Operational Excellence Goes Digital 29 07 Final
Operational Excellence Goes Digital 29 07 Final
Operational Excellence Goes Digital 29 07 Final
Manufacturing Industries
Executive Summary
Manufacturing companies have historically had an on-off relation with technology. Most have aggressively adopted traditional
technologies such as Enterprise Resource Planning (ERP). However, they have been slow in adopting recent digital technologies such
as big data analytics, real-time order confirmation, Web-EDI among others. Moreover, most have adopted technologies to varying
extent creating a connectivity gap in their operations. We believe digital technologies will help manufacturing companies in eliminating
this gap. Our research and project experience indicate that by adopting digital tools, manufacturing companies can cut costs by as
much as 30% by enabling savings on capital costs, labor field force among other key cost elements.
The first area where digital technologies can have significant impact is on manufacturing operations. Most manufacturers still rely on
traditional and outdated models of planning. By migrating to advanced planning systems, and using digital technologies, they can gain
greater visibility into their manufacturing operations. LG Display integrated seven different planning and execution systems to gain a
unified process data view of its global plants.
Supply chain visibility is a key item on the agenda of Supply Chain Management (SCM) professionals. Over the years, SCM has seen
deployment of multiple disparate digital tools, creating a siloed system that distorts end-to-end visibility. Digital tools can help bridge
these connectivity gaps. Levi Strauss & Co. reduced manual tracking and tracing of inbound shipments by 98% by implementing a
supply chain visibility platform supporting ASN (Advanced Shipping Notification).
Digital tools aid the service function in overcoming information paucity, enabling effective scheduling, providing multifunctional tools to
field technicians and driving the overall productivity of service operations. Kinetico, a manufacturer of water treatment systems, cut its
service resolution time into half, after deploying a cloud-based service management solution.
We believe digital technologies can help manufacturing organizations achieve excellence in manufacturing operations. However, this
requires a structured approach involving, among other steps, a maturity assessment, prioritization of digital initiatives and setting up
of a digital operating process model. Manufacturers should also consider lessons learnt from the earlier generation of technology
deployments and stay away from taking a silo-based approach.
2
Manufacturing Companies Do Not Fully
Leverage Digital Technologies
Manufacturing companies have and to varying extent. Consequently, insurance and telecom where over 30%
traditionally been early adopters of most manufacturing companies have of companies are Digiratis. As an overall
selected technology such as ERP and not achieved a complete integration of industry, manufacturing companies
Production Planning systems. For information flow along the operations collectively fall in the “Beginners” category
instance, a survey among 170 global process. (see Figure 1).
manufacturers reported that 92% of
them had implemented an ERP systemi. Compared to older technologies such as
Manufacturers also have systems in place ERP, manufacturing companies have been
that are able to support the management quite slow to adopt more recent digital
and control of internal material flow. Most technologies. Our research with the MIT
warehouses are managed automatically Center for Digital Business showed that
and machines are controlled by CNC1 or only 12% of manufacturing companies The manufacturing
DNC2 software. However, the challenge are truly leveraging the power of digital industry is a ‘Beginner’ in
is that most of these initiatives have been technologies – we call these companies
implemented in silos. Different processes Digiratis3. This compares unfavorably
digital maturity.
have been made digital at different times to other industries such as banking,
Fashionistas Digirati
Retail Banking
Pharmaceuticals Consumer
Packaged Goods
Insurance
Transformation management intensity measures senior executives’
Utilities capability to drive change throughout the organization. This
includes creating and communicating a clear vision, establishing
governance mechanisms, facilitating cross-silo coordination, and
Manufacturing
building a digital-ready culture.
Beginners Conservatives
Source: Capgemini Consulting – MIT Center for Digital Business research, 2012
3
Our research indicates that while Most manufacturing companies today
manufacturing companies have invested are still in the early stages of their digital
in technologies, they have largely done transformation journey. They are not
this in silos. Only 38% of manufacturing leveraging the significant benefits that
Only 38% of
industry executives indicated that digital technologies can bring in driving manufacturing industry
digital initiatives in their company were operational excellence. executives indicated
coordinated across functions or regions.
