Ep: 4 The 7 Components to Transforming Operations

00:10 Therese Snow

 

Hi, and welcome to our DELMIA podcast global operations on the go. Today, our guests Eric Green vice president of DELMIA and Fred Thomas, strategic business development and marketing director at DELMIA, discuss the key components of the transformation journey research notes in this series. Let's listen in.

 

00:31 Fred Thomas

 

So, Eric, the research Note series is titled transformation journey. Why that particular title?

 

What is the Notes Series and Transformation Journey

 

00:38 Eric Green

 

Well, Fred, at the end of the day, what we're talking about with our customers, and conveying to our customers, is how they can leverage our solutions and technology for transformation or to support their initiatives. And what we're finding is that every single customer that we work with, is going through some level of transformation. It could be a small project, that is an initiative that's reshaping a manufacturing model for one particular product line.

Or in some cases, it could be an entire shift and pivot of their business to a new business model. And so in working with our customers, we continue to receive requests and insight from them to help them understand what are some of the things that they can be doing differently, be doing better, and understand what's required to adjust, shift and pivot their business. And therefore, we landed on the notion of a transformation journey, because they're transforming. And it's a journey, because in some cases, these initiatives, while they might be short term, and have high ROI with quick deliverables is one element or one component of a much broader initiative.

And we recognize that the most appropriate way to position what we've done here with a research note by gathering the insight from our customers or doing research on our own, and sharing our best practices, is to put this together in what we call a research series. So that's why we've titled it transformation journey DELMIA research series, and it is a series because any research note, we are covering specific topics that help paint that roadmap of how companies can transform and some of the different elements and components that they need to be considering as they move forward in their strategic initiatives.

 

02:28 Fred Thomas

 

Okay, that makes sense. But I think that term transformation probably is somewhat intimidating to people. What does transforming operations actually mean? Is it the same thing as say, smart manufacturing or Industry 4.0 or IoT? So many terms? Can you help clarify that a little bit for the audience?

 

Understanding the Terms

 

02:49 Eric Green

 

I'd be happy to. Those are all terms that the industry uses. And a lot of those are terms that have originated from a specific country promoting a specific manufacturing initiative to promote manufacturing within their country, or to protect their intellectual property. Other terms have been coined by analysts, what we're highlighting here is in the transformation journey is that all of those type of different projects and initiatives, there's some common threads that you see in those at the same time, there are some differences.

And there's some uniquenesses of each type of initiative. And it really comes down to you know, how people define what they're trying to do. They can call it smart manufacturing, they can call it Industry 4.0. They can call it many different things. But at the end of the day, they're trying to transform their business in a certain way. And rather have an initiative called Smart Manufacturing, for example, or something that's deemed as Industry 4.0, or any other initiative that's originated from either a Technology Association or from a geopolitical perspective, why not focus on what's actually taking place in the business? Thus, we're talking about transformation, which all of these fall under that umbrella.

 

04:01 Fred Thomas

 

Okay, makes sense. But if I was a cynic, and I know there, probably some out in the audience, this sounds like a technology company's latest version of the y2k event. So why do manufacturers really need to think about transforming operations? Is there really a compelling business driver? And how is it different than, say, continuous improvement actions that have been going on for quite a while and in manufacturing?

 

The Reason Manufacturers Need the Transformation

 

04:31 Eric Green

 

That's a really good question. We talked about transformation. We're talking about in this research series, the different levels of transformation. So as a cynic might think, well, yes, we're always doing some sort of change. That's true, but many cases those changes are being triggered by a larger event. And we all know in today's environment here in 2020, the manufacturing environment is dramatically different right now than it was 12 months ago because of COVID-19. But that's just one effect on manufacturing environment.

There are other impacting events or situations that affect manufacturers. And these events are activities that impact the manufacturer, they impact the way they serve customers, they in fact impact product, they impact service. And as such manufacturers either have to change their business model, they have to change the way they manufacture at the depth to augment what they're currently doing with their business to support these different changes. And in the end, they're all transforming. So while we may be talking about in the most simplest case of transforming a production line, and reconfiguring a production line to add new products, or to change the product line itself to making a totally different product, that is one microcosm of transformation, while at the same time that company may be looking at a much larger play, and their business models where they may be looking at, for example, moving from gas combustion engines to electric engines.

So each one of these transformation approaches applies. And some of these concepts apply at each level of the organization. And the difference between that and continuous improvement is the rate of change. And in many cases, what you're changing to may not be as clearly defined as just basic operational improvement that you get with continuous improvement.

 

06:43 Fred Thomas

 

You know, but you mentioned it's a really different world today than it was even a year ago. So wouldn't it be wise maybe to wait for better times until everything kind of settles down and the world stabilizes a little bit?

