-
ized by digital. Thanks to digital, com-
panies have multiple touch points with
customers; from the humble telephone
to online chat, twitter and other so-
cial media channels. Some of these
non-traditional channels offer a cost
advantage to companies while provid-
ing customers a better experience.
Some companies are also developing
a loyal base of customer advocates
through user groups and other online
forums. These customer advocates
often help and advice new users. Apart
from reducing the burden on the firm,
this approach builds customer loyalty.
Digitally remaster
products
Yes, you can re-engineer the turbine blades
for better efficiency, improve the mechanical
structure etc. But how can you possibly digitally
reinvent a massive windmill farm? Yet that is
exactly what GE did with their windmill farms
or JCB did with their excavators. GE’s massive
wind turbines can communicate with each other
and automatically orient themselves in the
right direction for optimal power generation.
They can communicate with the smart grid
and the charging system to ensure a steady
output. Further down the power distribution
chain, smart meters can communicate with
smart electric vehicles to schedule charging
during low power rates.
JCB’s excavators a behemoth of a machine has
been digitally remastered by adding a series
of sensors that relay data back to an analytics
backend. This allows JCB to provide Geo fenc-
ing security services, preventive maintenance
and someday even excavators as a service or
on a pay per use business model.
»» Zara retail outlet
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13. Optimise
Operations
Digital Marketing, Social media activities etc.
are highly visible and the most public face
of digital transformation. Transforming the
internal and external processes are not as
glamorous as transforming customer engage-
ment. However, the industry is replete with
examples of firms that have derived their
competitive advantage from efficient supply
chains and operations.
Walmart & Amazon are companies that have
dominated their industries through
process innovation. Logistics com-
pany UPS for example owes its suc-
cess to it’s operational efficiency.
The company operates in over 200
countries and serves over 8 million
customers. UPS’s ability to track
their delivery vehicles and com-
bine it with delivery addresses,
driver availability, traffic conditions,
weather etc. helps it optimize its
routes. As with all large scale
operations even a minimal op-
timization in the route can add
up to enormous savings.
Closer to the manufacturing sector, paint
manufacturer Asian paints has derived enor-
mous benefits from digitizing its operations.
By standardizing the order taking process and
moving chunks of the repetitive work to call
centers, it has relieved the sales team of the
mundane order taking tasks. Sales executives
now function as trusted advisers and focus
more on acquiring new customers.
Boeing is another example of an enormously
complex manufacturing company. It manages
over 5000 small and large production units that
employ over half a million people. The enor-
mous task of managing this vast supplier base
located in different parts of the world is best
solved by digitizing its operations.
It doesn’t get more hard core manu-
facturing than the process manu-
facturing sector. Dow chemicals has
over 5000 products and operators
in dozens of countries. The nature
of the chemical industry is such
that, customers demand samples
of the products before placing bulk
orders. With ten and thousands of
products, managing the process
of shipping samples and follow-
ing up with the customers was a
daunting task that was greatly simplified by
the implementation of digital technologies.
»» 787 Dreamliner
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14. For a manufacturing companies optimizing
operations, be it supporting processes like HR,
Finance or main stream business processes
like supply chain, order to cash etc can yield
huge benefits. It can certainly be a competi-
tive advantage that will take years for others
to emulate.
Digital in the
factory floor
No discussion on digital for manufacturing
is complete without a section on Industry
4.0. Digitally savvy customers are demanding
customization and personalization. Catering
to this need is easier said than done for an
industry whose vocabulary includes terms such
as economies of scale and experience learning
curve. Customizing a product to a particular
segment or personalizing it to an individual’s
needs goes against everything that makes the
manufacturing sector’s cost structure tick.
The utopian goal of Industry 4.0, then is the
mass production of customized or personal-
ized products that cost the same as an uni-
form product. Extending this utopian vision
is also the concept of self-production, where
individual components carry within them the
product blue print.