Such an approach results in connectivity In this paper, we take a look at how that digital initiatives
gaps where information does not flow digitization will help manufacturing in their company were
freely across departments and business companies in the key three main process
units. This hinders achieving operational domains of manufacturing operations,
coordinated across
excellence. Manufacturing companies supply chain and service maintenance. functions or regions.
have now begun to recognize this gap. For each of these areas, we assess
For instance, a global survey highlighted how manufacturers can minimize the
that 75% of manufacturers considered connectivity gap. We conclude the paper
improving internal cross-departmental with an actionable roadmap on how to
systems, and process collaboration achieve operational excellence using
and integration as their top strategic digital transformation.
prioritiesii.
4
Digital Technologies Enable Operational
Excellence in Manufacturing Operations
When it comes to key aspects of troubleshooting, and manual data entry including Enterprise Resource Planning
operations, most manufacturers still rely tasks. Consideration of current production (ERP), Master Data Management (MDM),
on outdated models of planning, systems capacity enables organizations to prevent Element Management System (EMS),
that offer poor visibility and involve outcomes such as unreasonable delivery Manufacturing Execution System (MES),
excessive human intervention leading to dates. Finite planning and execution tools Supply Chain Management (SCM) and
suboptimal results. take existing capacity into account, unlike dataware house (MDW, EDW). Post the
infinite planning that assumes unlimited deployment, the company was able to
capacity. In combination with real- have a unified process data view of 9
Lack of Integration between time confirmation and current machine overseas offices of LG Display. Through
planning and execution status information, resource overload data standardization and process
impedes operations situations can be avoided resulting in a re-establishment, systematic data
feasible production order plan that would connection and integration between
Materials Requirements Planning (MRP) eliminate manual intervention. Reliable European, Korean, and foreign offices
is a key part of operations management and real time order confirmation can be was made possible, resulting in better
and inventory control in most enabled by machines connected to the decision-makingiv.
manufacturing operations. MRP systems ERP and integrated with customer order
ensure that materials are available for management system. This will enable
production while maintaining the lowest companies to give their customers Digital Technologies
possible material and product levels realistic order confirmations leading to Cut Down on Delays
in store. They are also responsible for increased customer satisfaction. by Eliminating Human
purchasing and manufacturing activities
and for planning delivery schedules. Intervention
However, manufacturers continue to Connecting an Advanced ERP system
rely on traditional methods of operations with a machine control system allows
execution. It is estimated that more than LG Display integrated for direct transfer of production orders to
70% of manufacturers still use ‘Infinite
7 different systems and the machine. Alternately, the production
Planning’ methods through MRP systems orders can be transferred to digital
to schedule their production programiii. created a unified process devices, which display them to the
Such ‘Infinite Planning’ methods forecast data view resulting in shop floor control team. This eliminates
potential future capacity without taking manual tasks and automatically
into consideration the actual capacity better decision-making. directs information flow to the target
constraints of each individual work destination. The connectivity between
stream. Instead, they assume an infinite ERP and operations execution system
capacity, which results in machine also introduces more transparency and
overload and unrealistic delivery dates. By integrating information flow during all visibility into material availability (see
This causes split of production orders, steps of operations, the visibility required Figure 2).
inventory carrying and change-over costs. to properly manage these end-to-end
As a result, frequent manual adjustments processes can be achieved. Consider
on shop floor control level need to be the case of LG Display. It is a leading
done to improve deviations in production. global manufacturer of LCD panels.