 

Citing the Food and Beverage Industry

 

07:00 Eric Green

 

There's obviously that argument to be made, companies have the ability to take different strategies. And what we're seeing working with our customers is these different strategies are playing out. Those companies that we believe that are not moving and adapted to the current market environment with their business and their manufacturing models run the risk of having market share taken away from them by other companies that are adapting. A great example is we have several companies in the food and beverage and in the food service industry. Speaking with the CIO, just three weeks ago, their business channels serve two different groups of markets, their business to consumer market has had significant growth, it's because people are not going out to eat at restaurants or they're buying their food differently; we all are.

While their other business channel in the B2B environment has shown a decrease, but they've been able to pivot and they're actually transforming their business to better serve this new channel. But more importantly, they're looking at how they can use this growth in this channel, and their manufacturing strategy to actually expand that channel and create new revenue streams through very related channels and that business-to-consumer environment. And that's the type of example where companies are taking advantage of the opportunity, given the current environment that we're in today, and being proactive to transform to seize that market share. Whereas if you don't do that, somebody else is going to take that opportunity, because not everybody is going to be sitting and waiting for a better market environment.

 

08:31 Fred Thomas

 

Okay, you know, this first research note, seven components to transforming operations, talks about industry disruptors, like Amazon and Uber. The question I think a lot of people will have is, do you need to be an industry disrupter to really transform operations? Were they really independent?

 

Recognizing the Disruptor

 

08:53 Eric Green

 

The really independent, you don't have to be an industry disrupter. But the reality is every industry is facing some type of disruption, whether it's the competitor or it’s a macroeconomic event. And the key is how do you recognize that disrupter and based on what's happening with the disruption of the type of disruption that it is, how do you respond? Which feeds into the previous question: Do you sit and wait and hope things get better? Or do you act? And we've already seen in the past, different technology disruptors that have disrupted markets and put companies out of business essentially, or have an impact on the company to where today it's a mere shadows of itself compared to what was 25 years ago.

You know, a great example is a company called Blackberry. Whereas the late 90s, they enabled online texting and it was a communication vehicle in addition to cell phone, what was cell phone technology changed and evolved, and then you have the ability to do texting on the phone and sending messages as well as your phone evolving to a smart app, you know, Blackberry got left behind. And they're now nowhere near what they were 25 years ago. And that type of market transformation and evolution happens on an ongoing basis. And that's just one example. There are many, many others. And the ones that are cited in Research Note 1 are examples of Amazon and Uber. But there's several other examples. And the reason this isn't the first research note is we're talking about disruptors.

But we're also talking about okay, what beyond the disruptors leads to the different components of transformation. And each research note that we are publishing covered a different topic, so that we can help our customers and our partners understand the different elements as they go down that path of evolving and transforming their business.

 

10:45 Fred Thomas

 

Yeah, and you brought it up, I have to tell you, even today, I still miss my Blackberry. But that'll be a whole nother podcast. Let's talk about transformation in a little deeper. So I'm not an industry disrupter. But what kind of compelling reasons do I have to really transform operations? Is it all about just lowering costs?

 

11:08 Eric Green

 

Oh, costs are always a factor. If I'm a CFO, I'm always gonna look at costs. And I'll look at my operating margin and my EBITDA and my financial metrics for cost of goods sold. So costs are always a factor. But at the end of the day, transformation goes well beyond just managing costs and minimizing costs. It goes about how do you create new revenue streams? Or how do you differentiate your manufacturing strategy, assuming your manufacturing core competency is part of your business to differentiate and create higher margin revenue stream for products to new channels and new customers. And so it's really looking at the entire equation, not just the cost factor. So one thing that we always look at is return on assets, which includes the revenue element, as well as the operational cost and the assets, utilization that's associated with that metric. But it's really looking at both pieces of the equation, the revenue as well as the costs and doing those in concert.

 

12:06 Fred Thomas

 

Okay, that makes sense to me. So let's actually talk a little bit about seven components of transforming operations. And we're not going to talk about all seven, let's talk about three of them. Okay, then we'll leave a little bit for our audience to read in the actual research note. But if you could talk a little bit about data, data models and control, which are three of the seven components.

 

Why 7 Initiatives are Key to Transformation

 

12:54 Eric Green

 

I’d be glad to. We've identified seven, and that's based upon working with customers on different initiatives. It's also based upon some of the research we have done with regard to looking at different analyst reports and some of the analyst findings. And we've reduced it down to seven. You can argue if it's eight or nine, but we've categorized them into seven. And the three that you mentioned, Fred, data, data models and control is how we've put together these different components. And there are additionally four others as well. The first one data that you referenced is really the foundational element, we're talking about data. What we found is that companies and manufacturers are generating a lot of data, but the reality is less than 10% of that data is being used in a way to help them make better decisions, or are used in any type of meaningful way to support their business. So you have to ask the question, why is that? Well, we all know that in manufacturing and in MES, historically, in MES, one of the reasons is that the data in an MES system has been historically viewed as a black box. Well, that's changed now.

