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Business Process Improvement

Smart Investments Can Accelerate Your Smart Factory Transformation

By April 12, 2023September 9th, 2023No Comments

Manufacturers are experiencing a time of tremendous change, especially in the operations landscape, as the industry transforms from a production line comprised of analog tools and machines to a fully connected smart factory. The introduction and availability of so much new technology, along with the corresponding demands from a marketplace used to new innovations at every turn, means those manufacturers that are most agile and able to adapt and pivot quickly are winning the race for market share.

Business agility isn’t the simplest task for product manufacturers, but it’s clear for many it will be a necessity. The challenge is how to transform your organization. A recent article from Gartner, “Smart Factories Require Smart Investments – A Different Way to Invest in Transformation,” explains that being an agile manufacturer able to jump on a new innovation and get the product to market requires readiness at all levels of operations, including your investment strategy.

Composability is Key for Operational Agility

For business, composability is the idea of component modularity, an approach that allows you to assemble or reassemble different components to create new products and services. By leveraging existing components—hardware, software, processes, etc.—organizations can experiment and innovate more quickly, reduce costs, increase efficiency, and improve time-to-market for new products. This approach enables you to create value simply by using your existing assets and capabilities in new and innovative ways.

As Gartner says, “Composability provides the advantages of scale and elasticity, the speed of innovation, and the deployment agility needed.” Their article emphasizes the use of composability as a lever to shift investments from IT projects to capability-building. Doing so takes various forms, among them looking at your technology not just for what it does in your current processes, but for what capabilities it gives you that can be used as an ingredient for creating new products or services. Gartner suggests that connecting “composable thinking” and capability-building also makes it easier to understand the potential benefits and strategic outcomes of an investment.

Smart Investing for Smart Factories

The second point Gartner makes is that the shift to make your organization more adaptable and agile also requires a change in how you fund advanced technologies—specifically, more funding for operational expenditures (opex) and less for capital expenditures (capex). They note, “High-performing smart organizations have shifted to a flexible funding model for smart factories with a dedicated fund and resourcing stream and have it available on an as-needed basis.” The idea isn’t that there are no capital expenditures, but that where you’re prioritizing agility and flexibility—and those composability components—you should “shift investment planning to an agile (opex) model that favors technology flexibility, lowered total cost of ownership, and financial scalability.”

There will always be a significant amount of capex that will be embedded in manufacturing organizations, but more and more options exist that make it easier to shift to opex funding than ever before. These include the plethora of SaaS-based pricing models, the growing adoption of cloud-computing and storage, and even equipment-as-a-service (EaaS) and other leasing models for capital equipment and robotics. Opex funding is by far the better choice to support and facilitate the strategic outcomes manufacturers are looking for from smart factory initiatives. For example:

Investing in video-based work instructions as part of a connected worker initiative has an intangible benefit of improved access to job-related content. However, when connected to the 10% to 15% reduction in setup time attributed to new methods and standard operating procedures (SOPs), the case is clearer.

More Food for Thought

In addition to going into more detail about what to consider when evaluating which costs to shift from capex to opex, Gartner also offers a variety of strategies for generating support and buy in from CIOs, lines of business, and others across the organization for this new approach to funding advanced technologies. And support across your organization will be crucial for this kind of structural change to operations and funding. Still, Gartner predicts that by 2025, “asset-intensive manufacturers will decrease their capex investments focused on smart factory technologies by at least 25%. The smart factory transformation is well underway.

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