Traditional lean and Six Sigma practices are insufficient to address the complexities of modern industrial manufacturing, and companies are turning to smart operations, which use pervasive data collection, advanced analytics, technology investments and deeper collaboration with partners to prepare their value streams for the next industrial revolution, a new white paper from United Parcel Service Inc. (UPS) shows.
Over the next three years, a growing number of successful manufacturers will enhance their manufacturing processes with smart operations, a broader supply chain strategy that extends beyond the factory walls, according to the paper, The Rise of Smart Operations: Reaching New Levels of Operational Excellence.
Lean and Six Sigma methods remain the standard for manufacturers, but continuous improvement has a downside. Overly optimized processes can become inflexible, leaving the business unable to adjust rapidly to disruptions in the supply chain and changing customer demand. Manufacturers that use smart operations are better positioned than others to compete and thrive in today’s fluctuating markets. That’s because increased visibility of inventory location and transportation allows companies to better analyze and quickly manage changes to their supply chain—both upstream and downstream of the factory.
“Smart operations are crucial to the long-term success of manufacturing companies,” said Derrick Johnson, vice president of marketing at UPS. “The strategy enables manufacturers with limited resources to serve their increasingly demanding customers more flexibly.”
UPS and market research firm IDC conducted the survey of more than 100 manufacturing operations executives, and hosted focus group discussions to assess how far along companies are in implementing smart operations. The report showed that 53 percent of companies were at a relatively low level of overall maturity. Still, 47 percent of the survey respondents said their company’s progress toward smart operations exceeded that of their peers.
There are five areas essential to smart operations:
- Connected products. Increasingly, industrial manufacturers sell products that are connected in the cloud. This connectivity allows companies to offer better maintenance service, which sometimes even generates new revenue streams.
- Connected assets. Manufacturers with connected assets are better able to monitor their operations to anticipate and even correct problems before they occur.
- Supply chain decision-making. The data and analytic tools used in smart operations help manufacturers resolve issues in the supply chain faster.
- Buy-side value chain. Smart operations allow manufacturers to automate purchasing with their vendors and manage the inbound transportation of those supplies.
- Sell-side value chain. Smart operations allow manufacturers to change transportation modes and speeds, as well as destinations, based on shifting customer demand.
At the heart of this business strategy is digital transformation enabled by investments in technology for data collection, advanced analytics, and connectivity for products, assets and partners throughout the value chain. One top-tier automotive supplier that participated in the study explained: “We are no longer an automotive company, but a technology company in the automotive business.”
The UPS report also showed that manufacturers increasingly rely on external service providers, freeing themselves to focus on their own key competencies. Companies that made less progress toward smart operations can take advantage of the technology and process investments their partners already made.
UPS invests more than $1 billion annually in technology that includes innovative solutions to help manufacturers optimize their total value chain and implement strategies to quickly adapt to problems. The company’s supplier management services, for example, facilitate transport and import of goods. UPS also offers visibility tools to help customers keep track of freight shipments around the world.