5 Things Pushing American Manufacturers to Go Digital
Career Development Small and medium sized manufactures will be slower to go digital. Here are the biggest factors to understand if you want to keep your company from being one of them.
When manufacturers adopt industrial internet of things (IIoT) technologies, they can create digital threads of information for each product. A digital thread includes the history and the future of the product lifecycle from sourcing of raw materials through disposal guidelines.
This information offers limitless opportunities to find financial and environmental savings inside and outside the factory. For example, this information can be mapped to figure out more streamlined logistics, which leads to savings in cost as well as producing less carbon emissions.
A report from McKinsey & Co. says 80 to 100 percent of manufacturers will be leveraging the IIoT in both discrete and process manufacturing by 2025 — to the tune of $2.3 trillion dollars per year in productivity and other savings. In addition to productivity, the overall demand for digital threads of manufacturing information is gaining traction. Here are some specific drivers:
1. GMO labeling, traceability
Food manufacturers are quickly adopting IIoT because of consumer need and U.S. laws. The government recently passed a law in response to consumer outcry for the labeling of genetically modified organisms (GMOs) on food packaging.
The information about GMOs will be embedded in a scannable QR code on the packaging. This bill is also improving the overall traceability of all foods with the QR code. Labeling GMOs will help everyone in the supply chain streamline operations and cut down on waste.
Other mandates are happening at the factory level because of the FDA Food Safety Modernization Act. In the act there is a mandate to record temperature data each time the food is heated. With IIoT, a company can use handheld technologies to consolidate the steps to test and record temperature information.
Sarah Lanphier, CEO of Nuts About Granola in York, PA, sees the demand firsthand. “Both of these laws depend on traceability from seed to consumer so digital record keeping is a must to stay compliant,” she says. “I also see this as a competitive advantage for companies who invest in efficient and effective ways of implementing the new FSMA protocol.”
2. Manufacturers renting products
There’s also digital demand in the Circular Economy, a systematic approach to the lifecycle of products and how they are disposed. Original equipment manufacturers (OEMs) like Philips are starting to rent out their products instead of selling them. This is giving OEMs a Product-as-a-Service model, which comes with the added responsibility of maintenance. OEMs are taking a closer look at their supply chain because their quality, sustainability and logistics metrics could affect their business in a completely different way.
3. Retailers who care about sustainability
Demand for digital threads is also coming from the retailers who care about sustainability metrics. Wal-Mart actually incentivizes brands that continuously improve their environmental metrics. Based on the brands' performance on Wal-Mart's sustainability scorecard, their products could actually get better positioning on Wal-Mart’s store shelves and eCommerce website.
4. Information-age consumers
Consumers (a manufacturer’s number one buyer) are starting to request access to digital threads of product information. Consumers are using apps to scan products to check levels of sustainability, political affiliation, and ingredients’ origins.
Along with the GMO law, consumers not only want to know if the ingredients are modified but also if they are natural ingredients. The scandal about the use of cellulose (wood) in shelf-stable parmesan cheese had everyone checking labels and questioning why the parmesan products can use the term “all natural.”
“‘Currently, hundreds of lawsuits are pending across the country contesting product statements touting attributes such as ‘natural,’ ‘sustainable,’ ‘organic...’”
David Hackett, a Partner at Baker & McKenzie in Chicago says, “Currently, hundreds of lawsuits are pending across the country contesting product statements touting attributes such as ‘natural,’ ‘sustainable,’ ‘organic’ or other comparable environmental benefits. As private party litigation churns on, government agencies have turned their attention with renewed interest to ‘natural’ and similar claims. Both the FDA and the FTC now seem to be realizing that the words natural and organic, as applied to food or to non-food products, have uncertain meanings that are unlikely to be efficiently resolved by an array of judicial cases brought to address claims of misrepresentation.
“However, those agencies are far from completing and applying the results of a formal rulemaking exercise that seems long overdue on this topic. Hopefully, each can progress within their jurisdictions toward some resolution of when those terms can and cannot be used. In the interim, unhappy parties will continue to pile into courts seeking to adjudicate the scope and meaning of phrases like ‘natural.’”
The Federal Trade Commission and the U.S. Department of Agriculture (USDA) will co-host a roundtable in Washington, D.C. on October 20, 2016, to help the agencies better understand how consumers perceive “organic” claims for non-agricultural products, such as personal care products.
5. On-demand inventory from everyone
Inventory levels could be decreased with the help of IIoT. This is important because a shocking amount of capital is tied up in inventory — so much that U.S. retailers are currently sitting on about $1.45 in inventory for every $1 of sales they make. Companies could help combat this cost if they used an inventory management system. But 46 percent of small and medium businesses either don’t track inventory or use a manual method.