EACH industrial revolution has transformed production, delivered better economic output and, consequently, immense economic gains globally. But something has shifted in the past two decades—manufacturing productivity growth appears stuck. In spite of the continual improvements in equipment, software and management approaches, the annual labour productivity growth rate in the United States was around 0.7 per cent in the years between 2007 and 2018 and showed zero net average growth during the past five years.

Labour productivity is a major metric of economic output and gains in productivity are important because, on a macro scale, labour productivity determines the standard of living of people, nations and the world.¹ Currently, however, economic output is moving in lockstep with the number of hours people work, rather than rising as it did for much of the last seven decades (figure 1).²

Enter the Fourth Industrial Revolution—the newest chapter in industrial development that promises to ignite stalled labour productivity in manufacturing via connected machines, people, data and value chains. In that sense, the clever factory could potentially ignite stalled labour productivity and unlock the key to productivity for manufacturers. But how? In April 2019, Deloitte and the Manufacturer’s Alliance for Productivity and Innovation (MAPI) jointly launched a study to determine how manufacturers are pursuing clever factory initiatives to drive business impact (see sidebar, “Research methodology”). Qualitative and quantitative analysis reveals five major findings:

• Every manufacturer—whether already “running clever” or yet to invest in clever factory technologies—can harvest business value from clever factory initiatives.
• Clever factory initiatives accelerate business value creation. Companies report as much as 10–12 per cent gains in areas like manufacturing output, factory utilisation and labour productivity after they invested in clever factory initiatives.
• There is a direct and established connexion—primarily through investment and use cases—between clever factory initiatives and the business value realised. What’s more, any manufacturer can use this connexion.
• While there are risks, primarily operational and financial, they are outnumbered by the clever factory’s value contribution. Also, most risks can be mitigated through rational stakeholder selection, an efficient change management strategy, measurable proof-of-concepts and incremental investments.
• An identified cohort—we call it Trailblazers—is outperforming with clever factory initiatives.

Early clever factory adopters report average three-year gains of 10 per cent for factory output, factory capacity utilisation and labour productivity. Not just that, these companies expect labour productivity to improve another 2 percentage points to 12 per cent by 2022 (figure 2).

A closer look at labour productivity trends indicates that clever factory initiatives will likely enable the US manufacturers to “observe” triple the labour productivity growth rate during the next decade (2019–2030) compared to last decade (2007–2018).

Using the study data and our forecasting model, we determine that labour productivity will likely grow at a compound annual rate of 2.3 per cent during 2025–2030, closer to the level last seen in the 1990s (figure 3).

What does this mean for manufacturers?

The promise of improved labour productivity is certainly enticing for manufacturing, as the industry sits in the midst of a labour shortage that is on the brink of becoming a drag on productivity.³ Technology can spur new levels of productivity throughout the factory as companies combine technologies (such as vision systems, harmonic sensors and cobots with cognitive computing, machine learning and autonomous capabilities). Each industrial revolution has seen this curve. Significant labour productivity gains manifest towards the end of the cycle, reflecting the cumulative impact of reaching a critical mass of technology adoption. The study identified 12 common categories of use cases—each a combination of advanced technologies targeted at specific business and production processes in clever factories—and our analysis reveals that the majority of manufacturers actively investing in clever factory have an average of nine use cases currently in action.

We have identified six most common use cases and illustrated their application in the context of how Kentucky Pumps and Valves Company, a hypothetical manufacturer of pumps and valves, uses them in its factory operations (see interactive figure).

Trailblazers lead the way

Another key finding of the study is that there are three distinct cohorts of adopters of clever factory initiatives. We call them Trailblazers, Explorers and Followers (figure 4). Each cohort represents a different approach towards clever factory adoption. Where activity, maturity, and outcomes are concerned, Trailblazers are leading the way. In fact, this group has seen twice the level of gains to labour productivity compared with Explorers and Followers combined. Furthermore, Trailblazers expect increases in labour productivity to continue to accelerate ahead of the average over the next three years. Clearly, Trailblazers have determined the formula for extracting value through investments in clever factory initiatives.

Final thoughts

Whether manufacturers are just starting on their clever factory journey or well along the pathway like Trailblazers, there’s no doubt that clever factory initiatives could have a significant impact on manufacturing productivity. Naturally, there are caveats. There is also a need to launch these initiatives properly to set a team up for success. When and how clever factory use cases are launched can determine their success. In 2019 Deloitte and MAPI Clever Factory Study: Capturing value through the digital journey we offer a deeper dive into some of the best practises for adopting clever factory initiatives, further insights into how Trailblazers are pushing the envelope and 10 common approaches to clever factory adoption that can be part of manufacturers’ “playbook” for getting started.

Read the full report, 2019 Deloitte and MAPI Clever Factory Study: Capturing value through the digital journey, for more.

Deloitte Consulting

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