If you’re a manufacturing SME, you’ve got a lot to gain by taking the industry 4.0 shift … and a lot to lose if you don’t!

On the positive side, the technologies to initiate a digital shift are more accessible and numerous resources are available to help.

WHAT IS 4.0?

Considered the fourth industrial revolution, 4.0 is characterized by the integration of digital technologies into manufacturing processes. The transition to 4.0 can be undertaken in phases, in line with your needs. The benefits can be derived by approaching the shift one project at a time.

Our team recently reviewed Quebec and Canadian studies on the topic, which illustrate that innovation and industry 4.0 are more essential and profitable than ever.

According to entrepreneurs consulted in connection with SITQ’s Baromètre industriel québécois 2018, manufacturers that don’t embrace this shift run the risk of disappearing in a few years. They believe that businesses have to innovate to stay competitive and meet their customers’ requirements.

A global transformation movement

Raymond Chabot Grant Thornton - image

A smart factory calls on real-time communication to oversee activities and react.

The internet connects the entity’s entire ecosystem—employees, systems, machines, products, customers, suppliers, etc.—allowing manufacturers to increase their efficiency, offer more personalized products and react more quickly to customer needs.

The impact on manufacturing promises to be remarkable: highly automated and flexible factories can now compete against low-cost factories in Asia. Leading-edge plants are appearing around the world, to the point that the manufacturing sector is being transformed into a high-tech sector.

According to the Baromètre industriel 2018 mentioned above, in Quebec, three quarters of manufacturing SME have integrated digital technology or plan to, primarily in the following areas:

  • Real-time monitoring and control (52%);
  • Equipment interconnectivity (40%);
  • Robotics (34%);
  • Lights-out production (29%).

Multiple benefits for companies

There is no doubt that the 4.0 shift pays. Businesses that have integrated digital technologies or plan to, report better results than those that have not adopted them or do not plan to, according to the SITQ’s Baromètre industriel 2018 and a 2017 Business Development Bank of Canada (BDC) survey of some 1,000 Canadian entrepreneurs.

The main benefits include:

  • Increased productivity in 60% of cases. The main driver of productivity growth is the capacity to predict and prevent downtime and optimize equipment effectiveness and maintenance;
  • Stronger increase in sales and the number of employees. Businesses that have adopted these technologies are almost twice as likely to forecast annual revenue growth of 10% or more in the next three years;
  • Higher customer renewal;
  • Overall product quality improvement. For example, quality control in real time helps reduce and even eliminate customer returns for products that do not meet specifications;
  • Higher probability of international sales and greater capacity to innovate.
Raymond Chabot Grant Thornton - image

Almost half of Canadian businesses that have adopted 4.0 say they achieve operating cost savings, thanks to:

  • real-time production monitoring and quality control to reduce waste and rework;
  • predictive maintenance to prevent costly repairs and unplanned downtime;
  • higher automation to save labour costs and improve throughput;
  • the use of 3-D printers to achieve faster prototyping, reducing the cost of engineering and accelerating time to market.

HEADING TOWARDS GROWTH: THE BASIC RULES OF A SUCCESSFUL 4.0

However, there are a few basic rules to ensure a successful 4.0 shift and truly reap the benefits. They are:

Raymond Chabot Grant Thornton - image

1. Prepare a strategic plan

This is probably the most significant tool to give the company a vision of its development in a highly competitive environment where innovation and the digital transformation will quickly become a necessity to maintain and develop new markets.

Developing a solid 4.0 strategy is as important as acquiring and integrating new digital technologies with significant investments—that generally represent 7%-9% of a manufacturing SMEs sales.

The digital plan must be embedded in the organization’s strategic planning. Its objective will be to optimize current tools, prepare a plan for future technology acquisitions and ensure consistency and integration based on the business model.

2. Call on specialists

Entrepreneurs who have already implemented a digital transformation will tell you: calling on specialized resources to support your process is key.

Our specialists can guide your strategic planning and help you benefit from R&D tax credits and financial and other support programs, such as Investissement Québec’s Innovative Manufacturer.

Raymond Chabot Grant Thornton - image

3. Engage management in the process

A successful industry 4.0 initiative and digital transformation must have management’s complete support. Management must first pinpoint opportunities for achieving gains and then mobilize employee know-how to efficiently deploy the 4.0 initiative.

In its study, Prendre part à la révolution manufacturière? Du rattrapage technologique à l’industrie 4.0 chez les PME, the CEFRIO explains that management must:

  • Define the vision and principles underlying the initiatives;
  • Encourage, simplify and regulate digital utilization within the organization;
  • Adequately support the initiatives with investments that are commensurate with the objectives and by supporting the teams in charge;
  • Convince, reassure and play the role of transformation ambassador;
  • Provide for the means to support collaboration, experimentation and entrepreneurship in the teams;
  • Identify what expertise needs to be acquired and forge partnerships that will complete the team’s strengths and bring the organization further;
  • Reinforce collaboration with customers and suppliers to make inter-entity projects and direct customer contribution to the innovation process easier;
  • Keep employees informed on an ongoing basis about the organization’s position on the transformation resulting from the initiatives.

Moreover, it’s important to make managers aware of the digital shift and train them in this area, as some may not be well equipped to successfully undertake the process. For example, you could present actual digital technology integration cases.

Raymond Chabot Grant Thornton - image

4. Skillfully manage the labour issue

Training and recruiting employees is a major challenge for organizations undergoing a 4.0 shift.

