How Automated Digital Manufacturing Is The New Digital Transformation

Welcome to Cost Insight 2021. It’s great to have so many familiar faces joining us again this year. As we’ve all worked through our year of COVID, we can clearly see how it’s changed many aspects of our day-to-day lives. In particular, how we work and where we work. It certainly has had a significant impact on industrial manufacturing, driving digital change faster than ever before. Over the next 30 minutes, I’ll take you through the changes we’re seeing as a result of our work with you, industry analysts, and our own research.

Through this conference, you’ll have the opportunity to hear from our customers, industry partners, and the aPriori team about how digital transformation driven by automation is a key tenant to successfully operating in the post-pandemic world and leveraging manufacturing intelligence is a key part of that.

COVID’s impact has been profound, but COVID was only the latest in a series of disruptive events. According to research by the International Monetary Fund and Stanford University, uncertainty has been increasing for more than 30 years. But as we’ve become a more globally connected world, the impact has been more significant over the past 10 years. Natural disasters like volcanic eruptions or earthquakes like Fukushima, impacted suppliers worldwide material and component shortages. We’re certainly seeing the chip and rare earth mineral shortage impacting many companies and in some cases even shutting down production because they can’t get components.

Government regulations like the US tariffs against China or the carbon emission goals in Europe are changing how we design and where we make products. Accidents like the Suez Canal stalled supply chains in many places and political events like Brexit caused new dynamics about getting components and products in and out of countries.

Cyber attacks and ransomware are the most recent. We know they impacted a number of you over the past year shutting down operations, and most leaders don’t expect this trend to let up. Conversations with CEOs reveal a broad belief that the post pandemic world will entail an ever faster pace of change. In fact, more than three quarters of those interviewed expect their organizations will change more over the next five years than they did over the past five. So why were some companies more successful during situations like COVID?

Automated Digital Transformation is the Key to Success for Successful Business Operations Today

Well being digitally native and leveraging cloud technologies were key enablers to success. During COVID, 69% of digitally advanced companies saw revenue growth versus only 33% of the less digitally mature. What was the difference? Some of it was agility, but 42% said they were prepared because of how digital their business already was, or because they were able to accelerate digitization rapidly and having a strong digital platform enabling business is not just a recent driver of greater business success.

Since 2000, over 50% of Fortune 500 companies have been acquired, merged, or declared bankruptcy, being outcompeted by more innovative firms. The causal factor, according to Tom Siebel at McKinsey Quarterly is digital transformation. Digital approaches like model-based definition or digital tools like simulation to support digital processes have been around for many years, but they have not been widely adopted across organizations.

Coming out of COVID, the shift to a more comprehensive digital approach is happening and happening fast. The vast majority of organizations have accelerated the digital transformation journey of their business. The investment in digital transformation is staggering. According to IDC Enterprise, digital transformation investments that started during COVID running through to 2023 is expected to reach a total investment of $6.8 trillion. That’s trillion with a T. That translates into nearly two thirds of global GDP being digitalized.

Automation Solutions Are Having a Significant Impact on Time to Market in Manufacturing

We at aPriori are a microcosm example of this. In May of 2020, only 5% of our annual recurring revenue was cloud. Now it’s almost 40% in just 18 months, and that shift continues to accelerate and digital transformation is having an impact. Those organizations engaging in digital transformation are seeing results. In Deloitte’s 2021 Insight survey, higher digitally mature companies were about twice as likely as low maturity companies to report net profit margins and annual revenue growth significantly above their industry average.

The impact digital transformation has on manufacturing is clear, with 20 to 40% reductions in time to market, supported by big reductions through the shift from physical to digital prototyping, and also driving faster time to revenue, plus significant reductions in R&D and material costs. Digital transformation saves time and saves money in both building new products and improving existing products.

Automation Tools/Automation Platforms

With most organizations doing post-pandemic planning, we’re seeing two business priorities that are top of mind. Not surprisingly, resilience and automation. Automation is high on the agenda of many companies. They’re investing heavily in process automation with 85% planning to increase their investments. Data is an important foundational element to automation, so it’s not surprising that more than 80% agree that data-driven management is essential to stay competitive. Automation helps support the processes driving digital automation and is key to future resilience. In fact, two-thirds of execs surveyed by Deloitte believe that organizations that don’t create digital initiatives in the next five years will be doomed.

We’re seeing many of you investing heavily in automation. We’re focused on helping to support your automation workflows and goals and are working to build automation into everything we do so that your customer experience exceeds expectations and allows you to meet your digital goals. Several months ago, we introduced aP Generate, our technology that integrates into the PLM system so that when a CAD model is checked in, manufacturability and cost assessments are automatically triggered and the design engineer is only notified when there are issues with the design. For those of you interested in learning more about what we’re doing around automation, Samantha Scaglione is hosting a session called Automation and Integration: two sides of the same coin.

