Smart manufacturing driving advantage, but needs focused investment and implementation

Deloitte announced the results of its Smart Manufacturing and Operations study, "Navigating Challenges to Implementation." While the study reveals surveyed companies are realizing value in smart manufacturing investments from the past several years, many are still facing significant challenges in managing complex transformations as they contend with operational risks, talent shortfalls and cybersecurity preparedness.

Why this matters?
During the past decade, the manufacturing sector experienced unprecedented challenges, including major business disruptions, a retreating workforce and a dynamic global landscape, forcing companies to expedite the creation of smart factories to improve resilience. While many have risen to the challenges of transformation and are seeing the benefits of Industry 4.0 – with 92% surveyed saying they believe smart manufacturing will be the main driver for competitiveness over the next three years – the study finds low technological maturity in the areas of human capital and workforce, material management and maintenance.

Tim Gaus, Smart Manufacturing business leader and principal, Deloitte Consulting LLP, said: "The smart manufacturing journey is still emerging, but its value is undeniable. Our survey shows that most responding manufacturers agree with the need to invest in smart manufacturing but require help navigating operational complexities to see meaningful results. 

"Smart manufacturing prepares enterprises to be ready for increased demands and, in an era where increased capacity can set companies apart, organizations that have already invested in smart manufacturing solutions will likely have an advantage – those who haven't, may not be able to defer much longer."

Investments in automation
As organizations continue to invest in smart manufacturing, their focus is on establishing a foundation to connect and optimize technologies, which can enable automation and the next generation of capabilities. The report found 78% of surveyed leaders are allocating more than 20% of their overall improvement budget toward smart manufacturing initiatives to build this foundation, including implementing clean data analytics, sensors, cloud, AI, etc.

Looking at the next two years, 46% of respondents ranked process automation as the first or second priority investment, 37% ranked physical automation first or second and 24% ranked factory synchronization first or second. In terms of systems prioritized for investment, the first or second highest investment priorities are advanced production scheduling (35%), execution systems (33%) and quality management (28%).

Investment in automation may be seen as an important element in alleviating skilled labor shortages and maximizing productivity, while factory synchronization may mitigate the impact of labor, asset and materials constraints.

Human capital initiatives are a priority
This focus on automation comes as manufacturers continue to struggle with labor shortages as cited in a 2024 Deloitte manufacturing study. Close to half (48%) report moderate to significant challenges in filling production and operations management roles, and 46% reported the same for planning and scheduling roles. And, while nearly half (48%) of respondents reported having a smart manufacturing training and adoption standard in place, human capital was at the lowest maturity level of all smart manufacturing categories surveyed.

Adding to this, as the nature of work fundamentally changes and people are now working alongside AI, more than a third (35%) of those surveyed are concerned about upskilling their employees to work with advanced technology to realize the full potential of smart manufacturing and operations.

Adoption of advanced technologies and AI
Despite the allure of cutting-edge technologies such as robotics, virtual programmable logic controllers (vPLCs) and digital twins, survey respondents feel their organizations' maturity in technology, data and automation only just meets industry standards, showing room for improvement.

Reported investment priorities over the next two years remain data focused, with 40% investing in data analytics, 29% in cloud computing, 29% in AI and 27% in the Industrial Internet of Things (IIoT). Regarding AI adoption, 29% are using AI/ML at the facility or network level, and 24% have deployed Generative AI (GenAI) at the same scale. Moderate investments are also being made in experiments and proofs of concept (POC). Twenty-three percent (23%) of respondents are piloting AI/ML, and 38% are piloting GenAI.

Top risks: Operational and cyber security
Change is hard and adopting and implementing smart manufacturing technology prompts a widespread shift to processes and operations. Almost two-thirds (65%) of respondents ranked operational risk as the first or second priority requiring mitigation efforts in pursuing smart manufacturing initiatives.

The risks include business disruption and losses stemming from change or failed initiatives. However, there is an opportunity for organizations to drive home the benefits of smart manufacturing through well-executed implementation that is tied to business strategy. It will be especially important for manufacturers to commit to building dedicated teams to manage the widespread changes to processes and operations.

In addition, as connected systems create new cyber security risks, those surveyed for Deloitte Global's 2024 Global Future of Cyber survey reported that 40% of respondents have publicly reported six to 10 cybersecurity breaches in the past year.

Respondents to the Smart Manufacturing and Operations study ranked technology readiness – which includes the need to protect technologies and data from cyber adversaries – as the second largest aspirational change for leaders behind human capital shifts.