The impact of operational excellence on the looming transformation in manufacturing

The impact of operational excellence on the looming transformation in manufacturing

Executive Summary
A wave of digital technology, designed to make manufacturing leaner and smarter, is shaping a new manufacturing environment that bears little resemblance to the shop floors of the past. So how will these technologies impact operational excellence? The answer, contends Dr Dino Petrarolo, lies in the inverse of the question, as only organizations with a sufficiently high level of operational excellence will gain any benefit from this next stage of manufacturing evolution. This level of excellence can only be attained through an incremental, maturity-based approach to operational excellence as well as the fundamental people engagement practices.


Manufacturing is going digital. Smarter robots, 3-D printing, big data, machine-to-machine communication and mobility are all part of a wave of converging technologies heralding the advent of the next industrial revolution. It even has a name — originating in Germany, the term “Industry 4.0” is used to highlight the breadth and force of a looming transformation in manufacturing, a term fast gaining traction across the globe.

operational excellenceFor manufacturers, this transformation will yield a profusion of new tools designed to build smarter, leaner factories, and it will create opportunities to develop groundbreaking products, materials and techniques. At the same time, manufacturing companies are becoming more complex and globally dispersed, accelerating the need for increased innovation, collaboration and visibility. Manufacturers therefore face unprecedented challenges as these global economic forces drive competition and open opportunities in new markets.

So how then will operational excellence prepare us for this next stage of evolution in manufacturing?
Firstly, we need to look across industries to see how these trends and milestones play out in practice. The convergence of applications in smartphones is similar to the convergence in equipment technology: in the beverage industry, for example, three different machines were traditionally used to rinse, fill and cap a bottle; for a while now the work is being done by one integrated machine (“super block”) at rates often exceeding 17 bottles per second.

Although the world of work is subject to continuous change driven by globalization, new technology, and demands from society, there will always be some principles that remain. As a simple example, we used to check the oil in a motor vehicle when going to a filling station. This action has now been replaced by sophisticated detection sensors that warn us when the oil level is low, but the fact that the vehicle must not run without oil remains. In other words, technology does not replace the need for understanding. Of course, electric vehicles will soon start changing much of this too.

Technology will undoubtedly simplify things, but will also create a level of abstraction that can be wasteful or even dangerous. Consider monitoring screens used in control rooms: they can keep operators away from the real equipment performing the task, lulling them into a false sense of security that “all is fine” even if, for example, sensors don’t function properly. (Product, energy and/or water could be “flushing to drain” due to faulty valves or device, creating huge wastage and costs.)

Embrace new technology with a maturity-based approach
As manufacturing companies become more complex, flexibility, efficiency and improved collaboration are required to develop and manufacture an increasing number of products to meet rapidly changing demands. CEOs recognize that to achieve these business objectives, and be competitive in a global manufacturing environment, their organizations need to do a better job of getting the right information to the right people at the right time, in an integrated format in order to make quick, smart business decisions. The organization must become more responsive to changing market and operational conditions, without sacrificing prevailing efficiency.

operational excellence

Fundamentally, an incremental, maturity-based approach to operational excellence prepares the organization to adopt and adapt new technologies at the correct pace. If operational excellence is not at a sufficiently high level, your organization will struggle to gain the benefits of any new technology. In fact, a McKinsey research report found that companies with top values in operational KPIs on average achieve an EBIT margin of 7 percent p.a. and sales growth of 10 percent p.a. Companies with a need for operational improvement, however, only achieve an EBIT margin of approximately 5 percent and likewise sales growth of 5 percent p.a.

People engagement the key to true convergence
While technology and network convergence have occurred within many manufacturing companies, the bigger challenge is often organizational and cultural convergence. This convergence is essential to truly break down barriers and eliminate silos of information and isolated systems. Only then can a manufacturing organization align technology with its business objectives and become more responsive and efficient.

Thus competitive capability will not necessarily come from automation or technology, but rather from the adaptation and creative use thereof. Already we are seeing that the fundamental people engagement practices — teamwork, leadership, goal alignment, and so on — are becoming even more important as technology becomes more sophisticated.

Done correctly, the adoption of new trends and technologies will certainly help accelerate maturity development in organizations. However, just like a child needs to go through phases of development before becoming an adult, the same is true for organizations: You can speed up the pace, but you cannot avoid the growth phases.


Dino PetraroloDr Dino Petrarolo is a Senior Vice President of CCI (the people behind TRACC), and is responsible for business development and strategy. He previously worked in the automotive and FMCG industries in business leadership and strategic development roles. Dino obtained both his MSc and PhD degrees in Industrial Engineering from the University of the Witwatersrand (Johannesburg). He is registered as a professional engineer in South Africa, as well as a chartered engineer in the UK. In 2008, Dino received the international Martin K. Starr Excellence in Production and Operations Management (POM) Practice Award in the USA for recognition of major contributions to this field.


This resource has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained herein without obtaining specific professional advice. Competitive Capabilities International (CCi) does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this resource or for any decision based on it.

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