Successful Digital Transformation Leads to Competitive Advantages

It’s not just COVID, though that’s driving digital acceleration and the need for automation. The pace of change in our business continues to accelerate. Just look at innovation and manufacturing processes as an example. If you look at the total US patents registered for industrial manufacturing processes over the past 20 years, it went up by 153% compared to the 20 years prior. And the competitive landscape in manufacturing is more dynamic than ever with digital-born startups taking the industry by storm. SpaceX, Rivian, Arrival and Canoe are just a few examples of digitally born natives growing by leaps and bounds. Product capabilities have changed significantly as well.

Innovative connective products are no longer luxury items. They’re a must-have. John Deere was an early digital mover infusing AI and computer vision into its products for precision agriculture, its combine advisor systems, use cacamerasnd sensors on harvesters to monitor operations and adjust machinery in real time.

Company executives credited Deere’s digital transformation initiatives with helping grow net revenue 19% year over year in its fiscal Q1, 2021. All of these changes are accelerating the push to digital. However, moving to the digital world isn’t easy. 75% of 1500 senior executives say different business functions like R&D, engineering, production, sourcing, and operations are often competing against each other instead of collaborating on digitization efforts, that’s where automation can play a key role, helping to tie steps in a contiguous business process together. The manufacturing intelligence aPriori generates can help support that.

The automated insights generated by aP Design or aP Generate by the design engineers during the design process give sourcing teams much earlier visibility to the manufacturing capabilities that may be needed during production, thus enabling them to start working earlier with their supply base and ensure faster time to market.

Automation Requires Rethinking Business Processes

I’ve talked a lot about the shift to a more digitally based automated world, but from a practical perspective, how does that change how we work? Well, fundamentally, it’s no longer about working in silos and passing information from stage to stage, person to person across the product development production cycle. It’s about collaborating in real time to do business faster. Digital transformation and automation make that possible. The evolution of the buyer/supplier relationship is a good example of how the world is changing. If you look back 15 to 20 years ago, it used to be about negotiation, about getting the best price.

In recent years at our Cost Insight Conferences, many of you talked about what you were doing to make the buyer/supplier process more collaborative with ongoing interactions, incorporating more operational details and with more transparency about the business relationship. But where we hear many of you planning to go now or on your way to is around true supplier/buyer partnership with strategic interaction supported by high transparency both operationally and from a data perspective. Why? Because with a shared business outcome, both parties win and you get great results faster.

Given this evolution, how will digital transformation, automation and collaboration help, and what does the future of procurement look like in 2025? Well, according to organizations like SAP, it looks very much like some of the things that I’ve just articulated. Negotiations will be based on the collaborative value of the ecosystem. Partnerships will be formed to unlock value and innovation.

Today, 52% of procurement organizations’ time is spent on transactional activities. In the future with real-time data enabled by communicating systems, they will eliminate the data entry errors and reduce rote work. Connected business environments will allow buyers and suppliers to collaborate digitally with ease via apps, increasing the efficiency of collaboration and accelerating it. So ultimately, supplier and external workforces will become invaluable business partners.

These hyper connected ecosystems will enable business agility, allowing procurement professionals to interact with partners and customers in a highly cost efficient, scalable manner. How likely is this? Well, 84% of procurement organizations believe that this type of digital transformation will fundamentally change the way their services are delivered over the next three to five years.

Digital Transformation and Automation Are Helping to Shorten Product Development Processes

It’s not just procurement that is changing as a result of digital transformation and automation. We’re seeing many of you make product development changes as well. Product life cycles are now much shorter. I was speaking with one company recently who described how their product development process has shifted from 48 months to 20 months in their most recent release. Simulation and prototyping are helping increase pre-launch maturity, reducing late-stage design changes, and after-launch product issues. If you’re interested in learning more about this, please watch the session entitled, Solving Real Business Problems With Manufacturing Simulation by Dave McDermaid. He’s going to discuss how aPriori customers are addressing these exact problems with manufacturing intelligence solutions from aPriori.

Stage-gate development is shifting to agile stage-gate with more collaboration, supporting faster release cycles. Digital transformation is also all about leveraging data across the product lifecycle. We’ve seen an uptick in systems integrations and the introduction of data links to share data across product development and sourcing applications. And some of you are now shifting to an ecosystems approach, collaborating with outside partners and introducing parallel development approaches to bring better, more innovative products to market faster.

Automation and Digital Transformation Initiatives Ensure You Get Things Done Right the First Time

And lastly, the shift to getting things done right the first time through pre-launch cost savings and early manufacturability improvements is a key focus. We had a great example of this during COVID, one of our customers had a product line that was marginally profitable before COVID. When production restarted as we were coming out of lockdown, cost structures were significantly different and it was no longer profitable. They went immediately into a cost/down exercise so they wouldn’t have to sunset the product.

