The demise of non-adaptive companies or digital transformation in manufacturing

Digitalisation is a phenomenon, an inseparable part of modern industry, permeating the entire economy. In many sectors, digital technologies have completely replaced traditional ways of working, significantly increasing efficiency and productivity. However, the manufacturing industry is still lagging in terms of digitalisation.

Lenka Michalská explains why digital transformation is important, what it involves and why manufacturing companies should embark on digitalisation. 

What is your assessment of the current state of digitalisation in manufacturing companies in comparison to other industries?

In most sectors, the COVID pandemic brought a significant shift in digitalisation, leaving no choice but to adapt. Suddenly, digitalisation could no longer be put off to some future date; it became a necessity of life, and major shifts occurred literally within days.

We’ve come to accept it as the new standard. For example, the existence of purely online banks without a single physical branch, online shopping not just for books or new phones but also for clothes, shoes and food. We’ve become accustomed to next-day or even three-hour delivery and easy returns.

As well as moving customer service entirely online, internal processes are also being digitalised. People are working from home, printing fewer paper documents, and robotics are being used wherever machines can replace routine tasks. Even creative steps that require a living person are increasingly being handled by AI.

In principle, manufacturing companies are no different; all of the above could apply to them without distinction. But it doesn’t. I don’t want to generalise, of course, but it’s hard to overlook the greater resistance to such innovations in manufacturing than in other sectors.

What do you think are the reasons for this situation?

I will not mention the manufacturing companies that have been set up in recent years, typically various start-ups that have taken off and grown. For them, it’s exactly the opposite. These companies have built on technology and innovation from the start, automating as much as they can financially afford. This strategy allows them to quickly gain market positions, open up new markets abroad and quickly acquire partners, for example in logistics.

Most manufacturing companies, however, have a history stretching back decades and are often family-owned. They are based on craftsmanship, established procedures and processes that have always worked and brought success. Key people have been in their positions for many years, have know-how and are confident. And they are very reluctant to change.

A common scenario we observe when working with manufacturing companies is a certain barrier between the plans and intentions of management and the reality on the shop floor. Management plans a modernisation and transformation project, investing a year or two of time and a lot of money. This money is usually needed elsewhere, for example in recruitment, equipment, etc. But management realises that it has to invest in the future or the company will miss the boat.

At the end of all this effort, when everything is ready to be implemented and deliver results, they meet resistance. In the office two floors down, a key person firmly bangs a hand on the wall above the desk declaring: “What can anyone tell me? I have my board, and it’s trustworthy”. Management faces a challenge in influencing this role due to its indispensability.

If they push too hard, this person may consider quitting or may start using new technology reluctantly, but not effectively. Instead of using new software to simplify tasks, old routines prevail during the day and computer input is done in the evening to satisfy top-level requests. Instead of helping, digitalisation becomes an additional burden. For this person, it’s a confirmation of initial doubts.

Six months later, when assessing the impact of the investment, management often finds no significant improvement or even a decline in results. Instead of being a step forward, digital transformation turns out to be a financial black hole.

What would you recommend?

Digital transformation is obviously working. It’s a daily reality in various sectors, including manufacturing. The proof is in the manufacturing companies that have emerged in recent years and are thriving thanks to the maximum use of modern technology.

In the scenario mentioned above, the person in production is usually juggling more than just a whiteboard full of tasks: a desk piled high with papers, shelves lined with order files, and a constantly ringing phone dealing with complaints, urgent matters and enquiries from both production and sales. Having minimal time for anything and being indispensable gives a sense of importance, a feeling that lasts until the need for sick leave or holidays arises.

The cornerstone of success is to help those who are overwhelmed by routine to discover working methods or tools that will free them from that routine. It’s not about spending two years in isolation, possibly with external consultants, and then presenting a finished solution. Those at the heart of the process need to be actively involved in its development, testing prototypes and providing feedback. Gaining their trust and interest is critical, and this is achieved through rapid, incremental steps that deliver immediate and tangible results.

Could you be more specific?

Our company develops software in the category of PIM (Product Information Management). It’s a software tool for efficient management of information about products that a company manufactures and sells. Lists of products, their parameters, images, documents, etc. Beyond typical PIM functionalities, our software offers enhanced capabilities, particularly in pricing and rule-setting, which greatly alleviate the load of repetitive tasks.

How might this software improve the day-to-day tasks of the key person discussed earlier?

A typical manufacturing company is divided into several teams. They deal with design, production, marketing, sales, buying components for production, managing stock, and communicating with business partners and distributors. Each team needs up-to-date knowledge of the existing product range. What’s more, it’s not uncommon for these groups to be spread across different regions or even continents in some organisations.

Typically, product information is stored to varying degrees in different spreadsheets or ERP systems. Each spreadsheet contains unique data, and each is used and updated in a different way by different people.

This leads to a continuous cycle of information requests, waiting times and delays. Inaccuracies in information can escalate the frequency of complaints and product returns. At the centre of this web, where all documentation requests and problems converge, is typically the key figure we’ve been discussing.

Now imagine that all these parties, not only internal employees but also external suppliers, customers, distributors, etc., have access to such a PIM. A single source of truth, where everyone with the right permissions can instantly get all the information they need, up to date and correct.

Immediately, there’s a noticeable reduction in phone calls, fewer complaints and faster, more efficient operations.

Moreover, it’s not limited to internal staff. Distributors, business partners and customers can also check the availability of goods and their conditions at any time. This greatly simplifies the process of introducing new sales channels.

Do you believe that this approach can be applied across all product categories, or are there certain exceptions?

Applicability depends on the size of the company and the number of employees involved. However, there are differences even between companies of similar size. To illustrate, consider these scenarios.

If a company manages a large number of products or frequently updates its product range, centralised management can significantly reduce the workload and minimise confusion. For example, a company that consistently offers around 100 similar products may be able to manage with a simple Excel spreadsheet and not require sophisticated software. On the other hand, a company with a catalog of hundreds of thousands of items would clearly see the benefits of advanced software solutions.

If your company is directly involved in product manufacturing, this type of software can streamline the complicated process of product design and development. Typically, this involves multiple teams: one focused on key specifications, another on marketing content and product images, and yet another on pricing and optional extras. Consider the potential for miscommunication and delays when teams rely on emailing back and forth or using different document formats. Contrast this with the time efficiency gained when all these teams can collaborate in real-time within a unified system.

When sourcing products or components, your cost and product information are often dependent on supplier terms and materials. Whether you deal with one supplier or a thousand, imagine the efficiency gains if this information was uploaded directly into the system, which then automatically analyses and integrates the data.

This discussion could go on and on. Effective digitalisation, particularly in managing product lines and pricing, can lead to significant time and cost savings across a range of sectors. These range from consumer electronics, fashion and food to pharmaceuticals and automotive. 

The key is to implement it in a way that improves day-to-day operations without adding unnecessary administrative overhead.