The unnecessary manual work impedes The company had been using disparate
automation and overall productivity, and Manufacturing Execution Systems (MES)
adds waste to the system. in each of its plants. They were facing
challenges with data standardization,
Digital Tools Afford Greater standards of production information
and hardware profiles. They wanted to
Visibility integrate all of the MES with their existing
Digital integrated production planning ERP in order to make their business
and shop floor control improve visibility systems real-time. They also wanted to
into production progress and material consolidate decision-making systems
availability. These tools help in avoiding by processing and displaying real-time
activities with limited value-add such information through ERP. The company
as searching for material, counting and integrated multiple areas of its IT systems
5
Figure 2: Integrated Digital Manufacturing Operations
ERP MRP
Manual System
Sales Order Production Production Shop Floor Operator Machine Operator Supervisor
Management Planner Scheduler Controller
ERP
Mobile device
Digitized System
Sales Order Management Production Planner Production Scheduler Shop Floor Controller Operator Machine
6
Flow of Digital Data Simplifies Supply
Chain Management
Supply chain visibility is a key item of lost sales increases with time delaysVi. functions during the planning process.
on the agenda of Supply Chain Similarly, production downtime often This leads to greater stability in inputs
Management (SCM) professionals. occurs when there is no information across planning and operational
Similar to manufacturing operations, regarding delays in the inbound supply processes. It also helps companies to
SCM has seen the implementation of chain. Lack of visibility into stock levels be more effective at customer demand-
multiple disparate digital tools, which results in overproduction and inventory driven production and delivery. We have
creates a siloed system and distorts pile-up. Research studies indicate that observed that reliable planning can
end-to-end visibility. Indeed, our global over 90% of suppliers incur anywhere significantly drive down logistics costs
survey found that over 40% of supply between 0-7% of their sales as additional for transportation. Order splits caused by
chain executives believed that improving costs due to forecast deviationsvii. ‘surprises’ in the supply chain typically
supply chain visibility could improve their lead to additional transportation and
organization’s competitive advantageV. handling efforts. These can be avoided
There are three major connectivity gaps by using end-to-end planning systems
related to supply chain management and processes that provide full visibility
processes. These include the Companies can achieve into the supply chain. Companies
that have implemented such systems
point of sales connection and savings of over 20% in have shown that savings up to 20% of
immediate customer order reactivity, transport costs by using transport costs can be achieved – by
lack of inventory visibility during
end-to-end planning eliminating order split and emergency
inbound transit, production and freight (often air freight). In the case of
outbound transfer and systems and processes. a Swiss manufacturing company, we
found that additional transport required,
absence of integrated supply chain
caused by late deliveries due to order
planning and execution.
split, reduced by 13%. Reliable planning
These gaps can collectively lead to Integrated digital tools perform can also reduce the cost of warehousing
process and cost inefficiencies. information synchronization, inventory as inventory levels can be optimized.
management, order fulfillment, delivery Moreover, such integrated planning also
planning and coordination. These tools ensures that stock levels are optimized
take the guesswork out of operations based on forecasted demand that is
and reduce complexity during the derived from historical sales and inputs
40% of supply chain planning process. The coordinated use from sales teamsviii.
of an Advanced Planning System, Point
executives believe of Sale data and analytics solutions
improving supply chain ensures reliability of sales projections
visibility can result in the and stability of the supply chain. Fully
integrated planning systems that take
organization gaining a 90% of suppliers incur
into account actual capacity restrictions
competitive advantage. help avoid unnecessary production, anywhere between
troubleshooting and premium freights. 0-7% of their sales as
additional costs due to
Integrated Business forecast deviations.
Digital Tools Bridge Planning Drives
Connectivity Gaps Transparency
Multiple sales opportunities are lost due Manufacturing companies can increase
to the inability to confirm customer orders the overall level of transparency in
quickly and consistently. Academic their supply chains by using advanced
research has shown that the magnitude planning tools and integrating company
7
Digital Technologies Enable a complex task as it required interfacing
with hundreds of trading partners
Effective Management of
through manufacturing and supply
Information Flow bases located across Asia, Middle East,
Levi Strauss & Co.
