A Guide to Digital Transformation in Manufacturing

Editor's note: This blog was originally published in Nov. 2021 and updated with new information in Feb. 2024.

What is digital transformation in manufacturing?

Digital transformation (DX) is a broad business strategy, applicable across all industries, to solve traditional business challenges and create new disruptive opportunities using digital technology. Even within a single industry or a single company, these strategies can take very different forms depending on the functions being transformed and the challenges and opportunities being addressed.

Digital transformation in manufacturing is the application of technology to maximize revenue, reduce cost, improve quality, and increase flexibility. Use cases range from asset optimization to workforce productivity to speed to industrialization.

Why manufacturers need digital transformation

In order to remain competitive, digital transformation for manufacturers is a necessity. IDC predicts that by 2027 global DX spend will reach more than $3.4 trillion, with discrete manufacturing leading all industries in spend. Forrester Consulting found that more than 90% of manufacturing leaders believe that DX is important for their success. Clearly there is a lot at stake and developing a digital transformation strategy is critical to capturing the most value.

The tremendous range of opportunities for digital transformation in manufacturing is both a blessing and a curse. On the one hand, for whatever challenges you may be facing there is likely a solution out there to address them. But manufacturers are never faced with just one challenge – if only things were that simple. Instead, manufacturers are faced with dozens of challenges, multiplied across product lines. A typical manufacturing organization may therefore have many DX initiatives running in parallel to address numerous challenges. Such initiatives are usually driven by a scattergun, technology-driven approach.

Ultimately, this results in resources being misdirected and just a small set of initiatives driving true transformation. According to Harvard Business Review, while 89% of large companies globally have a digital and AI transformation underway, they have only captured 31% of the expected revenue lift and 25% of the expected costs savings form the effort.

From working with hundreds of companies, PTC has determined that the best digital transformation needs to be clearly tied to business value and outcomes. To put a finer point on it, it needs to align with critical business initiatives.

Manufacturers that have successfully adopted a digital transformation strategy are more efficient than their competition. That efficiency may be generated by greater worker productivity, asset uptime, better cross-organizational collaboration, or other digital transformation opportunities.

Ultimately, regardless of how efficiency is gained, it can be leveraged to increase revenue and/or reduce costs. These improved business level metrics in turn allow companies to be more agile in their markets, deliver better results to their customers, and garner more positive attention from investors.

Watch the video below to see how digital transformation is driving efficiency and cost savings for manufacturers:

What are the benefits of digital transformation in manufacturing?

In a separate blog, we enumerate the top benefits of digital transformation, which are all applicable to manufacturing. Here we’ll take a deeper look at the most impactful benefits for manufacturing industry. 

Fewer workplace injuries and accidents

Safety is paramount in a manufacturing environment. Leveraging digital technology to improve training and onboarding enhances safety programs, supports complex processes, and guides workers to complete tasks safely.

A couple of examples:

• Using augmented reality to capture complex processes supports onboarding efforts, teaching them in a visual way the step-by-step instructions for how to do the process safely.
• Implementing real-time monitoring can help manufacturers forecast and resolve potential safety issues before they occur. Patterns in data can trigger alerts for faulty equipment or unsafe conditions.

Reduce product rework

Product rework translates to wasted time and money, as well as negatively impacts our environment. With digital transformation, manufacturers can reduce product rework by implementing rigor around their documentation through proper product data management. In the factory, consistently monitoring how products are made and ensuring up-to-date work instructions are provided.

Increase customer satisfaction

Digital transformation initiatives can align to business initiatives, like improving product quality, enabling novel customer experiences, and delivering higher levels of service. These types of efforts deepen the connection with customers while improving their experience with your products and company. These initiatives can also have other benefits, like improving efficiency, reducing rework and scrap.

Improve sustainability

The great news about digital transformation as the key business initiatives it usually helps with are aligned with being more sustainable. For example:

• Designing with less or alternative materials saves cost while also removing embodied carbon and lightweighting the product
• Factory bottleneck analysis from connected work cells reduces waste and energy emissions while also improving Overall Equipment Effectiveness (OEE)
• Remote service avoids technician truck emissions while also improving asset uptime and reducing maintenance costs
• Modular design enables repairability and circularity while also reducing costs of market-demanded product variations

5 examples of manufacturing digital transformation

There are many reasons and drivers for digital transformation. In manufacturing, there are five types of transformation and often they are done in some sort of combination.

