Metalworking Industry’s 5 Biggest Digital Transformation Mistakes To Avoid

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metal factory worker checking inventory

Would you like to streamline and automate tasks? Are you convinced that industry 4.0 is the future, but you’re not sure how to best leverage it?

If so, you’re not alone! It’s hard to get a grasp on how to effectively digitalize your business. What do you do? Most sheet metalworking relies on consultants to get clarity on these topics.

However, there are a few important pitfalls to avoid before you start your project and hire a consultant in your business to ensure you’re getting the results you want and that will last for the future.

This article will tell you what you need to know to make sure you’re not making common mistakes or when you’re automating your factory so that you can sit back and relax while your company runs as if by itself.

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In summary

#1 Make sure you find true Industry 4.0 solutions, not legacy hardware and software. If you don’t get this right, you’ll have trouble integrating the factory.

#2 Ensure your business model is adjusted to the new 21st century customer, who values speed and connectivity, to get the benefits of digital transformation.

#3 Any good digital transformation will have to let go of old software solutions. Don’t be afraid that sunk costs are a part of the equation.

#4 Take care of a strategic IT design because if you don’t, data will be hard to manage, and you won’t be able to leverage the latest Cloud Data technologies.

#5 Don’t neglect IT-security risks. Make sure your network is always safe, and your operating system is up-to-date.

Table of contents

Introduction: What is digital transformation, and how does it affect the metal industry?

digitalisation in a metal factory

The transformation of the metal industry has been in process for some time now. With the emergence of new technologies, the industry is changing faster than ever.

It’s the process of transforming the way an organization does business, providing a better customer experience with digital technology, and involving all facets of an organization (such as IT, marketing, customer service, finance).

It is about using digital technologies to innovate on what you do best. It can help organizations transform their business models and improve their competitiveness.

Digital transformation is not just an IT thing. The metalworking industry has to transform in order to stay relevant.

Mistake #1: Misunderstand Industry 4.0

Industry 4.0 is not just about replacing people with robots. Industry 4.0, also known as the fourth industrial revolution, is a rapid change in the way we work.

The market is huge and expanding rapidly. Industry 4.0 is becoming increasingly popular. Check out this chart that shows the increased search for Industry 4.0 (or one of its synonyms) from 2010 to 2020.

google analytics graph for industry 4.0

What is the fourth industrial revolution?

The industrial revolutions are briefly described as:

  • 1. Industrial Revolution: Hydropower and Steam Engines
  • 2. Industrial Revolution: Electricity and Assembly Line Manufacturing
  • 3. Industrial Revolution: Automation through computer technologies
  • 4. Industrial Revolution: Digitalization of analog techniques and integration of cyber-physical systems

As you can see, all previous revolutions revolved around physical inventions such as machines and technology.

But not this time!

This time, the real innovations are in the field of digitization and connectivity. It’s less about physical inventions and more about reinventing the way software and sensors work together. It’s about how the latest developments in Artificial Intelligence, Big Data, the Internet, and Smart Devices are all interacting together.

Industry 4.0 is the latest industrial revolution. Computers work directly with automation systems, rather than relying on agents, middlemen, and additional staff to get the job done. The change now is to automate manual tasks and achieve reliable results.

At its core, it’s about a new approach to using software to reinvent our business.

What can go wrong if you misunderstand it?

Most manufacturing companies are not aware of what Industry 4.0 means in practice, where it comes from, and how to achieve it. As a result, they continue to work with outdated systems and invest in them.

There is a big chance, without realizing it, you’re still buying industry 3.0 solutions. Perhaps you’re considering buying new software and, without realizing it, you’re overloading yourself with a legacy product that’s already out of date by the time you’re going live.

Or even worse yet: you completely neglect the trends and just keep focusing on hardware, machines, and tools, instead of the software aspect of your business. 

Most successful companies will rely on the quality of their software, not the physical machines they own. Unless, of course, you’re in a low-wage country.

I know it’s easier to stick to the familiar sometimes, but it seems more rational to explore the risks of the unknown. And unfortunately, some vendors are taking advantage of this by selling “Industry 4.0 solutions” when it’s the same technology as it was 20 years ago.

It is common that budgets for machines are usually high, and since they are physically tangible products, this budgetary decision can often be more easily justified in front of the CFO. But as soon as a software package – i.e., a materially intangible good- costs almost as much as a machine, companies no longer see the value.

That’s an example of falling into the pitfall because if the CFO were educated in Industry 4.0, the decision should be weighed equally to a software investment.

What to do about it?

Remember: We are primary in a software revolution.

Avoid thinking exclusively in terms of machines instead of software these days. Also, don’t try to look for software solutions that have decades of history. It’s probably already outdated. In retrospect, you wouldn’t take someone who invested in oil lamps instead of electricity during the Second Industrial Revolution as a role model.