For smart products to interact with the as-
sembly line requires smart robots and other
systems. Together they form a self-organizing
network of machines, inventory systems and
other resources that automatically exchange
information and control each other. This en-
ables things like automatic reconfiguration of
the assembly line in the event of failure of a
particular machine.
Smart robots, smart factory floors, augmented
reality, 3D printing, predictive maintenance,
products embedded with their own
assembly information are all technolo-
gies that are collectively bunched into
the Industry 4.0 paradigm
Smart Robots
Gone are those days of industry robots
that look like aliens that could crush
you with a single blow. Shop floors of
yesterdays were hazardous places for
humans, an accidental brush in with a
robot usually ended with the human
in the hospital bed. Today robots have
become a lot smarter and gentler, Ja-
pan for instance is experimenting with
service robots to take care of its ag-
ing population. Appos is a small sized
Kiva robot that forms the backbone
of the Zappos ware house. Daimler’s
KUKA robots work alongside humans
in shop floors.
3D Printing
3D printing also known as additive manu-
facturing is being used for a variety of ap-
plications. They enable quick prototyping of
experimental products. Enable a long tail of
replacement components for aging equip-
ment. They also allow for optimal designs that
were once impossible to produce due to the
manufacturing limitations. For example, the
design of cooling fins for chipsets is restricted
»» Daimler’s Kuka Robots, picture credit - Daimler website
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15. by the manufacturing process. Intricate designs that perform better and
cool faster are far too complex for the traditional manufacturing process.
With 3D printing these limitations are a thing of the past.
Augmented Reality
AR is not a new technology, it has been used in aircraft simulations and
pilot training for a num-
ber of years. But today
that technology is mak-
ing it’s way out of such
hi tech centers and into
the hands of ordinary
service profession-
als. Field professionals
from the telecom to IT
are leveraging these
this technology to fix
complex problems on
the field. Problems that
once required the presence of an expert.
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16. DIGITAL TRANSFORMATION OF THE MANUFACTURING SECTOR IS ENABLED
BY THE NEXUS OF TECHNOLOGIES LIKE SOCIAL, MOBILE, ANALYTICS,
CLOUD, INTERNET OF THINGS & MACHINE LEARNING.
Digital is a game changer for the manufacturing sector. It has the ability to
make or break companies. However, none of these advances would have
been possible without the recent developments on the technology front.
Moore’s law has ensured the availability of an ever increasing amount of
compute power at ever decreasing rates. This coupled with the decreasing
price of cloud storage, advancements in connectivity (internet of things)
and advances in data analytics has brought digital affordability even to the
smallest of companies.
At the most basic level, digital is anything that be represented as a sequence
of ones and zeros. Digital enables the storage, transmission and analysis of
information. Gartner describes digital as all electronically traceable forms
and uses of information and technology.
SMAC (Social, Mobile, Analytics, Cloud) is an acronym that is synonymous
with digital. While each one of these technologies has the power to change
industry landscape, the disruptive power of digital comes when firms use
a combination of these technologies. Gartner calls it the ‘Nexus of forces’.
The nexus of social, mobile, analytics and cloud is sufficient for sector with
very limited physical assets like banking, however a physical asset heavy
sector like manufacturing requires a means of translating the properties
of physical assets into data. Digital twin is the name given to a digital
equivalent of a physical asset. Digital twins use data from sensors installed
in the physical system along with an embedded communications module
to transmit this data to central unit. Cyber physical systems is a related
term that refers to integrations of computation, networking and physical
processes. Together these technologies enable the manufacturing sector
to reap the dividends of digital transformation.
Digital - Through the technology lens
A physical asset heavy sector
like Manufacturing needs
more than just SMAC for digital
transformation. Internet of things
, Digital Twins, Cyber Physical
Systems are terms used to
describe technologies that bridge
the very physical manufacturing
world with the ones & zeros of
digital world.
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17. ARUN NATARAJAN