1. Process transformation

In this type of transformation, businesses examine their processes—whether that’s in the design process, the factory floor, or field service—and implement digital technology to support process change. This example of digital transformation often leads to greater efficiency and cost savings.

Example business initiatives are implementing digital performance management within the factory, optimizing design for manufacturability and serviceability, and improving collaboration across the product lifecycle.

2. Product and service transformation

At the core of every manufacturing company are the products they create. To stay competitive in an evolving marketplace, companies need to deliver innovative products and quality service.

With digital transformation, companies are identifying ways to iterate faster on the products, features, and customizations their customers are looking for and identify ways to improve service delivery.

DX initiatives aligned to this type of transformation include creating a digital thread where real-world product use data is fed back to design team for iteration, improving product quality, and enabling predictive maintenance and remote service.

3. Growth opportunities

There are several ways manufacturing companies identify and pursue growth opportunities with digital transformation. Some of the most common are finding efficiencies in the factory that enable increased throughput, developing new service models or features, and improve management of product and portfolio complexity.

4. Customer experience

Creating products and services that a customer most needs and desires is a necessity in the competitive landscape. Using technology to create superior customers experiences and engagement opportunities can be a differentiator.

Customers are looking for more from products, especially from a technological perspective. Delivering software-driven innovation is one way to differentiate your products and deliver a unique customer experience.

5. Cultural transformation

This one is a necessity for all types of digital transformation. With DX, employees are asked to embrace new technologies and processes, which may feel difficult or onerous at the outset. Cultivating a culture that fosters collaboration and communicates the business goals around digital transformation will be the most successful.

5 digital transformation in manufacturing challenges

1. Alignment on digital transformation strategy

While many manufacturers have been executing digital transformation for some time, routine alignment around the strategy is vital to continued progress. Ensuring the digital transformation strategy is aligned with business goals and measurable value is essential to success and program longevity. Read our blog for seven keys to a digital transformation strategy.

2. Data management and alignment

Central to many digital transformation initiatives is data. Three-out-of-four executives say improving the ability to leverage data across the enterprise would be effective at addressing disruption. However, especially with larger companies, or older companies, data is often siloed, inaccessible, or unusable.

Understanding the systems where data lives, the accessibility of that data, the connectedness of that data, the hygiene of that data are all necessary evaluations—and challenges. However, enabling accessibility and traceability of data, especially product data in the case of manufacturing companies, can be a transformative effort. Proper data management and accessibility is the key to unlocking many advanced digital transformation efforts.

3. Employee buy-in

PTC data shows that the most successful digital transformations have both executive and employee buy-in. Employees at all levels need to feel a sense of project ownership. There needs to be a balance between driving decisions from the executive level and the functional level.

Nurturing a culture where employee feedback is heard and considered is the foundation for innovation and transformation. Further, communicating the reasons why changes are happening, why it’s important to the business, and supporting employees with the right training, reskilling, and upskilling are all key elements to transformation success.

4. Finding the right technology partner

Digital transformation in manufacturing requires the support of outside counsel and vendors; identifying trusted partners to support your endeavor long-term is crucial. Cost is just one of many considerations; it’s about finding a partner who not only has the right technology (or technologies) but also possesses expertise in manufacturing, shares the same values and innovation goals, and that can support and scale with you over time with additional technologies or enhanced solutions.

5. Effective change management

Digital transformation is a long-term effort that requires consistent change management over many years. Many companies appoint a digital transformation officer, but some of the more successful companies also have a digital transformation governance body. This group is cross-functional and representative of stakeholder groups. It assures a sense of ownership across multiple impacted groups, and provides visibility on transformation initiatives and progress.

Final thoughts

A PTC survey found that there is a stark difference between the companies that succeed in digital transformation and those that do not. Companies that meet ROI goals expectations, beat them by an average of 50 percent; those that fail, miss expectations by an average of 30%. This insight underscores the requirement for not just digital transformation, but strategic digital transformation for manufacturing organizations.