Where to invest, a new machine, automation, or digital transformation?

The market response often shows that managers in manufacturing plants make decisions based on common sense, which means they run the company like a farm. That is not wrong, of course, or something that should be changed because, in general, we have moved from hunters and gatherers to farmers and arable farmers quite some time ago.

This is also reflected in how we run our households and manage our finances collectively. It is certainly possible to detect remnants of the hunting instinct, mainly when the impulse of the unthinking consumer is triggered by an advertisement, a promotion, or a special discount. Perhaps even more characteristic is the transition into hunter mode when we have planned dinner but are nevertheless misled into buying fast food. This is also linked to the next point: people usually exceed their monthly budgets because of food. This is undoubtedly related to the fact that, in the current period, it is typical for people to be more prudent, more thoughtful, and, above all, more rational when it comes to finances.

It is typical for manufacturing companies to be less risk-averse.

If we apply the theory about farmers to manufacturing companies, we can see a similar approach. It is typical for manufacturing companies to be less risk-averse and handle their finances, resources, and, last but not least, their employees in a prudent, thoughtful, and, above all, rational way. The measure of a company's success is its annual operating result, the growth in profits compared with previous years, and the somewhat expected annual growth in various performance indicators. This leads managers in manufacturing companies to follow common sense and not experiment with strange and new things. Any drastic change or radical innovation in the manufacturing environment can drastically impact the process, both positively and negatively.

Companies invest much more in new machines and lines than in digitalization.

I often come across companies that invest much more in new machines and lines than digitalization. In some places, this factor is ten times greater. That is to say. A company invests ten times more in new machines and lines every year than in digital transformation and innovative technologies.

For example, I can give you a fictitious company with a limited amount of money available in its investment budget. Hypothetically, this company can use this money to buy and implement the new, most modern CNC machine on the market or invest the same amount of money in IIoT technology and a MOM system to monitor production processes. In most cases, the company's managers would decide to buy a new state-of-the-art machine rather than invest in an IIoT and MOM system. This decision is often seen in the market. Although it is not as black and white as in this case, there is a perception that companies are devoting much fewer resources to digital transformation.???

Companies decide to buy a new machine mainly because the effects and ROI indicators are known in advance.

Somehow, this area is more familiar, predictable, and, above all, impacts fewer employees and is a minor part of the process. If an existing machine is replaced by a new one or is added to the fleet of existing machines, this purchase affects a minor part of the process. This change will not drastically alter the workflow and affect the final business result. Such a change represents a lower risk and, above all, represents a minor part of the impact on the production line, which can be both negative and positive.

Investment in digital transformation, IIoT technology, and the introduction of a MOM system, will impact a more significant part of the process.

In particular, such a change will affect a more substantial portion of the workforce, representing a much higher risk in the final decision than purchasing a new CNC machine. This is because such new technology introductions or process changes affecting almost all employees in a production plant are much more likely to be unsuccessful. According to some data, as many as 75% of projects where new IT solutions are introduced are unsuccessful. This is mainly because the project's success does not depend on the technology itself but on the end-users and the environment where the solution is implemented. The main characteristic of unsuccessful projects is that the employees sabotage the final solution by not using it as intended, looking for ways to avoid using it, or deliberately tampering with the hardware and thus affecting the solution's performance.?

Suppose you decide to go for a digital transformation:

In that case, I recommend that you choose a business partner with many years of experience, with the appropriate references, and, above all, to check what methodology is used to implement this type of solution in a production environment and what they have learned from past experiences and similar projects. Because, again, if I refer to food and personal training, it is true that those fitness gurus who promise an instant solution are not the right ones, or their focus is on making a quick buck, which is probably an unsustainable strategy in the long run. The same can be argued in the case of digital transformation. Many solutions providers advocate instant results, but that poses a much higher risk, for there is a much higher probability that the implementation will be unsuccessful. I have already mentioned that every company is specific, and has unique processes, different people, unique end customers, and products.

Last but not least, they are located in a special and unique location that influences both culturally and geographically the production process. This is why it is advisable to have a partner who can tailor a solution to your needs, requirements, objectives, and financial capacity. Above all, to have an implementation methodology based on an emulation of the current situation, where the wishes of the employees or end-users are also taken into account. Because at the end of the day, the employees feel that they have been involved and heard, which drastically reduces the risk of sabotage and the ultimate positive success of the solution implementation.?

So, what to invest in? In a new machine, line, or digital transformation?

As far as risk is concerned, we have noticed that it is better to invest in a new machine. Still, if you invest in digital transformation reliably and prudently, the chances are higher that this investment will pay off better. Investing in a new machine can improve the productivity of a particular job or part of the production process. At the same time, an investment in digital transformation can affect the productivity of the whole production process, which can have a much more intense impact on the bottom line than an investment in a new machine.??

For example, take a small manufacturing plant with ten machines, where the total OEE of the ten machines is 85%. For ease of illustration, let's say that each machine has an OEE of 85%. Suppose we now replace one machine with a newer machine and thus increase the productivity and utilization of this new machine to 90%. In that case, this will ultimately increase the total OEE to 85.5%, or by a mere 0.5%. If a manufacturing plant invests in a MOM system and increases the OEE on each machine by 1%, the total OEE has increased by 86%. But I can say with a high degree of certainty that the impact of the IioT and MOM system will be to raise total production by at least 5% without any additional organizational change.

So, it is better to invest in digital transformation as it can have a drastic effect on the increase of production capacities.

According to some assurances, it is possible to increase the productivity of one plant to such an extent that it doubles. Otherwise, you would have to build or invest in a new plant due to space constraints. This means that new people would also have to be employed, and fixed costs would have to be increased.?

Add the severe labor shortage, where companies are chronically dealing with a high turnover rate and a lack of selection of potential new candidates. It is prudent to invest in digital transformation and the automation of production processes. Because with new modern technologies, automation, and organizational changes, we can provide the same number of employees where currently there is single-shift work to three-shift work with total production capacity.

Last but not least, the introduction of IIoT technology and the MOM monitoring and visualization system the downstream allows you to capture data in real-time and, at the same time, monitor and manage production processes at all times. So, suppose a company decides to make this kind of investment and gain better productivity results. In that case, it also gives the company's managers insight into the actual state of production and measurable data that is appropriately qualified and evaluated. Even if a company decides to invest in a new machine once it has implemented such a system, it gains from having actual, measurable data and insight into how that investment improves results.??