As the name implies, a smart factory is … smart. An interconnected network of machines, communication mechanisms, and computing power, the smart factory is a cyber-physical system that uses advanced technologies such as artificial intelligence (AI) and machine learning to analyze data, drive automated processes, and learn as it goes.

Smart factories and smart manufacturing are part of the technological transformation known as Industry 4.0 or the Fourth Industrial Revolution. Each of the first three industrial revolutions was born out of an innovative new technology that completely changed the way we worked and manufactured goods: namely, the steam engine, the assembly line, and the power of the computer. Today, the fourth revolution is driven by digital transformation and intelligent automation.

Smart factories for a changing world

In the past few years, it’s become increasingly apparent to business leaders that digital transformation is an urgent priority for supply chains and manufacturing operations that hope to be competitive and resilient in the 2020s. The pandemic further exposed global supply chain weaknesses and industry vulnerabilities. A recent article in Forbes magazine reiterated this, stating “COVID-19 has shown the world something that the manufacturing industry should already know. Traditional supply chains and manufacturing ecosystems are failing and we need to shift to a more adaptable, agile solution that is fully digitally enabled.”

Consumer expectations are also contributing to the development of smart factory technologies and the factory of the future. Known as the Amazon Effect, consumer demand for next-day delivery has been rising at a steady and rapid pace. According to Entrepreneur magazine in 2019, “For better or worse, the U.S. economy and the global economy are in the throes of the Amazon Effect. […] E-commerce providers have been under ever-increasing pressure to match Amazon’s speed and efficiency, and there is no evidence consumer expectations are easing.” This trend has been a major factor in the rising demand for smart factory technology, as outdated systems prove unequal to meeting the scale of logistics and warehousing capacity that is needed to keep pace with this phenomenon.

Manufacturers and supply chain managers face further risk and operational disruption as they strive to minimize their reliance upon international partners. Smart factory solutions like on-demand manufacturing and virtual inventories can certainly minimize dependency upon overseas suppliers and manufacturers. However, as Harvard Business Review points out in a 2020 article, it is easier said than done to bring manufacturing back to the U.S. “Manufacturers have turned to specialists and subcontractors who narrowly focus on just one area—and even those specialists have to rely on many others. And just as the world has come to rely on different regions for natural resources like iron ore or lithium metal, so too has it become dependent on regions where these specialists reside.” Increasing domestic manufacturing can certainly reduce cost and supply chain risk, but it doesn’t necessarily eliminate the need for overseas partners nor reduce the total number of links in the chain. It is therefore more crucial than ever that smart factory technologies are in place to optimize efficiency and visibility.

How does a smart factory work?

We often talk about automated processes as if they were unique to a smart factory—yet automation and robotics have been in use for decades in manufacturing operations. Many traditional factories use automated machines such as barcode scanners, cameras, and digitized production equipment in various parts of their operation. But those devices are not interconnected. The people, assets, and data management systems in a traditional factory all operate in isolation from one another and must be manually coordinated and integrated on an ongoing basis.

A smart factory works by integrating machines, people, and Big Data into a single, digitally connected ecosystem. A smart factory not only curates and analyzes data, it actually learns from experience. It interprets and gains insights from data sets to forecast trends and events and to recommend and implement smart manufacturing workflows and automated processes. A smart factory undergoes continuous procedural improvement to self-correct and self-optimize—it can teach itself (and humans) to be more resilient, productive, and safe. 

The basic structure of a smart factory can be broadly summarized into three procedural steps

  1. Data acquisition. Artificial Intelligence and modern database technologies allow for the curation and acquisition of disparate sets of useful data across the business, supply chain, and the world. By way of sensors and gateways, the Industrial Internet of Things (IIoT) allows connected machines to gather data into the system. Through myriad other data portals, AI-powered systems can compile data sets related to performance, market trends, logistics, or any other potentially relevant source.
  2. Data analysis. Machine learning and intelligent business systems use advanced analytics and modern data management solutions to make sense of all the disparate data gathered. IIoT sensors can warn when machines need repair or servicing. Market and operational data can be compiled to spot opportunities and risks. Workflow efficiencies can be studied over time to optimize performance and auto-correct as warranted. In fact, the data sets that can be compared and analyzed present an almost infinite possibility of combinations to inform smart factory optimization and supply chain forecasting.
  3. Intelligent factory automation. Once the data acquisition and analysis have taken place, workflows are established and instructions are sent to the machines and devices within the system. These devices may be within the four walls of the factory or far afield in the logistics or manufacturing links in the supply chain. Smart workflows and processes are continually being monitored and optimized. If a news report warns of a spike in demand for a certain product, 3D printer workflows can be instructed to ramp up production priority for that item. If a shipment of raw materials is delayed, inventory buffers can be put into rotation to eliminate any disruption.

Benefits of a smart factory 

Many businesses have made do with supply chain operations and systems that have basically not changed in decades. But with consumer expectations and economic uncertainty at an all-time high, supply chain managers need solutions that can provide measurable and significant benefit—and can bring it quickly. According to Forbes magazine, in 2017 just 43% of manufacturers had smart factory initiatives underway. By 2019, 68% of them did. For companies that invest in digital transformation and smart factory solutions, there is potential for significant business benefits, including:   

Smart factory technologies 

Smart factory technologies are highly agile. As digital transformation initiatives ramp up within a business, there are almost infinite possibilities to scale, modify, and adapt as needed. 

Achieving smart factory transformation  

2020 ushered in enormous disruption and operational risk for businesses around the world. Prior to COVID-19, a 2019 Deloitte survey of over 600 senior manufacturing sector executives reported that 86% believed that in the next five years, “Smart factory initiatives will be the main driver of manufacturing competitiveness.” Today, more than ever, digital transformation and supply chain modernization have changed from long-term goals to urgent and immediate priorities for companies determined to innovate and compete.  

How you begin your smart factory transformation will depend on where you are now and which processes are the most critical to your business. An initial systems audit will help you analyze and take stock of existing processes, assets, and business systems.  Before you can begin to automate workflows and manufacturing processes, you will need to assess what they look like today.   

At the outset of your digital transformation journey, it’s also important to remember that the “smart” in a smart factory comes from its advanced data analysis and data management capacity. A modern database and a robust ERP system are the brains behind a smart factory. They support the advanced functionality that drives the system. A major factor in the success of any smart factory transformation will be the capability of existing business systems to manage Big Data and to integrate technologies like AI, machine learning, and advanced analytics. 

Finally, one of the best things about smart factory transformation is that, to be effective, it doesn’t have to happen all at once. Nor does it require existing business activities to be interrupted or paused. Every initiative a business takes to modernize and optimize their digital systems will bring them a step closer to a fully integrated smart factory. Furthermore, by their very nature, smart factory technologies gather and analyze data. This means that the impact and ROI of any new digital technologies can—from the moment of installation—be measured and assessed.  

Smart factories in action

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