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Connected and intelligent – the route to smarter manufacturing for SMEs | 3
Connected and
intelligent
The route to smarter manufacturing for SMEs
Key findings
• The UK has a large productivity deficit with most competitor nations.
• M
odern ERP (enterprise resource planning) systems, which can increase
automation, communication and collaboration, are seriously underused
by SME manufacturers, who rely far too much on traditional methods.
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Connected and intelligent – the route to smarter manufacturing for SMEs | 5
Survey findings
Business priorities, growth and barriers
The first part of the survey asked SME manufacturers to quantify their business priorities, growth expectations,
perceived barriers to growth and their approach to breaking into new markets. Although the answers were
inevitably mixed, some clear themes did emerge.
Which of the following best describes your business’s current growth expectations?
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50%
40%
30%
20%
10%
0%
Product innovation Service innovation Organisational Investment in Investment in Data collection
change hardware software
Which of the following are significant barriers to growth for your business?
(tick all that apply)
Key: 1 (Top priority) 2 3 4 5 6 (Lowest priority)
Skills shortages
When it comes to business priorities and barriers to growth the responses paint a more challenging picture.
Reflecting their aspirations to develop new products as a route to growth, it was little surprise that product
Access to finance
innovation came top of the list – two-thirds of SME manufacturers view product innovation as either their most
important or second most important business priority. Coming a close second is service innovation, a reflection
Product innovation performance
of the rise of a servitization culture and the growing understanding that for manufacturers to flourish they need
to offer more than just physical products. Customers are increasingly looking for product providers to deliver Insufficient production capacity
value through the combination of products and services, and canny businesses appreciate that this has the
potential to be an important tool against commoditisation, and which can deliver an ongoing revenue stream and System constraints, eg ERP etc
increase profitability.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Further down the list of business priorities, the responses reveal some cause for concern. Management decisions
around organisational change, investment in both hardware and software and the collection of data are viewed as
much less of a priority compared to product and service innovation. Nearly two-thirds of SME manufacturers are most concerned about a depressingly familiar barrier to growth
– namely ‘skills shortages’. The inability of manufacturers to find engineers and technicians from entry-level
While it would certainly be unfair to assume that all manufacturers view this quartet of priorities as being apprentices to seasoned chartered engineers is a perennial complaint of the industry. Indeed, this topic was
secondary, it is hard to see how real improvements in productivity and competitiveness can be achieved explored in some depth in a recent report from The Manufacturer – Employee engagement: managing your
through product and service innovation alone. Indeed, without the right level of investment in IT (information workforce through 4IR and the Skills Gap – which noted that many UK employers were faced with an ageing
technology) it is more difficult to develop products, and without the right level of organisational change and data workforce and an education system that was failing to deliver the quality and quantity of new workers that
collection the ambition to offer meaningful service innovation will be a challenge. were needed. Some manufacturers have all but given up relying on external suppliers for the right kind of
manufacturing employee, and are setting up their own apprenticeships as the only route they can see to filling
‘Data collection’ is of course a broad term, potentially encompassing everything from shop floor manufacturing current and future positions.
data through to purchasing trends, but the ability and ambition of companies to collect, analyse and act on
data is increasingly a key benchmark of a company’s future success. It is not enough for companies to simply be Skills shortages are not the only barriers to growth. Access to finance, and product innovation performance are also
ambitious and have plans for great new products. They need to be flexible and nimble enough to adapt to rapidly serious concerns for at least a third of all SME manufacturers. But on a less pessimistic note, only a fifth of respondents
shifting customer expectations and have the organisational infrastructure to collect and act on the data that believe that production capacity or system constraints within their own firm are likely to put a brake on growth.
alerts them to the shifting sands of an ever-changing business environment.
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Collaborative hub
”
EDI – electronic data interchange low cost point
– David Gustovich, AVP – Global Manufacturing Center of Excellence, Oracle NetSuite
Collaborative hub
When it comes to how manufacturing SMEs communicate and collaborate with their customers and Nevertheless, with only 18% of SMEs collaborating with suppliers using an internally hosted portal, and a paltry
suppliers, their approach is unambiguous. For 90%, paper, email, faxes and phone are the primary method of 3% using a collaborative hub, it is clear that a lot of small companies have a long way to go in taking advantage of
communication. modern communication and collaboration systems. At the very least, one might hope that an enterprise involved
in manufacturing, which by its very nature is a collaborative undertaking, would be open to the kind of joined-
Given that a fax is really just a faster letter without added intelligence, and an email, while offering some up working and thinking that ERP software can offer. The advantages of using software that can intelligently
information benefits, is usually just used as an express letter, it could be argued that for the majority of embrace all of an organisation’s activities, from customer contact details and tracking supplies to the status of
organisations, their preferred methods of communication and collaboration have yet to take advantage of the products on the shop floor, project planning and quality control should be self-evident.
opportunities to add intelligent insight which are available from modern, integrated systems.
