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How Big Data and Analytics Can Transform Manufacturing

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What’s needed is a very strong technological capability and an ability to help these manufacturing companies evolve

Manufacturing companies are fast realizing that data and analytics can help tremendously in improving operational efficiencies and business processes, and in transforming business models — and they are investing heavily in it, says Jon Sobel, co-founder and CEO of Sight Machine, an analytics company focused on the manufacturing industry.

In a conversation with Knowledge@Wharton, Sobel discusses the changing dynamics in the industry and explains why the focus of solution providers has shifted from offering local solutions to enterprise-level insights.

Knowledge@Wharton: Let’s start by talking about how manufacturing is being transformed by digital technology and especially with the coming of age of big data. What’s going on there?

Jon Sobel: Manufacturers are looking very systematically at everything they do, from the methods they use to make things, so technologies like 3-D printing and additive printing, all the way to their business models. These large giant factories that have produced things are being broken up and distributed around the world to become much more flexible. And they’re realizing that as manufacturing becomes more networked and takes on the characteristics of a system, just like in the virtual world, the key to making the system effective and being strategic about it is the data that is generated in the system.

And so, in the same way that a bunch of technology companies spent 15 or 20 years hooking everything up and realizing, “now we have to use big data to make sense of it,” they’re starting to look at all the data that’s generated in production as an opportunity. First, [they want] to improve the efficiency of manufacturing operations — so time honored problems — how do we improve quality? How do we keep our factories running? Next, [they want] to improving business processes and then all the way to business model transformation. And so, they are investing heavily in the capability to use data that’s already there. There’s a huge amount of data and manufacturing that just sits on the floor. And they are starting to think very purposefully about using it.

“What’s needed is a very strong technological capability and an ability to help these manufacturing companies evolve.”

Knowledge@Wharton: How big is the market? And what are some of the dynamics going on between manufacturing companies trying to become more digital and software companies entering the manufacturing space?

Sobel: It’s a fascinating question. By most accounts, if we look at the Internet of Things market, McKinsey believes manufacturing is the largest opportunity of any industrial category. Other firms echo that. The numbers that are thrown around as far as the expected value creation from using data and Internet of Things technologies are in the trillions over the next 10 years. If we get very precise and say, “What is the market for big data software to help manufacturing?” The most recent estimates are that it will go from approximately zero now to over a billion dollars within the next five years. So by whatever scale you use, it’s a big opportunity.

You asked about all the people approaching this market and it’s fascinating. Many companies are trying to build do-it-yourself solutions, which is understandable. It’s an extremely challenging problem, so a lot of them try and then, at some point, look for help. The major industrial companies such as GE and Siemens have invested, literally, billions of dollars in this opportunity. And then, the largest software companies, the cloud companies, the business process software companies, they’re all funding and developing initiatives to provide insight.

One way to look at the market is to see all the people who are touching manufacturing. They all want to be a provider of analysis, of insight. And everybody from the software supplier for the front office to the logistics or supply chain provider wants to be able to help the customer understand better what’s going on. And it is a fascinating collision of industry and business cultures because everybody has a toehold on the opportunity, but what’s needed is a very strong technological capability and an ability to help these manufacturing companies evolve.

Knowledge@Wharton: Since you mentioned the collision, is there anyone who is winning this battle? Or is it still being played out?

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