Three ways GenAI could transform supply chain managementÂ
GenAI is becoming a more common feature of the supply chain function, but significant areas of opportunity remain, suggests IMD’s Carlos Cordon. ...
Supply chain
Unlocking value in manufacturing by taking continuous improvement to the next levelÂ
Manufacturers must adopt a unified strategy across different divisions if they are to extract the full value of Industry 4.0. Â
Industry 4.0 has brought unprecedented advancements in automation, IoT, AI, and data analytics, but many companies struggle to extract sustainable value from these technologies. The problem lies in traditional, fragmented approaches that rely on one-off or annual strategies. To unlock the full potential of digital transformation, manufacturers need to embrace a holistic, continuous improvement methodology across the enterprise. This means unifying manufacturing, IT, OT (operations technology), and finance functions with a singular focus: value creation.
The promise of Industry 4.0 was to revolutionize manufacturing by integrating advanced technologies to streamline operations, reduce costs, and boost productivity. However, many organizations find themselves overwhelmed by the proliferation of digital tools and platforms, leading to fragmented efforts that do not deliver the expected return on investment.
Operational Excellence (OPEX) plays a pivotal role in driving continuous improvement, but the scope of OPEX is no longer just about eliminating waste and reducing costs; it needs to involve leveraging technology (IoT, AI, and digital twins) to ensure a sustainable value creation.
The disconnect: Why one-off improvements are not enough
Many manufacturers still rely on incremental improvements or one-off investments in technology. These initiatives can lead to short-term gains but often fail to address the broader inefficiencies that exist across larger organizations. The reality is that different functions, such as manufacturing, IT, OT, and finance, often operate in silos, with separate agendas and typically with too many KPIs. This misalignment hinders the ability to implement cohesive strategies that maximize the benefits of Industry 4.0.
For instance, IT teams may prioritize system upgrades, while OT focuses on equipment reliability, and finance targets cost reduction. When these efforts are not coordinated, they may work against each other, leading to inefficiencies and missed opportunities. The solution is a management-led enterprise-wide process transformation that aligns all functions around a unified goal: discovering and recovering manufacturing value through a continuous improvement cycle.
“Each step provides a foundation for continuous improvement, allowing manufacturers to adapt and evolve their strategies based on data and real-time feedback. ”
Unlocking value through a holistic process transformationÂ
An integrated approach to process transformation involves three critical steps: loss analysis, roadmap creation, and strong governance. Each step provides a foundation for continuous improvement, allowing manufacturers to adapt and evolve their strategies based on data and real-time feedback.Â
1 – Loss analysis – identifying and prioritizing inefficiencies and value-creation opportunitiesÂ
- Start with a detailed loss analysis, which identifies inefficiencies and value-creation opportunities, such as unplanned downtime, material waste, and wasted human effort.
- Loss analysis data provides insights into where the greatest opportunities for value creation lie, enabling manufacturers to prioritize improvement actions.
- By mapping the current state and defining the “ideal state,” companies can develop a benchmark to measure progress and set realistic improvements.Â
2 – Roadmap creation – aligning the organization for successÂ
- Once key areas for improvement are identified, the next step is to develop an actionable roadmap. This roadmap integrates different functions across the enterprise, ensuring that all efforts are aligned toward a common goal.
- The roadmap should be flexible, allowing for scenario planning to test different approaches and select the one that balances cost, feasibility, and value.
- Customization is key; each plant or department may have specific needs that require tailored strategies, while still adhering to the overall enterprise objectives.Â
3 – Governance – ensuring continuous improvementÂ
- Implementing a robust governance structure ensures that the roadmap is executed effectively and remains aligned with strategic goals.
- Assigning ownership of specific actions ensures accountability, while regular reviews help track progress and identify areas for recalibration.
- Continuous benchmarking against both internal targets and industry standards enables companies to stay competitive and adjust their strategies as needed.Â
Case Study
How a leading consumer packaged goods (CPG) manufacturer unlocked value-creation opportunities equal to 35% of its manufacturing conversion costs
A large CPG manufacturer, operating across 60 global plants, faced persistent challenges in optimizing its manufacturing costs. Despite adopting various Industry 4.0 technologies, the company struggled to achieve cohesive, enterprise-wide improvements due to the fragmented efforts of different functions such as manufacturing, IT, and OT. The finance team took the lead in driving a structured loss analysis process to uncover hidden opportunities for cost reduction and value creation. Following the Loss Analysis Workflow, they discovered that over 35% of the manufacturing costs represented significant value-creation opportunities.