But even with the new technology, it's available to support companies in manufacturing even including data captured with IIoT-enabled manufacturing systems, the empirical data is still showing that much data is not being used, but it could be. And that leads to the second component that you reference, which is data models. A lot of the data that we have found through the research isn't being put in the proper context. And that's what the data model does. If you have the proper data model, you can put the data into context so that you can actually make better decisions. And you can make decisions that are informed, not because you have the data and you have it in context of a certain situation. So when we talk about data model, we're talking about not only the product model of what's being produced in the factory, but we're also talking about the model of all the assets, the machines, the equipment, the processes, the factories, the plants, out into the extended supply chain, whether it's upstream into their supply network or downstream through the distribution network. So the model goes well beyond just product model.

It goes to what I would call the process model of how it gets made. And the representation of the assets, whether it's production line, work cell, or another type of manufacturing environment, as well as everything that supports the manufacturing environment from the warehousing, the kitting assembly, to the quality stations to everything else, that you might see in the line, having that all model representation so that you can understand that data in context and make better decisions. And that then cascades to the other components you reference, which is control. So I can have the data, I can have the data models, and now I have the ability to actually understand the context, but I can execute a business process or workflow. And that's where the control comes into play.

If I can execute a business process, because I have the data model the data, then I can actually execute a business process that can be different than the way I'm doing it today. And having that control of your business processes is fundamentally important as you look to transform or evolve your business to adapt new products or to move production. And what we're seeing today, for example, is some evidence of near shore where people are moving production to new geographies based upon the current market dynamics. And having control of that business process allows those customers to do so much more efficiently than if they did not have control. And a great example is, and we actually referenced this in the research note is, you know, I can have one of the world’s newest, most talked about sports cars with the Corvette and the 2020 Corvette has got a new body style, it’s got mid-engine, has got a fantastic display.

And so I can have all the greatest analytics tell me what the RPM of that Corvette is, how fast I'm going, they can tell me with all sensors, and adjust the ride. But if I'm driving towards a brick wall, unless I turn the steering wheel, or it's an autonomous vehicle, I'm still going to hit that brick wall, and I'm going to crash my brand new 2020 Corvette, which isn't a good thing. So the control allows you to make the changes to the business processes so that you can avoid that brick wall or, put another way, to capture the opportunity that you're trying to seize, because you see a market opportunity. So instead of avoiding a big risk, conversely, be used to help drive to seize an opportunity that exists because the market opened up or because you're creating a new market and becoming that disrupter that we talked about earlier. So those are just three of the different elements that we talked about in research note one, there are four others. And each one of these outlines, they're in relation to each one and provide some insight about all seven different components. And that's all captured in the first research note.

 

17:39 Fred Thomas

 

Yeah, so I think we've given the audience a good taste of what's inside this research note. Certainly, we would urge everyone to download it, which we'll show you how to do and tell you how to do in a minute. But in summary, what's the takeaway that you want the audience to understand from listening to this podcast, Eric?

 

18:03 Eric Green

 

Well, I think there's two points that I would like the audience to take away. The first is, this research Note series is our focus to help customers understand some of the larger topics that we're dealing with and working with customers today. And document that in a way so that we can share that knowledge, share the learning, and the know how that we've gained through working with different customers and looking at some insight from different projects, along with looking at third party sources. And the whole goal of this is, and this is the first point is, we are focused on helping our customers not only solve their business problems today, but to be a partner with today moving forward into the future as their business evolves and changes and transforms.

And so many of the elements that we highlight in the research note series are dealing with those things that are not necessarily about the technology, but about the elements that support around the transformation and how the technology enables elements of the transformation. But there's other aspects of this that had to be incorporated as well. And that's where the research Note series really focuses on. And so the first point is this series is designed to help our customers understand beyond the technology, how we can help and support them today and tomorrow. The second piece to this second takeaway is this is just the first step. Right now we have multiple research notes that are in the process of being published. Research note one is available now, I would encourage everybody to take a look at our research notes, two and three will be published in upcoming weeks or months.

And we have a whole series that's been outlined to convey and discuss all the different topics that are involved in transformation. And really looking forward to getting the customer feedback on all of these as they get published, as well as looking forward to working with our customers to elaborate and expose some additional topics moving forward that could provide some insight to our broader markets.

 

20:00 Fred Thomas

 

That's great. Appreciate the time today, Eric. Thank you.

 

20:04 Eric Green

 

Well, thank you, Fred. And I would encourage everyone to go to the website that’s being displayed and put up here on the screen and download the first research note and give us your feedback. Thank you, Fred.

 

20:16 Fred Thomas

 

Thanks, Eric.

 

20:17 Therese Snow

 

Thank you, Eric and Fred, for your insightful information. And thank you for listening to global operations on the go.