Across the enterprise: Digital transformation trends shaping Canadian manufacturing
April 24, 2023 by Jonathan Gross
We’re squarely into 2023 and are slowly putting a few major shocks behind us. COVID-19 restrictions are (hopefully) a relic of the past. And global supply chain bottlenecks seem to be easing.
Even though there’s continued volatility, we’re seeing positive signs that the economy might land more softly than many have recently predicted. Inflation is still increasing, but the pace is slowing. The January Canadian Manufacturing Purchasing Manager’s Index climbed back above 50, indicating expansion. And the Canadian economy added 150,000 jobs in January – the most in 11 months.
Meanwhile, politicians aren’t blindly trusting the invisible hand to continue working in the economy’s favour. Various levels of government are stepping in to prime the pump with funding programs to help Canadian manufacturers adopt digital technologies and improve operational efficiencies. For example, my firm has several nationwide clients tapping into the federal CDAP program to fund business process improvement, ERP software acquisition and implementation and Industry 4.0 projects.
A question we’re often asked is: “Which digital projects should we pursue?” Should companies pursue a full-scale ERP implementation or a more narrowly focused business process optimization project? Where do connected factory and Industry 4.0 projects fit in? And, with all of the data being collected, should businesses pursue a business intelligence initiative?
The answer, of course, depends on a company’s circumstances. Does it have strong fundamental data, processes and systems? Given limited financial and human capital resources, which projects will deliver the most business bang-for-buck?
As you build your business case, it’s important to consider marketplace trends and best practices. Here are a few notable emerging trends in 2023.
Conversational artificial intelligence
Until recently, executives I’ve spoken to have had a hard time conceptualizing how to practically deploy artificial intelligence. With the overnight success of ChatGPT, they’re starting to see strong use cases. Here are three enterprise areas ripe for conversational AI:
• User experience: Enterprise software systems are hard to use. AI offers opportunities to improve the user experience, break down adoption barriers, and reduce employee training costs. Instead of entering data into 30 fields to create a sales order, for example, expect users to soon be able to ask the system to create an order in plain language.
• Analytics: With data residing in multiple systems, businesses still need expensive data scientists, architects, and consultants. In the not-too-distant future, AI should make analytics more consumable. Already, certain systems support conversational queries (“show me material variances in the past 24 hours on work centers 1 to 5”). We’re hoping to see vendors extend conversational AI capabilities to support the development of the underlying data models.
• Technical development: ChatGPT has already demonstrated its ability to develop and audit software code. Vendors will soon figure out how to deploy AI tools into their development platforms to give users an easier ability to build, test, and connect applications.
Businesses have insatiable appetites for more timely and refined analytics. Also, companies are under increasing pressure to formalize procedures to comply with rapidly evolving data privacy and security regulatory frameworks.
As a result, business leaders are moving data governance from the back burner to the front. Fundamentally, they’re prioritizing organizational, procedural, and technical initiatives to ensure that data is complete, accurate and controlled. Organizationally, they’re establishing data competency centres to develop and oversee corporate policies and procedures. Functionally, they’re formalizing key data records ownership and are implementing systematic controls and workflows to manage access and security.
Disciplined approach to ERP and digital transformation projects
Until recently, companies were jumping headfirst (arguably blindfolded) into digital projects. From 2019 to 2022, we saw companies greenlight speculative technology projects, premature Industry 4.0 projects, and excessively scoped rip-and-replace ERP projects. As businesses applied a shoot-ready-aim approach to their technology initiatives, the tech vendors and their services partners were more than happy to oblige.
The goldrush seems to be over. Canadian manufacturers are now generally taking a more disciplined approach. Though many still need to replace ageing end-of-life systems, we’re seeing others laser-focus their investments on optimizing existing systems. And, in most cases, executives are demanding that proposed projects be supported by a proper business case and return-on-investment analysis.
Strong focus on implementation readiness
Historically, digital transformation projects have had notoriously low success rates. We’re seeing signs that the trend might be reversing.
For starters, manufacturers are more willing to hire experienced client-side advisors and digital transformation consultants to help them get organized. Here are four tangible steps companies are taking before project kickoff to assure readiness:
• They’re establishing project teams, building strong governance, and backfilling project core team members in their day jobs.
• They’re tightly defining project scope and are implementing formal change control procedures.
• They’re making key decisions on future state design options.
• They’re rearchitecting and cleaning key data, such as items, BOMs, routings, vendors, customers and chart of accounts.
Composable ERP refers to an ERP application environment built from loosely coupled systems.
Companies pursue this strategy when certain business functions are better supported by best-of-breed peripheral systems and not monolithic ERP systems. For example, we have several industrial automation manufacturing clients who have bolted best-of-breed field service management systems onto their core ERP systems because of better capabilities for equipment installation, commissioning, and maintenance processes.
Although an attractive option, composable ERP isn’t always the right choice. It can shift requirements and costs from the business onto IT to develop and support an integration strategy. Sometimes, those costs outweigh the benefits. Also, multiple systems might not be the right choice if that architecture severs an important cross-functional business process.
Technology contract rationalization and renegotiation
With North American companies spending between five percent and 10 percent of revenues on IT, many are taking a hard look at their tech contracts for cost-saving opportunities.
First, IT leaders are triaging the lowest-hanging fruit by cancelling contracts for seldom-used technologies. Next, with tech markets softening, many are renegotiating existing agreements before they automatically renew. We have a client that’s currently auditing its 400 ERP user licenses to see if any can be deactivated or downgraded. And, when our client approaches the vendor with updated license counts, it’ll use pricing benchmarks to try to negotiate more favourable rates.
Applying the trends to your business
Ultimately, you can distill these 2023 digital transformation trends into three broad categories: governance, discipline, and innovation.
• Governance: Whether your business is embarking on a major ERP implementation, a business intelligence project, or a process improvement initiative, your project’s success hinges on having the right organizational structures, enabled teams, and effective change control.
• Discipline: Making the right digital investments takes thought. It’s important to support your recommendations and decisions with a strong business case anchored by a return-on-investment analysis. And, over time, it’s important to revisit your technology contracts to make sure they’re delivering maximum value.
• Innovation: Composable ERP and conversational AI are two of the big trends. There are others. Spend time studying the marketplace to learn about potentially value-driving new technologies.
By building the right governance models and focusing on value-driving technologies, you’ll be on your way to building a methodology you can trust to deliver meaningful digital transformation.
Jonathan Gross is managing director at Pemeco Consulting, a vendor-neutral consulting firm. He leads clients through the entire digital transformation lifecycle, including: technology architecture and planning, technology vendor selection, technology procurement, implementation, and ongoing optimization.
This article originally appeared in the March/April 2023 issue of Manufacturing AUTOMATION.