Digital technologies can also be used Africa and Latin America. Levi Strauss reduced manual tracking
to manage the information flow from & Co. deployed a best-of-breed supply and tracing of inbound
suppliers to the manufacturing facilities chain visibility platform to handle their
and further down the value chain to inbound logistics. A key requirement shipments by 98% by
the customer. This can be achieved was the need for the platform to handle implementing a supply
shipping notifications that came through
through technologies such as EDI4-
EDI. Post the implementation, Levi
chain visibility platform
enabled Advanced Shipping Notification
(ASN)5. Similarly, companies can Strauss & Co. experienced a positive supporting ASN.
connect inventory management tools impact on the safety stock, improved its
across transport modes using digital lead times and staff efficiency. They were
technologies such as positioning and able to realize the benefits in less than 18
navigation systems (see Figure 3). months as against an initial estimate of
two years. The deployment also enabled
Take the case of apparel company Levi the company to reduce manual tracking
Strauss & Co. The company sells its and tracing of inbound shipments by
products through a variety of channels a significant 98% and calls/emails by
including retail chains, department 80% as the system provided self help
stores and online sites. Managing to usersix.
inbound logistics for the company was
Market information
ASN
Source
POS data Demand EDI
Sales forecast Supply / Web-EDI
Network Make
APS
Auto-confirmation Deliver
Production
ATP
ATP
EDI / Web-EDI, ASN
8
Field Service Becomes More Effective
using Digital Tools
The service and maintenance function information is available by integrating an schedules came down from half a day
has evolved from being a cost center ERP/CRM solution where this data is held to 90 minutes. Supervisors can now use
to a significant value generator for centrally. Since all captured information is their smartphones to resolve scheduling
manufacturers. A recent survey reported stored centrally, it minimizes the chances issues on-the-goxii.
that 58% of organizations treated that information scarcity and quality will
the service function as a profit center impact the overall service function.
with clear profit and loss objectives in Digital Technologies
place. Similarly, 54% of organizations Provide Multifunctional
see service as a means to rise above Tools for Field Technicians
competitive pressures from other
Digital tools help service technicians
manufacturing or service organizationsx. Research suggests over improve customer satisfaction levels.
However, controlling activities in the
service and maintenance function 65% of incoming service Research carried out with over 220
service and manufacturing organizations
presents a challenge, particularly with requests require a field indicated that over 65% of incoming
increasing number of outsourced service
partners. Due to this, the end-to-end
visit or a dispatch. service requests require a field visit or a
control and visibility across the function dispatchxiii. For these field technicians,
decreases resulting in suboptimal after- the ability to be remotely connected
sales performance. The service function to central databases is critical for
is plagued by several key challenges, Diebold, a manufacturer of self-service information retrieval. Centrally hosted
which can be overcome with effective transaction systems such as ATMs, tools allow service technicians to reduce
use of digital technologies. had over 2,200 service technicians problem resolution time and potentially
and received over 11,000 service calls increase their billable time by reducing
per day in the US alone. The company unnecessary rework.
faced multiple challenges with efficiently
servicing its customer base, prioritization Take the case of McKinley Equipment,
of jobs and visibility into field operations. a company that makes warehouse
58% of organizations in a and loading dock equipment. The
The company rolled out a scheduling
survey treated the service solution integrating its existing CRM, company faced three primary challenges
– converting paper archives to data
function as a profit center logistics, parts management, reporting
and mobility components. Post the streams, creating a more efficient
with clear profit and loss deployment, the company improved the workflow for its field service technicians
objectives in place. number of calls per technician by 33% and delivering an enhanced customer
and also gained greater visibility and experience. In 2011, it adopted tablets
control of the service operationxi. and a cloud-based CRM and service
solution for its field technicians. The
company has seen a significant rise in
Digital Tools Help Overcome Digital Tools Enable first-call fix rates. With the new solution,
Information Paucity Effective Scheduling of technicians can now directly update
Field Force the work ticket, show the customer the
A common challenge across service necessary parts on the tablet and get a
functions is the lack of information at Managing field force and assigning signature on the tablet itself to approve
the right place and at the right time. For schedules represent a significant the new parts order. This order can then
instance, missing information on installed challenge in a manual process. Digital be sent from the service solution. The
base can result in wrong estimation of tools eliminate the guesswork that is company experienced a direct increase
resource calculation for servicing and inherent in such manual operations. Take of 38% in its service business as a result
efficient call handling. Similarly, multiple the case of a fleet operator that maintains of gaining a new account through these
instances of capturing information at call and repairs a fleet of over 4,000 vehicles digital toolsxiv.
