How smart factory technology can transform SMEs

By Franklin Kurniawan, CEO, Opex Consulting Group

Introduction

In today's fast-paced and competitive industrial landscape, small and medium-sized Enterprises (SMEs) face numerous challenges in staying ahead of the curve. With limited resources and budgets, they often struggle to adopt new technologies and innovations, which can hinder their growth and competitiveness.

The concept of Smart Factory, also known as Industry 4.0, offers a promising solution for SMEs to upgrade their manufacturing processes and stay ahead in the market. It can be a game changer to help SMEs improve their competitiveness, increase efficiency, and reduce costs. However, many SMEs are still unsure about how to adopt smart manufacturing technologies and practices. In this article, we will explore the benefits of Smart Factory technology for SMEs and how they can start their digital transformation journey.

(Photo: Natalia Dobrovolska I Dreamstime.com)

What is a Smart Factory?

Smart Factory is an integrated system that combines physical and digital technologies to create a connected and intelligent manufacturing environment. It leverages advanced technologies such as Artificial Intelligence (AI), Internet of Things (IoT), robotics (both hardware and software), and data analytics to optimise production processes, improve product quality, and reduce costs. This revolutionary approach enables real-time monitoring, data-driven decision-making, and autonomous production, making it an attractive solution for SMEs seeking to enhance their competitiveness.

Benefits for SMEs

1. Increased Efficiency: Smart Factory technology automates and streamlines processes, reducing manual labour and minimising errors. This leads to increased productivity and reduced production times, enabling SMEs to meet customer demands more efficiently. Do more with the same or even less resources. Efficiency improvement in the range of 25% to 50% is not impossible.

2. Improved Product Quality: Real-time monitoring and data analysis enable SMEs to detect and correct defects quickly, ensuring high-quality products that meet customer expectations. Real-time and accurate data enables continuous improvement to reduce production cost and enhance predictability of production processes.

3. Enhanced Flexibility: Smart Factory solutions facilitate factories to adapt to changing production demands and customer requirements, allowing SMEs to respond quickly to market fluctuations. Reduced production machine changeover time and frequency leads to increased production capacity without increasing capital expenditure.

4. Reduced Costs: Energy efficiency, reduced waste, and optimised resource allocation lead to cost savings, which can be reinvested in the business. Predictable planning and production processes increase delivery performance and reduce inventory of raw materials, WIP and finished goods.

5. Data-Driven Decision-Making: SMEs can make informed decisions using real-time data and analytics, enabling them to optimise production resources, reduce risks, be agile, and identify new business opportunities.

Implementation strategies for SMEs

1. Assess Your Current State: SMEs should start by assessing their current manufacturing processes, understanding the current AS-IS condition and identifying areas for improvement. One framework commonly used globally is Smart Industry Readiness Index (SIRI). Coupled with Lean Manufacturing concept, the SIRI framework provides comprehensive assessment of current state of an SME in 16 dimensions related People, Process and Technology aspects, four dimensions to prioritise and comparison to the industry peers.

2. Define Your Goals: SMEs should define their smart manufacturing goals and objectives in the short and long term. Short term goal can be related to delivery performance, cost reduction, or quality improvement. Long-term goal may be related to future expansion in manufacturing footprint or product portfolio.

3. Develop Blueprint and Roadmap: SMEs should develop a blueprint of their digital transformation journey and the roadmap to achieve that. The plan should include AS-IS vs TO-BE processes and technologies, timelines, milestones, and budgets. Priorities need to be developed according to the pain points, budget and company’s goals. The Blueprint and Roadmap are not cast in stone. Typically, companies review the Blueprint and Roadmap on annual basis to adapt to changes in business needs, market and technology advances.

4. Choose the Right Technologies and Partners: SMEs should select the right smart manufacturing technologies for their specific needs and the right vendors to be the partners in executing the deployment. Partner with technology providers, consultants, or industry peers for guidance and support.