Evidence from across the sector clearly demonstrates that while there are companies that manage to succeed and
Despite the widespread availability of cheap powerful computers and fast communication networks, the growth do well without some of these facilities, it’s not much of a stretch to imagine that they could perform even better
of cloud and a choice of sophisticated ERP systems there is a clear reluctance on the part of SMEs to fully if they took advantage of the opportunities offered by powerful modern ERP software systems. Processes could
embrace the considerable power of smart, data-driven communication and collaboration systems. be streamlined, supplies managed better, customers offered greater choice and a whole host of other business
advantages, which individually may offer only an incremental benefit, but which taken together could make a
The failure to join the dots and use more of the tools available in modern ERP systems is all the more surprising deep impression on productivity and customer satisfaction and retention – and therefore long-term profitability.
in a world where consumers are increasingly used to getting choice, value and rapid gratification. It’s likely that
the very people who manage, plan and direct a manufacturing SME’s dealings with customers and suppliers go The effect on customer relations is important – product cost is just one element affecting purchasing decisions.
home after work using train tickets bought online, order books and music from Amazon, their food from Ocado, If a customer feels that a company genuinely collaborates in product delivery, offers flexibility and choice, and is
their entertainment from Netflix and a whole host of other systems that scream engagement with powerful, responsive to questions and requests for customer support then these will inform decisions about whether or not
customer-friendly, repeat-sales-generating business systems. to purchase a company’s products and in particular consider repeat business.
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Connected and intelligent – the route to smarter manufacturing for SMEs | 11
We have all heard about Industry 4.0 and it should be clear to everyone by now that it is more than just a
passing fad – it is undoubtedly the future of manufacturing in a significant and meaningful way. Manufacturing
optimisation, customisation, servitization and flexibility are every bit as important as developing new products
and entering new territories. And yet, nearly two-thirds of SME manufacturers state that implementing Industry
4.0 simply isn’t a priority for their business.
Why should this be? To answer this we need to turn to other replies given in the survey. For example, one question
looked at concerns regarding the implementation or continuing use of forms of connectivity. The two leading
worries – by some margin – are a lack of expertise and poor data collection, management and analysis skills.
Which of these forms of smart connectivity does your company use in the factory?
(tick all that apply)
“ There’s clearly a thirst for data collection, but companies are held
back by a lack of knowledge about what’s available and what they
can do with it. That’s why we have a very broad ‘suite’ of capability,
with business intelligence and analytics built in, one that uses all your
data – from first customer interaction to their latest order
”
Sensors
Alarms and alerts – Gavin Davidson, Director of Product Marketing, Oracle NetSuite
Manufacturing execution system linked to ERP system There are other concerns about connectivity. Roughly a quarter of SME manufacturers believe that initial
development costs are too high and the payback period is too long to make significant connectivity worthwhile.
0% 10% 20% 30% 40% 50% 60% 70% 80%
Again, sector research and experience demonstrates that for most companies that take the time to properly
examine the business case for implementing connectivity and Industry 4.0 it is likely that despite the real costs of
implementation the benefits would be worth the investment.
What concerns do you have regarding implementing or continuing to use forms of connectivity?
(tick all that apply) Other aspects of smart connectivity were also examined and despite their reluctance to fully embrace smarter
connectivity some 78% of SME manufacturers do make use of industrial sensors, 60% have invested in alarms
No concern
and alerts, 59% had implemented various forms of human-machine interfaces and just over half used a
manufacturing execution system linked to an ERP system. While 65% of SMEs currently collect digital data from
Payback period is too long or too uncertain manufacturing processes via shop floor data collection devices or manufacturing execution systems, it means
Initial development costs are too high
35% do not, again evidence of underinvestment and lack of understanding. So, although some of the necessary
infrastructure for smart connectivity is present, not all of it is used effectively.
Lack of expertise
Similar conclusions can be drawn from the use of robots. On the one hand, two-thirds of companies have invested
Cyber security concerns
in robotics or automation in the past five years. On the other, one-third of SMEs have not spent a penny on these
Poor data collection, management or analysis items, despite it being an area of fast-paced improvement. This attitude is reinforced by an April 2017 report
Smart connectivity
in the Financial Times, which noted that outside the automotive industry, the UK uses just 27 robotic units per
10,000 manufacturing employees, compared with 137 in Germany, 113 in Italy and 59 in France (http://on.ft.
Other (please specify) com/2fWrngd). These are the very countries against which one sees a UK productivity deficit, and with figures
0% 10% 20% 30% 40% 50% 60%
like these one can start to understand why.