reception, field service and escalation to with 400 employees. A typical process
second- and third-level support result in involved eight sheets of large paper for
suboptimal information transfer, which scheduling these employees. After their
impacts the service process. In an move to a digital scheduling solution, the
integrated digital environment, relevant time a supervisor spent to prepare daily
9
Digital Tools Drive Overall existing manual nature of the process availability of required spare parts and
caused them to miss deadlines with consumables, physical transportation
Productivity of Service
their customers. Moreover, the process and ensuring efficient remote services
Operations gave the company little insight or and scheduling of field technicians.
Manual management of service metrics around its service performance. Figure 4 illustrates the integration of
organizations typically results in It implemented a cloud-based service data exchange and information flow in a
inefficient operations. Field technicians management solution that had the digitalized service model.
are challenged with inefficient knowledge ability to manage work orders, handle
management and suboptimal quality of escalations, automate scheduling, and
information. They also face challenges generate reporting and metric tracking to
in managing work orders and handling overcome these challenges. As a result,
escalations through manual processes. resolution time has been cut in half,
Digital tools can significantly impact technicians have high visibility into work Kinetico cut its service
overall productivity of service operations orders and save significantly on time. resolution time into half,
by eliminating many of these manual Post the implementation, technicians are
challenges. automatically notified of an open case in post the deployment of
their area and can easily debrief with a a cloud-based service
work orderXV.
For instance, Kinetico, a manufacturer management solution.
of water treatment systems faced
many similar issues with using manual Digital technologies can help integrate
spreadsheets that were shared via several service and maintenance tasks
email. As the company grew, the such as planning activities, checking
Machines
Analytic tools
Knowledge database
Satellite systems Satellite systems Satellite systems Satellite systems Satellite systems
ERP/CRM
10
Digital Tools Can Help Manufacturing Companies Cut Costs by 30%
Digital tools have a very strong impact across the three key areas of manufacturing operations, supply chain management and service. We believe
manufacturing companies can realize significant cost savings while driving delivery reliability, quality and customer satisfaction by deploying digital
initiatives. We summarize a selection of tools and their impact on key success factors in the below charts.
Key Cost and Productivity Benefits from Integrated Digital Manufacturing Processes
Key Cost and Productivity Benefits from Integrated Digital Supply Chain
Web-EDI 3 3 0 3 2
Planning-Execution
Integration
4 3 4 2 1
Potential Cost Reduction, based on
Capgemini Consulting Project Experience -5% -30% +5% -20% -8~-15%
Key Cost and Productivity Benefits from Integrated Digital Service Function
Integrated ERP/CRM 3 2 4 1 3
Flexible Satellite
Systems
4 1 1 0 0
Planning and
Scheduling Software
3 4 0 0 2
Knowledge
Database
3 3 0 0 2
Service Operations
Technological
Integration machine- 2 4 0 0 1
service
Big Data Analysis
Tools
3 3 0 3 1
Advanced Hardware/
Software for Field 3 4 2 1 2
Service
Potential Cost Reduction, based on
Capgemini Consulting Project Experience -40% -30% -25% -10% -15%
Relative Impact 0 1 2 3 4
Minimum Maximum
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How Can Organizations Achieve Operational
Excellence through Digital Transformation?
The starting point of the digital Maturity Assessment (DMA) reveals organizations to decide on a clear go/
transformation journey varies from the current level of process digitization no-go based on where they stand.
one organization to another, mainly compared to the availability of digital
due to different digital footprint and process support options. Performance The second step is to develop a clear
maturity levels. Across manufacturing, maturity assessments add information organizational vision and mission that
SCM, service and maintenance, there about the positioning of a company’s answers what operational excellence in
are a variety of digital initiatives that process maturity and the opportunities the future means to the organization and
organizations can select. Organizations for improvement. This stage helps why it is good for the organization.