5. Start Small: Execute the blueprint according to the recommended priorities. With the end in mind and the blueprint and roadmap as a guide, begin with a specific production line or process and gradually expand to other areas of the factory. Typically, factories focus first on vertical integration, i.e. the integration of business process solutions within a company. Vertical integration is driven by ISA-95 framework. Next step involves horizontal integration, i.e. integration of business processes with third parties such as customers, suppliers, distributors, or other factories and business units within the same company.

6. Invest in Continuous Improvement Program: Implementation of Smart Factory is often disarrayed due to business processes which are not streamlined or designed over time when the factory was still small and operating manually. The principle in technology implementation is garbage in, garbage out. A strong continuous improvement program and culture works hand-in-hand with the Smart Factory technology deployment.

7. Invest in People Development: Majority of problems in digital transformation are related to mindset and skillset of the employees. Upskill and reskill employees to work with new technologies and ensure a smooth transition. Investment into a robust Learning and Development (L&D) program will never go wrong. 

8. Leverage Funding Opportunities: Explore government initiatives, grants, and financing options to support Smart Factory adoption.

Challenges and solutions

As in any transformative journey, the Digital Transformation journey towards Smart Factory will certainly face many challenges. It will not be a smooth journey. It will be one with lots of setbacks, disappointments, ups and downs. The key to a successful journey is to, simply, persevere.

With this backdrop, SMEs can minimise the bumps with some of these tips:

1. Initial Investment Costs: SMEs can start with incremental investments and prioritise areas with high returns, minimising initial costs. The investment amount can be seemingly daunting. My typical recommendation is to allocate 2% to 5% of annual revenue into investment in digital technology, business process improvement, and people development. 
2. Skills Gap: Provide reskilling and upskilling programs for employees to address the skills gap and ensure a successful transition. Engage external training providers to provide the initial momentum to kick off the journey. In the long run, develop in-house training department to focus on this aspect.
3. Lack of Expertise: Most SMEs do not have the expertise in house. Hiring and developing the subject-matter experts will take time. Engage the right consultants to provide independent assessment, chart out the blueprint and roadmap, improve the business processes, and introduce various digital technology solutions.

Typical digital technology solutions for SMEs

The Smart Factory technology deployment starts with digitisation and digitalisation. Digitise the manual, paper-based and analogue data collection. Design the solution architecture and integrate the various solutions. In manufacturing, there is no such thing as super app. There will be several digital solutions required to address various functions and these solutions need to be integrated. However, a careful selection of the solutions and vendors is critical to ensure the entire solution architecture is optimal, scalable, and sustainable for the future.

The following is a list of digital solutions providing the basic solution architecture to a Smart Factory:

1. Enterprise Resource Planning (ERP): If you don’t have this, then this is a good solution to start with. If your current ERP system has been in place for 7 to 10 years or even longer, then it is time to upgrade or migrate to a new ERP which is more suitable to cater to your business needs.
2. Advanced Planning & Scheduling (APS): If you are into make-to-order and dynamic business environment, typically the production planning and scheduling is still done in Excel spreadsheet despite the existence of ERP.  Improve your productivity with this effective solution.
3. Manufacturing Execution System (MES) and Industrial IoT (IIoT): Capture the shopfloor data real-time and manage the shopfloor more effectively with these digital solutions.
4. Integrated Business Planning (IBP): SMEs often have no visibility on the demand vs supply situation. This solution, coupled with S&OP (Sales and Operating Plan) business process, provides real-time, concurrent information to quickly react to changes in the supply chain, and ability to balance the demand and supply.

As stated, the above digital solutions are the fundamental of Smart Factory. Without those, there is no point to consider AI/ML and other more advanced technologies.

Conclusion

Smart Factory technology offers a transformative opportunity for SMEs to enhance their competitiveness, productivity, and innovation. By understanding the benefits and implementing strategies, SMEs can overcome challenges and thrive in the digital age. Remember to start small, collaborate with partners, invest in training, and focus on data-driven decision-making. With smart manufacturing, SMEs can achieve their goals and succeed in today's fast-paced and competitive manufacturing landscape. With the right digital transformation approach, SMEs can stay ahead of the competition, drive growth, and succeed in an increasingly digital and connected world.