To thrive in the future, manufacturing will have to get "smarter"

Manufacturers have been chasing demand signals ever since Six Sigma and lean manufacturing started to gain popularity in the late 1980s. But a recent white paper from third-party logistics provider UPS and the market research firm IDC says that these continuous-improvement programs have taken manufacturers as far as they can go.

Overly optimized processes can become inflexible, leaving the business unable to adjust rapidly to disruptions in the supply chain and changing customer demand, says the paper, "The Rise of Smart Operations: Reaching New Levels of Operational Excellence." In order to keep up with swiftly changing customer demand and sudden supply chain disruptions, manufacturing companies need to move beyond Kanban cards and magnetic whiteboards and embrace so-called smart operations—what's known in other circles as the industrial Internet, Industry 4.0, or connected manufacturing, according to the study.

Smart operations, the paper says, use big data, mobile applications, advanced analytics, and technology that fosters deeper collaboration with partners. UPS and IDC have identified five ways that industrial manufacturers can use these types of technology:

1. To create "connected" products. More and more industrial manufacturers are creating products that are connected in some way to the cloud. When sensors in the product detect a problem, they can notify the manufacturer, which in turn can proactively schedule service.
2. To create "connected" assets. In a similar way to connected products, assets—such as equipment, containers, and trucks—can be fitted with sensors to detect such things as temperature changes, battery life, and damage. This information can then be communicated to the asset user to help it resolve both current and potential problems.
3. To improve supply chain decision making. By using advanced analytics to process the immense amounts of data being collected in the field, manufacturers can both make decisions and resolve problems faster.
4. To better manage the buy-side value chain. Smart operations allow manufacturers to automate purchasing with their vendors and manage the inbound transportation of those supplies.
5. To better manage the sell-side value chain. Smart operations allow manufacturers to change transportation modes, delivery times, and destinations based on shifting customer demand.

After analyzing the results of a survey of 103 manufacturing executives as well as focus-group discussions, UPS and IDC conclude that most companies are still in the beginning stages of implementing smart operations. According to the study, 47 percent of companies surveyed consider their smart operations to exceed their peers' operations or to be best-in-class. Even these companies, which the paper calls "thrivers" in the new connected economy, still need to make more progress. For example, of those companies that are thriving in the digital environment, only 35 percent can analyze their supply chain performance in real time or near real time and receive suggestions for corrective actions in an automated way.

Manufacturers that are able to use smart technologies to improve their operations and respond faster to both changes in demand and supply disruptions will realize a significant competitive advantage and will be prepared for the next industrial revolution, the paper asserts.