With aPriori’s help, within a 30-day period, they were able to determine how to bring costs back in line. Well, that’s the great news. However, product life cycles were moving so quickly that the VAVE efforts had to be fed into the next release. COVID taught a valuable lesson in this case, and for them has driven a key process change. They’re shifting to incorporate design for manufacturability and cost insights during the product design cycle instead of waiting to address them after the product launches.

So how real are these anecdotal changes I just talked about? Well, according to PWC, 61% of digital champions have already digitized their product development process. And by 2025, PWC sees the majority of digital champions co-creating their products, leveraging digital simulation, embracing product portfolio management, incorporating data analytics and AI, and utilizing digital prototyping, agile development, and digital twins. Just like procurement is moving to become part of an agile ecosystem, so is engineering. Companies are becoming part of a broader integrated partner ecosystem that focuses on internal and external co-creation with agile and digitized development processes and methods.

Business Performance Results

Here’s a recent example of one organization leveraging the new generation of digital information during design with significant results. This defense contractor was at a late stage in the product design process where they needed to shift to full production, but had cost and cycle time challenges. Using aPriori’s manufacturing simulation to evaluate high-risk machine components, they were able to identify areas where the design specifications were driving cost. Through this analysis and a simulated shift to alternative manufacturing approaches, they identified $100 million in expected savings over the five-year program.

This is just one example. Accenture is very familiar with situations like this given their work. Their presentation this afternoon will give you more insights on design to margin and model-based sourcing. And in the innovation track on day two, there are a number of sessions that we’ll talk about how to effectively implement and leverage, design for manufacturability.

The Fundamental Steps for Digital Transformation

What are the fundamental steps for digital transformation? Well, McKinsey suggests five steps that align very much with what we’re seeing digital leaders pursue. Create a digital thread right at the start of the innovation process and maintain it. Find manufacturing partners that are digitally native. Ensure that you have the right digital tools to manage your supply chain. It’s way beyond time to throw away those time-consuming, error-prone spreadsheets. Insist that your own manufacturing ecosystem or that of any supplier has implemented a digital transformation strategy and embraced digital technologies, digital twin automation, robotics, additive manufacturing, and artificial intelligence. They’re all digital building blocks. Manufacturing intelligence is a critical part of the digital thread that can help support your digital transformation. Guiding design decisions from early design to ongoing production and reducing vulnerabilities.

The manufacturing and cost intelligence aPriori provides is already helping manufacturers accelerate their digital transformation and drive automation. And it’s because it helps connect the product development production silos. It helps enable individuals to work faster and more efficiently across departments by leveraging manufacturing intelligence already generated by other teams, and it enables consistent manufacturing results so that you can drive alignment across the product development process. Having that consistent manufacturing intelligence enables people to see data the same way. All of this helps accelerate business outcomes and positive customer experiences.

Cloud computing, artificial intelligence and automation are key building blocks for digital transformation. While these building blocks don’t provide valuable differentiation, they are providing the new platform on which we’re all starting to operate. However, true digital transformation depends on how we leverage these technologies to drive business faster with greater business outcomes. As many of you know, these are the foundational elements in our strategy.

Over the past 18 months, aPriori has evolved our cloud app not just to serve individuals, but serve teams who can leverage work done by other teams to operate faster and collaborate to execute sooner. In addition, we’re continuing to enhance our existing cloud applications, like aP Design and aP Analytics.

All of this is built on our manufacturing cost insight platform to provide shared digital manufacturing intelligence across your ecosystem and your product lifecycle. As you can see, we’re continuing to expand our family of DFX products to support design for manufacturability, for cost, for sourcing, and for quoting. In addition, we’re doing early research and pilots with Lighthouse customers on design for sustainability. And for those of you working on government contracts, or our government agencies, we have started to work with our key security and platform partners like AWS to build support for GovCloud, FedRAMP and the new CMMC security standards.

I’m very excited about our direction through our conference and your interactions with the aPriori team. I hope you’ll see how through automation, collaboration and integration, you’ll be able to leverage manufacturing intelligence like never before. With our manufacturing intelligence and technology platform, we can help you drive better, more automated decisions from concept to production, helping to accelerate your digital transformation. Now I don’t want to steal any more of Julie’s thunder, so for more details on our product direction, Julie Driscoll, our chief product officer, will be presenting these details in our product roadmap session. Coming up next.

We have certainly seen that COVID has chang the way we work and we’re working hard to help you reimagine the way people and technology can work to bring great products to market faster and with outstanding results. I hope you enjoy the conference.