Smart Industry Chronicles - Part 1/4: Defining the Smart Operating Model
All current recognized examples of full-scale Smart Industry implementations, a.k.a lighthouses have one thing in common: they were made in brownfield manufacturing environments. This makes sense for most incumbents today, since most of them are not opening up new manufacturing plants. Moving to smart industry in existing supply chain networks and manufacturing environments is significantly harder than building from scratch. In order to be successful, we need to take into account factors such as current operational maturity, existing IT infrastructure and internal transformation capabilities. The Smart Industry Chronicles is a series of four short articles providing insights into how to successfully transform your business in this type of setting.
Part 1: Defining the Smart Operating Model
All companies have a business plan that highlights how to grow the business and increase profitability over time. Tightly linked to the business plan is the Operations strategy that defines how the company aims to deliver value to its customers through product and services. The Operations strategy is highly dependent on the type of business and competitive landscape we are in. For example, in a business with many product variants, high seasonality and cost-sensitive, demanding customers we would probably focus on the following key principles in the Operations strategy:
Modular product design
Product diversification as late as possible in the value chain
High flexibility in equipment and people
Short lead times
Focus on continuous improvements and cost reductions
When we break down the Operations strategy into the “how” of delivering on these overall principles, we get the company’s Target Operating Model (TOM). This model describes the end-to-end design of the value creation process, starting with the customer and its journey, through all the necessary internal steps to finally deliver the value to the customer. If the Operations Strategy tells us that short lead times is important, the TOM tells us exactly how we design and lead our supply chain network to minimize lead time. Hence, the TOM covers all the processes, organization as well as how we lead and solve problems within our company.
A detailed understanding of the business needs as well as the TOM is essential in order to start designing the Smart Industry future state, or as we call it, the Smart Operating Model(SOM). The SOM leverages the technologies specified in Industry 4.0 to challenge the current ways of working, by finding new ways to add customer value or remove waste from the process. This will both mean automating and digitizing certain steps in the value chain, as well as more disruptive changes such as removing or replacing a current process with new technology, e.g. additive manufacturing.
When designing the SOM there are three main things to consider:
End-to-end focus: in many cases we tend to sub optimize by only focusing on one plant or part of a supply chain within the whole Operations area. This can be destructive both from an optimization perspective as well as an integration perspective. Full end-to-end view from customer to delivery is necessary to reap the full benefits of Smart Industry. On a higher level, getting to a Smart company requires that we also connect Operations to Product Development and Service/Aftermarket to create a full loop of continuous improvements throughout the company, reducing time to market, quality and increasing length of life of our products
Assessing and prioritizing: When creating the SOM you will find an overwhelming amount of opportunities along the entire value chain, meaning that we in the end will need to see the full Smart Industry transformation as a multi-year journey. Hence, we need to be able to describe the potential, prioritize and select what order to implement the changes in order to build momentum and show early results
Getting down to the details: In order to prepare for a successful digital journey, it is necessary that we can describe the “how” within the SOM on a very detailed level. For instance, if we strive to have deliveries coming in from our suppliers every 12 minutes during the day, the ways of working, user interfaces, deviation handling process and so on need to be defined in detail before embarking on the journey. Otherwise the digital transformation implementation project quickly will be over time and over budget
Talking to senior people within industrial companies, it is evident that the maturity level within Operations often varies between different units and functions within a large manufacturing network. In some cases, the processes we strive to make smart are not mature, i.e. not stable and capable to deliver the expected results. In those cases we nearly always need to do a process transformation before or at the same time as we implement the SOM. These type of projects are more complex and have higher risks, and need to be managed carefully in order to be successful.
Coming up are the remaining three steps in how to succeed with transforming Operations using Smart technologies. Please stay tuned for more insights.