According to a recent report, more than 50% of U.S. manufacturers have either started or plan to start digital transformation initiatives to improve their operational performance. 

To a large extent, much of this movement is fueled by the pandemic. Last year, most manufacturers had to put their expansion strategies on hold to simply remain operational. While those concerns still exist, manufacturers are now looking to fortify their operations for the future. 

While these projects come with obvious advantages, there are many challenges of digital transformation in manufacturing. Today, we’re looking at a few of the key issues that can lead to project failure or missed opportunities. 

A Failed Payroll System Implementation

Panorama’s Expert Witness team was retained to provide a forensic analysis and written report to the court regarding the failed implementation of a major software developer’s ERP/payroll system.

5 Challenges of Digital Transformation in Manufacturing

1. The Cost of Initial Investments

Large enterprises typically have the budget and bandwidth required to embrace new digital solutions. However, small-to-medium manufacturers often lack the means to pursue those same goals. These organizations might decide to stick with legacy systems, especially if there aren’t any obvious pain points associated with them. 

If you’re in this situation, a strategic plan can help you move forward with confidence. This plan can help you prioritize which changes to make, when to make them, and how you will measure project outcomes.

With the right strategy, SMB manufacturers can make smart investments in advanced technologies that can deliver measurable benefits, including:

  • Improved operational efficiency 
  • Reduced downtime
  • Improved data visibility and analysis

While initial investment costs may be steep, you should consider the opportunity cost of failing to adopt new solutions that bring the aforementioned benefits. Will you fall behind the competition? Will you lose brand buzz and customer loyalty?

2. Cybersecurity Challenges​

Research shows that more than 60% of manufacturers have experienced at least one cybersecurity incident in their newly installed smart factories. As a result of those incidents, 43% have experienced system outages lasting more than four days. 

Any digital implementation plan should clearly define how you will manage your existing cybersecurity protocols. It should also explain how your new system will enhance these protocols, and what new systems you’ll need to adopt moving forward.

To understand which areas of your business are the most vulnerable, you should perform three key tasks:

  1. Identify mission-critical information assets
  2. Create business process roadmaps that show how that data travels throughout the organization
  3. Determine the risks accrued if that information became lost, damaged, or compromised

Step 2 should involve two separate maps. The first will depict the current information flow, while the second will incorporate updates based on any new technologies or business process reengineering work.

3. Lack of Digital Expertise

It’s no secret that manufacturing has become quicker, sleeker, and more automated than ever before. However, this industry is still relatively new to the digital game.

As such, many manufacturing leaders may not understand the inner workings of some of the latest developments, such as:

  • Process automation
  • Advanced data analytics
  • Cloud computing
  • Sensors and IoT
  • Digital twin technology
  • Machine learning
  • Artificial intelligence
  • Zero-trust models

This lack of direct knowledge can impede progress, but it isn’t a reason to avoid digital transformation altogether. Manufacturers who lack relevant technical expertise can find guidance from an independent third party who can leverage their industry and technical knowledge to guide technology purchases. 

4. Inflexible Legacy Infrastructure​

Modern manufacturing technologies, like manufacturing ERP systems, are robust and future-focused. However, they are not always compatible with a company’s existing infrastructure. In fact, the opposite often holds true. 

Before you roll out these new systems, you will have to make some hard (and often unpopular) decisions. This may include retiring legacy processes that aren’t as efficient as they used to be. It might mean retraining employees, even those who have been there for years or hold a managerial rank. 

Clearly, legacy infrastructure can be difficult to replace, so we recommend starting small and discussing where digital technologies can have the greatest impact. Which manual processes will benefit the most from automation, and which ones can stay as-is? Features that incorporate predictive maintenance usually take priority, as these can significantly improve ROI.

5. Employee Pushback and Resistance​

A manufacturer could heavily invest in digital transformation only to find that it didn’t achieve the anticipated results. When this happens, the issue isn’t always technical. In many cases, the issue is related to the people and processes behind the technology.

In manufacturing, it’s common for employees to resist digitization. Often, this comes down to fear. Team members begin to realize that their jobs may become obsolete or change beyond recognition. They also realize that with the click of a button, they could make a wrong move that holds serious consequences.

Examples of such missteps include:

  • Incorrectly configuring machines
  • Mishandling tools or equipment
  • Forwarding business-sensitive data to third parties
  • Opening unsafe or unknown attachments

Encouraging employees to work past these concerns may require a total shift in company culture. If your organization isn’t the type to celebrate and embrace change, then don’t expect them to start today. Culture shifts take time.

We recommend establishing a continuous improvement culture where employees are motivated to speak up when they see opportunities for improvement. This puts them in the right mindset to embrace the changes wrought by a digital transformation.

At the same time that you’re transforming your culture, you should be focusing on organizational change management. This will not only help you change your culture, but it will equip employees with the knowledge they need to embrace the specific changes that will affect them.

Avoiding Digital Transformation Failure

Manufacturers around the world are looking for ways to increase their agility when it comes to responding to changing market conditions and changing customer needs. As they adopt new digital technologies, they are finding they can serve dynamic customer needs more efficiently than ever before. 

These manufacturers didn’t get there by taking shortcuts, though. Instead, they were aware of the challenges of digital transformation in manufacturing, and they were keen on building and finding the people, process, and technology expertise necessary for navigating project complexities.

Our ERP consulting team is here to help you avoid failure by anticipating all the challenges you may encounter. Contact us below for a free consultation.

About the author

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As Director of Panorama’s Expert Witness Practice, Bill oversees all expert witness engagements. In addition, he concurrently provides oversight on a number of ERP selection and implementation projects for manufacturing, distribution, healthcare, and public sector clients.

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