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Bringing it all together with ERP systems When it comes to which ERP modules SME manufacturers actively use, top of the list – of course – is finance and
accounting (80.7%), followed by purchasing (68.4%), and then sales order entry (58%), work in progress control
and planning (56%) and capacity planning and master scheduling (54.4%). Ask anyone with more than a passing
Even if a manufacturer has all the sensors, servers, cloud computing capacity and intention to embrace Industry acquaintance with ERP systems and these are the kind of functions they would flag up as being core aspects of the
4.0, they still need a software system to collect, manage, analyse and act on the data that is generated from the software. Moving below the 50% mark CRM (42%) makes a surprisingly low entry, possibly indicating that many
shop floor, customer orders and even servitization feedback from products post sales. The key to bringing all SMEs use a separate system for their CRM activity, suggesting potential software system fragmentation and all
these disparate systems together in a structured and unified manner is a well-designed ERP package. Smarter the problems inherent in running a business with more than one software package.
manufacturing is only possible with an ERP system that is designed from the ground up to accept all this
information, and which is straightforward to use. The most serious issues, however, are revealed by the chronic underutilisation of precisely the kind of modules
that can help organisations implement Industry 4.0. Plant maintenance, project management, and business
intelligence and analytics are the kind of activities that can draw on data from the shop floor to help build a
Do you feel that your existing ERP system is capable of supporting the changes that you may
smarter business. Just one in five SME manufacturers are taking advantage of these ERP modules. Exactly
need to make in respect of Industry 4.0?
the same picture emerged when they were asked if their business used a PLM (product lifecycle management)
system to collaborate internally between engineering and manufacturing functions – a mere 21% are set up to
“
carry out this activity.
Our largest product line has undergone
quite a change in the last few years and
the addition of robotics has enabled us to How satisfied are you with your ERP system currently?
Yes 35.14%
overcome a bottleneck and speed up an
important manufacturing process leading
No 64.86%
to a higher quality, more desirable product Very satisfied
”
in a shorter lead-time
– Peter Joannidi, Finance Group Squadron Satisfied
Leader, Trunki (Magmatic)
Moderately satisfied
When asked if they felt that their existing ERP system was capable of supporting the changes they need to make
the move to Industry 4.0, two-thirds of SME manufacturers are quite clear that their existing system does not Unsatisfied
support them in this respect, with only a third satisfied. This is a significant finding. Without the right software,
an enterprise can at best muddle through when it comes to Industry 4.0, but in reality it may well find its Very unsatisfied
ambitions thwarted if the software can’t deliver or is perceived to be too complicated to operate.
0% 10% 20% 30% 40% 50%
Which of the following ERP modules does your business make active use of?
(tick all that apply)
Given these responses, it comes as no surprise that SME manufacturers’ satisfaction rating with their current
ERP system is decidedly lukewarm. Only 31.5% of SME manufacturers are either satisfied or very satisfied with
Finance / accounting
the ERP system; 28% said they are either unsatisfied or very unsatisfied, and 40% damned their ERP system with
Human resources faint praise and said they are moderately satisfied.
Maintenance
Project management
”
CRM
everyone else
– Ian McEvoy, Director, P3 Medical
Purchasing
Nobody thinks that preparing for Industry 4.0 is easy. Building a smart manufacturing system requires sensors,
networks, computing and above all a software system to bring all the disparate elements together. The ideal
software package should be an ERP system, but the survey revealed many SMEs are struggling to understand and
use their software to build a smart manufacturing environment.
Too many SME manufacturers appear to be stuck in an outdated view of what an ERP system is for, and even
though much of a potential Industry 4.0 system may be present on their shop floor, the various parts are not being
linked up. Therefore, it is vital that forward-thinking SMEs who wish to move to smarter manufacturing should
look very hard at the ERP system they are running. First, they should ask themselves if they truly understand
the breadth of modules and functionality available in an up-to-date ERP system, and second, they need to ask
software vendors tough questions about what their products can do – see the checklist below.
• Is the ERP system a modern, born-in-the-cloud solution designed specifically to support digitalisation of
business, from powerful workflow capabilities to support automation to web-based communication and
collaboration capabilities.
• Has their software moved beyond a standard ERP package and absorbed a sophisticated Internet of
Things capability that feeds back to the system the status and progress of orders/production/glitches/
supply chain information?
• Is data capture automatic? (Modern software links shop floor information into the ERP system
automatically – avoiding the need for time-consuming, error-prone human reporting on the status of the
real-world situation of the production line via machines, control systems and other data sources.)
• Is their software just a glorified accounts system or a vertically integrated package that covers CRM,
e-commerce or PLM? Conclusion
• C
an the software operator use data to generate incremental revenue streams – offering value-added Industry 4.0 is here to stay. It is not just the plaything of huge multinationals, but is vital to the future of every
services such as servitization by extending sensor-based feedback to the product after manufacture and manufacturing SME in Britain. The sooner an organisation grasps this concept, the sooner it can start to reap
sale, perhaps by alerting customers to maintenance schedules and predicting component wear and tear. the benefits of smarter working and smarter manufacturing. Many elements contribute to a successful smart
manufacturing system, but at its heart is a flexible, adaptable, easy-to-use, cloud-based ERP software system.
• Is the software set up for the kind of pain-free online sales experience that people increasingly expect
from product vendors?
• Is the software easy to use? What are the training opportunities? Are case studies and templates available
to enable users to get up and running quickly and painlessly?
• Is the software automatically upgraded when new releases are available, or is the user responsible for
upgrading and reimplementing to take advantage of new features?
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