According to the BDC, the lack of qualified employees (42%) heads the list of the biggest challenges faced by Canadian entrepreneurs when implementing digital technologies. Next were excessive costs (38%), unclear return on investment (31%) and employees’ resistance to change (31%).

The SME must examine the new skills required and the qualified staff it needs. Competencies most in demand for industry 4.0 include:

  • Data management;
  • Data security;
  • Human-machine interaction;
  • User interface design;
  • Software development;
  • Programming;
  • The science of data and analytics.

5. Pay special attention to cybersecurity

IT security is a critical consideration in the shift to industry 4.0 given the increase in data and systems—which are generally interconnected and decentralized.

Interconnectivité

 

Lessons learned

In closing, here are five major lessons learned in the aeronautics industry that has extensive innovation experience:

  • Be prepared to change your business model and strategies;
  • Think strategically and for the long term;
  • Be aware that the business environment has new technological needs;
  • Manage digital projects with the same discipline as any other project;
  • Remember that the digital shift is, by far, not just a technology matter.

Next article

Our webinar on 2018 IFRS developments that took place on December 12th is now online.

The session will provide an overview of the following, among others:

  • Newly published or amended International Financial Reporting Standards (IFRS);
  • Some practical issues, including those related to cryptocurrencies;
  • The IASB’s work plan;
  • Regulatory developments.

Each participant will be able to take a test at the end of the session. A training certificate, which applies to training hours recognized by the Quebec CPA Order (OCPAQ), will be given to each participant who passes the test.

The certificates will be mailed within two weeks from taking the test.

Please note that this information session is in French.

Access the session: https://www.icastpro.ca/events/raymond-chabot-grant-thornton/2018/12/12/actualites-ifrs

Next article

To stand out in your industry, provide your customers with experiences that evoke positive and memorable emotions.

You don’t always need to invest in costly technological or operational projects to innovate in this field. Improving the client experience is primarily an everyday business challenge that must be placed at the heart of your SME’s culture and strategy.

With this in mind, it’s your role, as business leader, to clearly define the client experience you want to offer and make it a priority that engages all employees. Remember that today, above all else, clients (individuals or businesses) are looking for speed and simplicity in their interactions with suppliers as well as increasingly tailored service offerings.

Know your client well

Where can you find new ideas to enhance the client experience? Of course, you could get inspiration from the best of the best in the industry, but first and foremost, it’s all about being able to listen to your clients and knowing their expectations, what they want to live as a rational, emotional experience, and only then will you discover how to improve your delivery.

While some expectations are clearly defined by your clients, others are unclear or not defined at all, but they still exist and therefore can influence your clients’ behaviours.

You can use various methods for determining their expectations and actual needs.

Traditional methods

  • Perceptual surveys;
  • Mystery clients;
  • Analysis of the records of complaints and comments;
  • Operational follow-ups after a transaction, etc.

Social media

They allow you to maintain a constant dialogue with your clients.

New technological tools

You could gather continuous information about your clients using advanced analytical tools, for example. These will help you analyze your data, determine client trends and decode their behaviours.

Regardless of the method, it’s much more than just asking them for a list of desired improvements, hoping to foster their loyalty and inclination to recommend your products and services.

Make the most of new technologies

New analytical and artificial intelligence tools enable you to get to know your clients well by analyzing large quantities of data from a variety of sources: client databases, transaction history, email communications with clients, comments on social media, etc.

Fortunately, technological development in the past years have made these technological tools more and more affordable for SMEs. They can help you analyze the current client path accurately and detect what’s really important for clients and what can irritate them. This way, you can improve in the way they really want.

Think, for example, of automated management applications where suppliers can monitor their client’s inventories in real time (B2B) in order to always have sufficient quantities on hand. On the other end of the value chain, think about clients that can follow the progress of their order and be informed in real time of delivery time frames. Also, think about personalization tools on e-commerce websites where consumers have the possibility of configurating products based on their preferences.

Engage your employees

Lastly, in the same way you have a conversation with your clients, you should continuously maintain a client experience dialogue with your employees. It’s the best way to give this topic all of the importance due and mesh it with your business culture.

Furthermore, since the client experience is delivered on a daily basis, interaction by interaction, your employees are at the heart of this delivery experience and are also an invaluable source of improvement ideas.

In recent years, managers have tended to be very present in the field in order to supervise employees’ activities and coach them, for example. This helps gather comments to improve and discuss the client experience, while ensuring that the guidelines are followed by all staff.

As a result, you will improve the client experience, little by little, every day, by making small gestures that will add up and help keep you at the forefront of this game.

 

Next article

The Grant Thornton International IFRS team has published Insights into IFRS 16 – Definition of a lease.

The Insights into IFRS 16 series provides insights on applying IFRS 16, Leases, in key areas. Each edition will focus on an area of IFRS 16 to assist you in preparing for the required changes on adoption of the standard.

The edition Insights into IFRS 16 – Definition of a lease provides guidance on the definition of a lease.

The issue

IFRS 16 changes the definition of a lease from the current evaluation in IFRIC 4, Determining whether an Arrangement Contains a Lease, and provides guidance on how to apply this new definition. As a result, some contracts that do not contain a lease today will meet the definition of a lease under IFRS 16, and vice versa.

The bulletin explains the new lease definition and the three key evaluations necessary to determine that the contract is or contains a lease.