They forget—or they are often simply unaware of it—that today’s age is about software that makes the difference. 

The most important thing for metal companies is to serve their customers effectively by reducing manual activities as much as possible. The only way to do this is to use the right software tools that can be reliably integrated.

The best way forward is to get educated about the best software solutions and strategies in the industry.

Here at Sheet Metal Connect, we provide a wide variety of independent reviews and articles, such as the best ERP for metalworking and best CAD-software for metalworking.

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    Mistake #2: Failure to align your business model with your customer model

    busy engineer in a factory

     “If I had asked people what they wanted, they would have said faster horses.”

    Henry Ford

    Some people say that it was Henry Ford himself who first mentioned the famous “faster horse syndrome”, others think it was one of his collaborators. Too bad they can’t agree on who said it because the person deserves recognition for having such a brilliant thought.

    The idea is that people often think in terms of what they know. If you’re holding a hammer, you’re probably looking for nails to slam. Sometimes you don’t need a hammer or a screwdriver, but a key that will open locks.

    What we mean by this is that it’s common to automate a factory, but then forget to look for new customers for the new automated plant.

    The risk for most companies is that when faced with change, they are constantly looking for the things they know, rather than what they really require or even better: what they can do with that new change.

    The vast majority of entrepreneurs in the metal industry are still in the third industrial revolution: automated production lines that produce the same products as efficiently as possible. It’s not about the high variety or dynamic scheduling that’s required these days. It’s often a matter of running after the facts.

    What can go wrong with an outdated business model?

    In Industry 3.0, the processes and systems are designed for large batch sizes with only a few customers who do not change products frequently or have a continuous order flow.

    Inventory was the industry standard, and the larger the order size, the better. The more you could make at once, the better

    But now there is the customer of the 21st century. That other customer is no longer there because he/she either moved to a low-wage country or it simply no longer needs large continuous flows. Even the automotive industry is now changing designs at record-breaking speeds.

    You have probably already noticed the change that has taken place in your own company: batch sizes are shrinking rapidly, customers would like to have their orders just-in-time, designs are changing more frequently, and the planning of all these requirements is becoming more and more complex.

    Not only the logistical design of your factory, but also your software solutions, are probably not designed for this new type of demand.

    It is therefore also important to admit that although their size, it no longer makes sense to concentrate only on a few customers. If you just focus on better serving these few large customers, you’re missing out on an indispensable development in your industry.

    How to avoid the business model mistake?

    Think how you can serve your new customers better with the services of today’s market: faster deliveries, faster responses, digitally connected services. You have to consider all that makes your company unique, including the machines, the employees, the orders, and the software.

    For metalworking businesses that serve customers with custom products, Industry 4.0 is about quickly developing new solutions for your customers and ensuring overall productivity is improved.

    My customers have achieved this and realized that the production of products with low-volume and high variety and complexity is actually more future-proof.

    Don’t just focus on process improvement philosophies like LEAN (to avoid waste), but broaden your perspective and investigate options for becoming more efficient than the competition, such as with Quick Response Manufacturing (QRM). Consider working more intimately with your customers and vendors by connecting to digital supply chains and exchanging real-time data.

    Lastly, exploring a servitization strategy means increasing the offer of product and service packages focused on customers and their businesses. Turn your factory into a Factory-as-a-Service. In its simplest terms, servitization refers to industries using their products to sell “outcome as a service” rather than a one-off sale.

    Mistake # 3: Getting stuck with sunk costs

    business collapse

    Do you still have your CDs of Windows 95 somewhere? Or perhaps the first DVD player you ever acquired? Chances are if you did, you understand why it’s hard to let go of things that you don’t (really) need anymore, right? 

    Why do we keep holding on to things that don’t serve us anymore?

    It’s a problem that happens on a massive scale in the industry. Keeping old machines, keep updating already written software systems, and clinging on to Excel sheets, while they are already easily available in a modern solution such as ERP, CAM, and MES.

    Of course, it makes sense: If we spend a lot of money on (for example) a software system, it will be much harder to let it go, even if it no longer makes sense to continue with it.

    It’s not always easy to predict what Industry 4.0 solutions will bring, and software is not as easy to understand as mechanical processes are.

    What it’s not being realized is that the price a company pays for this approach is that of getting ahead, and this is a far more expensive one! The reason for this lies in the error about the “sunken costs”.

    How sunk costs block progress

    Let’s look at an example of this in practice. A factory wants to start with new systems and digitization. A team is quickly formed, and the providers are selected. However, as soon as the budget is up for discussion, resistance arises.

    • “But what do we do with the current system?”
    • “This self-created software that took so many working days? It certainly costs a fortune! … Can’t we further optimize what we have?”
    • “Was it all in vain?” 
    • “We’ve already invested so much, now we can’t stop.”

    So, what do you do?