need to have a structured approach companies identify the right starting point
when implementing these digital for developing an operational excellence Manufacturing companies should
initiatives (see Figure 5). strategy through process digitization. bear in mind that it is more complex to
Without a clear understanding of the enhance and adjust existing tools than to
First, manufacturing companies opportunity and the potential value implement new processes and solutions.
should undertake a comprehensive for the company the transformation As such, it becomes important to
maturity assessment of where they journey would lack a clear focus and prioritize areas of interest. Consequently,
stand. This should be done across thus would not progress in the right the next step is to prioritize integration
the two key dimensions of process direction. A maturity assessment is the of digital initiatives according to the
maturity and digital maturity. A Digital basis for further progress and enables expected operations benefits and level
12
of implementation efforts. For instance, After prioritizing initiatives, organizations The next step is to create a strong
a company that is facing challenges in should proceed to create an efficient foundation for the transformation towards
sending the right information to its field process architecture that imbibes operational excellence by setting up the
technicians should focus on creating a meaningful digital elements. This organizational environment, and defining
Web-based knowledge database before architecture should clearly lay out how the digital operating process model and
thinking of initiatives such as integrated a digitized value chain for the company the relevant IT infrastructure.
ERP/CRM (see Figure 6). would work and the steps involved in
getting there. And finally, the implementation stage
will involve significant process redesign
and adjustments, training of employees
Figure 6: Digital Initiatives’ Impact on Operational Excellence and
across levels and deployment of software
Implementation Effort
solutions that will enable the company to
run with optimized digitized processes.
Web EDI
High
systems confirmation
Field Planning realize that digital technologies offer
Machine-Service
scheduling tools integration them a strong opportunity to efficiently
POS data integration connect processes and people, and
in planning
use information effectively without
connectivity gaps. They should also
consider lessons learnt from the earlier
generation of technology deployments
and stay away from taking a silo-based
approach towards digital technologies.
Instead, the focus needs to be on
Low
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References
i Aberdeen Research, “ERP in Manufacturing 2012: The Evolving ERP Strategy”,July 2012
ii Aberdeen Research, “Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency”, October 2012
iii The Association for Operations Management, “Material Requirements Planning in a Demand-Driven World”, October 2011;
Capgemini Consulting analysis
iv LG CNS and HP Case Studies on LG Display
v Capgemini Consulting, “The 2013 Supply Chain Agenda”, 2012
vi JTAER, “Disruptions in Information Flow: A Revenue Costing Supply Chain Dilemma”, January 2008
vii VDA Study, 2008
viii Capgemini Consulting client
ix Aberdeen Group, “Supply Chain Visibility Excellence”, March 2011
x Aberdeen Group, “State of Service Management: Outlook for 2013”, January 2013
xi Clicksoftware case study
xii Public Works Magazine, “On-the-fly field force scheduling”, February 2013
xiii Aberdeen Group, “Field Service 2012”, February 2012
xiv Search Consumerization, “How iPads and a field service app transformed McKinley Equipment”, April 2013
xv ServiceMAX case study
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Authors
India Spain
Anindya S Datta Carlos Garcia Santos
[email protected] [email protected]
Capgemini Consulting is the global strategy and transformation With more than 125,000 people in 44 countries, Capgemini
consulting organization of the Capgemini Group, specializing is one of the world’s foremost providers of consulting,
in advising and supporting enterprises in significant technology and outsourcing services. The Group reported 2012
transformation, from innovative strategy to execution and with global revenues of EUR 10.3 billion. Together with its clients,
an unstinting focus on results. With the new digital economy Capgemini creates and delivers business and technology
creating significant disruptions and opportunities, our global solutions that fi t their needs and drive the results they want. A
team of over 3,600 talented individuals work with leading deeply multicultural organisation, Capgemini has developed its
companies and governments to master Digital Transformation, own way of working, the Collaborative Business ExperienceTM,
drawing on our understanding of the digital economy and and draws on Rightshore®, its worldwide delivery model.
our leadership in business transformation and organizational
change. Learn more about us at www.uk.capgemini.com
Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group. The information contained in this document is proprietary.
© 2013 Capgemini. All rights reserved.