Industrial Digital Transformation Is Here, It Just Isn’t Evenly Distributed

Digital innovation is rapidly changing the way manufacturers operate, but it isn’t evenly distributed. Different industries face different challenges and there is massive variability in the way manufacturers are organized. There are also important distinctions in size, budget, and buying behavior. In China, for example, large enterprises—which are those with more than 250 employees—make up only 2% of total manufacturing companies yet are responsible for 42% of the country’s manufacturing output; in the US, the 2,000 largest manufacturers employ nearly twice as many people as the cumulative total for the 183,000 manufacturers with fewer than twenty employees; and in Germany, the 2% of manufacturers with more than 250 employees yield 78% of manufacturing output.

It’s at these large enterprises where there is not only budget and bandwidth but the complexity and scale for new endeavors, including the use of digital twins, cloud, simulation software, 5G, and Software-as-a-Service (SaaS).

Twenty-two of the thirty largest factories in the world are in the automotive industry, with the largest being Volkswagen’s Wolfsburg Plant in Germany at 6.5 million square meters and a 60,000 headcount (MD-MMD-101). Nokia and VW recently announced 5G trials for wireless upload into vehicles and robotics use cases, among others, at this location and all of the major automakers are evaluating these technologies in some way. For a brief orientation, automotive factories are often formed in a campus arrangement with a few large buildings, each responsible for a different aspect of production. In the US, these factories have an average floorspace of 1.5 square feet, which is almost eighteen times larger than the average amount of floorspace across all industries (82k square feet).

The size and scale of discrete manufacturing like automotive comes with tremendous complexity given the speed, velocity, and variability of both new product introduction and production operations. But again, it’s this complexity alongside the broader shift to electrification that puts the automotive industry alongside electronics and machinery as leading in the adoption of new digital transformation. Discrete manufacturing accounts for 42% of manufacturing output in the US while process manufacturing commands the remaining 58%.

In process industries, the main activity is supporting the shift to digital threads, a task more complex in some industries compared to others—e.g., petroleum refineries and pulp mills have an average of fifty-seven and thirty-seven buildings, respectively, as part of their operations, versus an average of five buildings in automotive. Implementing and scaling change across distributed plant networks and locales comes with its own unique set of challenges (for more on the O&G sector see ABI Research report Digital Transformation in the Oil and Gas Markets AN-5423).

The top producing manufacturing regions are China, the US, Japan, and Germany (in that order) and the transportation industry—more specifically automotive manufacturing— is the top industry in terms of revenue in all regions except China, where automotive is second and electronics manufacturing is first.

Most manufacturers have fewer than 100 employees, yet the few largest manufacturers account for most of the revenue, spending, and employment figures. Manufacturing technology suppliers must work directly with these large enterprise (the top 201 of which are contained in (MD-MMD-101) as well as through systems integrators (SIs).

There are three main types of SIs:

• Technology partner which deals with the implementation of solutions (Infosys).
• Technology advisory which recommends which solutions to employ (McKinsey).
• Technology partner and advisor, where these companies both recommend and implement solutions in addition to sometimes managing them after setup (Accenture).

Global SIs will be most useful for penetrating and supporting large accounts while regional and local SIs will be critical boots on the ground to capture and support the long tail of small-and-medium enterprises.