    Chances are there is always someone who will mention how risky the future is and why this current thing still works fine. And there we go! Your great plans fall into nothing, and we go back to the old.

    How to get over sunk costs

    The reason for skepticism about new things is easily explained: a loss makes us twice as unhappy as a comparable profit makes us happy.

    From an economic perspective, it’s easy to decide. It’s all about the difference between what you have now and what you’ll have in the future.

    Whether it makes sense to proceed with anything depends on all future income and expenses. If this leads to a positive overall balance, this makes economic sense. Otherwise, not.

    Therefore, whenever you discover this discussion, stop for a moment and ask yourself:

    • “What will we miss out on if we don’t change?”
    • “What can we achieve if we DO let go of the past?”
    •  “Are we overrating this project because of our emotions?”
    • “What is the best decision for our customers for now and in the future?”
    • “How much value will this still have in 5 years?”

    Often the best conclusion is that the current setup has served its purpose for the time being, but times have changed, and now the actual value is probably much lower than the emotional value that was given to it.

    What helps is an independent analysis of the big picture and a plan for the future based on data, without emotional attachment to the old system, but solemnly based on facts and research results.

    Mistake # 4: Failure to keep data organized

    organized data

    A big part of Industry 4.0 is the digital transformation: the transition from paper processes to digital processes. However, it is not only about getting rid of the paper but also about defining new ways of working.

    As you can see, the terms digitization and digitalization only together result in digital transformation.

    Digital transformation is usually gradual, with certain parts of the business being changed step-by-step. Rarely do companies have the financial means and focus to change completely in a short period of time.

    A step-by-step transformation offers many advantages. One important point is that there is time to learn from the process. In addition, employees can gradually get used to the new working methods and systems.

    However, a gradual transformation has a catch: many do not know which parts to digitize, and so you may exchange one evil for another.

    Essentially, instead of a stack of paper, you have a new “data stack” somewhere. The result: you no longer know what information is stored where and what happens when you want to exchange a system. This creates a kind of “IT-hell” in which there is no longer an overview.

    The “IT-hell” of a data jungle

     Does the following sound familiar?

    • Is your office team handling 3-5 different software programs to understand what a project is about and what to do with it? Is this sometimes even combined with paper storage?
    • Does one database or file say that the design is the latest, but the other says that the customer submitted a revision months ago?
    • Have you improved products incorrectly, made orders in incorrect quantities/materials, shipped multiple times, or even unintentionally placed duplicate orders?

    If any of these things sound familiar to you, you probably already have a data problem.

    The more software is implemented, the more data is generated there, and for this to work for your business, it all needs to be integrated.

    What is forgotten when implementing new solutions is that they must work with the entire company, including the supply chain. When this is neglected, it becomes a very chaotic situation where no one really knows how things work together.

    How to keep data organized

    To counter this increasing confusion, you need to centralize all your data. As a rule, this is done by linking all systems to the ERP (Enterprise Resource Planning) software in such a way, that only one system is the leader.

    Mistake #5: Failure to plan for cybersecurity risks

    protection chain of a smart factory

    When you bring in new software, tools, and even consultants, you always bring security risks along. Outdated Windows systems (think the software on your machines) are a high risk for this.

    Most companies can get started with installing software, but one of the most common mistakes companies make when it comes to cybersecurity is not planning for cyber-security risks.

    The biggest mistake in data protection is not taking steps to prevent data breaches. The best way to avoid this risk is by implementing strong security measures when designing or upgrading any systems.

    Another common mistake when it comes to GDPR compliance is failing to follow the rules in the legislation when it comes to customer consent. Failing to comply with GDPR can lead to heavy fines, which can prove costly for businesses of all sizes.

    gps_fixed

    Conclusion: Start Making the Shift Towards a More Innovative Future Today

    In this article, I have discussed some of the most important things that you need to know about digital transformation, from why it is necessary to how you can be more successful at business.

    Now that you know what the 5 pitfalls are to avoid in digital transformation for metalworking, you’re ready to move your factory to the next level without worrying if you’re doing it right.

    The digital transformation is undeniable. There are many benefits of digital transformation, and it is something that we need to embrace and implement as soon as possible if we want to succeed in the future.

    If you’d like to learn more about our services, please see the links below.

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      About the author
      Luke Van Enkhuizen

      Luke Van Enkhuizen

      Luke van Enkhuizen (pronounced "van ekh-/œy/-zen") is a former mechanical engineer who became an IT consultant who helps sheet metalworking businesses to automate their processes with IT simple solutions– so that everything runs as if by itself.

      He helps factory owners navigate the Fourth Industrial Revolution and understand which IT decision is the right one. He helps them examine the alternatives and provides well-founded advice.

      Luke believes that having just one software for everything in your factory is a bad approach, and often discusses the downsides of buying expensive and large ERP-systems instead of having a factory built up out of specialized software systems integrated through simple and modern integrations.

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