Step 1: Align site leadershipÂ
Finance led the effort to unify leaders from various departments across all 60 plants, focusing on a common goal of maximizing value. They defined clear objectives that covered all aspects of production and support functions, promoting a strong culture of continuous improvement.Â
Key insight: Early involvement and clear communication helped create buy-in across the company, ensuring that each plant was committed to the initiative.Â
Step 2: Loss analysis introduction trainingÂ
Standardized training was provided to all plant leaders and area owners, focusing on identifying inefficiencies and using data collection tools. This allowed each plant to accurately collect and input data, creating consistency across the organization.Â
Key insight: Unified training ensured that data was collected consistently, enabling reliable comparisons and benchmarking across all plants.Â
Step 3: Collect and input loss data and generate reportÂ
Each plant systematically gathered data on inefficiencies, with area owners inputting this data into a shared platform. The resulting reports highlighted key loss areas, including downtime and material waste.Â
Key insight: This organized data collection process allowed the company to spot common inefficiencies across plants, making it easier to prioritize improvements.Â
Step 4: Loss state alignment and reportingÂ
Using the data, the company created “ideal state” scenarios for each plant, setting target efficiency levels. They assessed potential improvements, like reducing downtime by half, and prioritized actions based on feasibility and potential impact.Â
Key insight: Tailored scenarios provided a clear roadmap for each plant while aligning with the company’s broader goals.Â
Step 5: Define roadmap and business caseÂ
The team developed specific roadmaps for each plant, combining operational improvements and new technology. Business cases with financial estimates backed each intervention, setting timelines and assigning responsibility.Â
Key insight: A structured roadmap and financial backing made each plant’s goals ambitious yet achievableÂ
Step 6: Roadmap implementation governanceÂ
A governance structure was established to monitor the roadmap’s progress, with regular reviews to make real-time adjustments. Financial metrics tracked each action’s value, ensuring a focus on high-impact initiatives.Â
Key insight: Strong governance kept the initiative on track, addressing challenges swiftly and focusing on value-driven activities.Â
Step 7: Global enterprise benchmarkingÂ
Performance was benchmarked across all plants, highlighting top achievers and sharing best practices. This comparison revealed new opportunities to scale successful methods across other sites.Â
Key insight: Benchmarking fostered continuous improvement, with each plant aiming to match or exceed the best performers.Â
Step 8: Enterprise roadmap and strategyÂ
The initiative concluded with an enterprise-wide roadmap, balancing short-term wins and long-term returns, including ROI horizons. Financial and environmental impacts were carefully considered, with projects focused on reducing waste and energy use alongside boosting profitability.Â
Key insight: The roadmap combined financial and sustainability goals, supporting responsible growth while delivering value
Challenges in the implementation of the new value creation process transformationÂ
- Conflicting agendas: Different departmental priorities sometimes clashed, making investment prioritization essential.Â
- Challenges in alignment: Aligning department goals required constant coordination and clear communication.Â
- Finance as the “language of value”: Finance helped unite teams by framing actions in terms of financial impact.Â
- Tensions from technology choices: Choosing one tech solution over another led to tensions, needing transparent leadership decisions.Â
- Importance of change management: Clear roles and expectations were key to minimizing resistance and enabling new processes.Â
This case study highlights how a structured loss analysis process, supported by a finance-led initiative, can unlock significant value in manufacturing operations. By aligning leadership, standardizing data collection, creating tailored roadmaps, and implementing strong governance, manufacturers can not only discover hidden cost-saving opportunities but also sustain ongoing improvements across the enterprise.
Addressing the complex challenges of conflicting agendas, multifunctional alignment, and change management is essential for successful transformation. Finance’s role as the “language of value” helped the company navigate these challenges, positioning it for long-term value creation in a competitive, ever-evolving industry landscape.
A multi-plant approach facilitates enterprise-wide benchmarking, enabling companies to compare performance across sites and identify high-impact areas for further optimization.
Scaling value creation across the enterpriseÂ
For manufacturers with multiple plants, scaling the transformation across the enterprise is essential. This approach involves not only replicating successful strategies from one plant to another but also customizing them to account for different operational contexts. By sharing learnings across the organization, companies can ensure that all sites benefit from best practices, leading to a collective boost in efficiency and productivity.Â
Furthermore, a multi-plant approach facilitates enterprise-wide benchmarking, enabling companies to compare performance across sites and identify high-impact areas for further optimization. This scalable methodology ensures that process transformation efforts do not remain isolated but drive value across the entire organization.Â
The power of continuous improvement and technology integration
Continuous improvement is not a one-time effort; it requires ongoing commitment and adaptability. As new data is collected and analyzed, the roadmap should be updated to reflect changing business conditions, technological advancements, and emerging market trends. Integrating technologies such as IoT, AI, and digital twins into the continuous improvement process (see Figure 1) provides manufacturers with real-time insights to optimize operations proactively.
For example, predictive analytics can help anticipate equipment failures before they occur, while digital twins can simulate the impact of process changes, enabling companies to make informed decisions. By embedding these technologies into the continuous improvement loop, manufacturers can sustain their competitive advantage and ensure long-term success. Maybe more importantly, they can build the foundations that will enable them to benefit from ongoing technological advancement enabling more advanced AI use cases and touchless planning in the future.
Authors
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