The factory of the future will be more:

• Modular, flexible, and agile
• Efficient and profitable
• Interconnected, both internally and to business partners
• Sustainable, for both its environment and community

Easy to say, but ever so complicated to do?

Plenty of companies struggle with the capital investments, workforce requirements, and the data-savvy to build a factory of today, let alone tomorrow.

Further, to try to decipher future developments is to wade smack into a jungle of jargon and “consultantese,” from industry 4.0 and software-defined factories to analog front ends (AFEs) and 4D printing. (Yes, 4D—that’s not a typo.)¹

Nevertheless, business as usual won't cut it. Today's environment of “permacrisis,” as SAP's Richard Howells says in an expert panel discussion—wars, pandemic hangover, shipping backups, extreme weather events, energy costs, unstable countries—stresses traditional factories and supply chains to the breaking point. And the planetary reverberations of manufacturing, its by-products, its resources, and energy use, are existential.

Fortunately, “in manufacturing, sustainability is profitability,” SAP's Mike Lackey notes in the same discussion. Increasing efficiency and agility while decreasing waste will feed the bottom line. In other words, building the future factory is about making goods and making money. And not just in this quarter, but for decades to come.

Delving into the concrete topics underneath the pie-in-the-sky vision and through the jargon jungle, it's clear that technical progress is happening on all fronts, at a dizzying rate. Forward-looking manufacturers can take advantage of those developments now, to profit despite permacrisis challenges, while building toward tomorrow.

Here are key takeaways from our special report, with links to further details in nine in-depth articles exploring the future factory. Learn how to make smart workforce and technology investments on the way there, and how to create more value beyond the factory walls in your broader supply chain.

The regenerative factory

What might a factory look like in a decade or two? Let's start by looking at how sustainability will shape tomorrow’s factories, because sustainability equals profitability, as SAP Insights research has confirmed.

The lead article of our special report, “The Sustainable Factory of the Future,” sounds a perhaps counterintuitive note: the average factory footprint may be much smaller than today’s.

For decades, manufacturing has focused on repeatable efficiency at an ever-greater scale. Today’s driving force, on the other hand, is increasingly a demand for more agility: for example, the ability to shift manufacturing from one place to another based on demand, capacity, or disruptive events, as well as the need to produce more customized products, rather than identical widgets. Moving to a smaller form factor also has positive implications for sustainable—or, better, regenerative—operations.

“The regenerative principle is to return things better than before,” says Stanford researcher Trond Undheim. “The larger the scale, the more steel and carbon you are using, and the more difficult it becomes to disassemble. Regeneration is all about disassembly, leaving no trace, actually leaving it better.”

It’s not just about disassembly; today’s ongoing operations benefit too. The use of smaller facilities requires greater efficiency, using less space and power. It also suggests multiple, dispersed production points located closer to where the manufactured goods will be used, reducing the financial and environmental costs of delivery.

Whatever the size and scale, prominent manufacturers such as Interface, Siemens, and Tesla offer strategies for future factories to address all these areas:

• Carbon: Cut emissions faster. Spot issues and prioritize improvements by using Internet of Things (IoT) data. Store (sequester) carbon in products, as well as in the factory itself (in cement and other building materials).
• Waste: Use analytics to find advanced ways to reduce waste. Additive manufacturing yields less scrap. Reduce raw material use; recycle waste on site; think “circularly” about products through end-of-life.
• Power: Go beyond solar with renewable sources, low-emissivity windows that reduce heating and cooling costs, green hydrogen power, and improved battery and passive energy-harvesting technology for local power storage.
• Water: Capture and use rainwater; detect leaks with digital twins; treat and reuse wastewater on-site; use green and blue roofs to reduce or manage runoff.

The smart(er) factory

Now let’s turn to the rapid advance of industrial smarts, which is happening in both the IT arena and in shop floor operating technology (OT).

Tomorrow’s factory will make those of yesterday, sit in the corner with a dunce cap.

A raft of technologies are already converging, including both traditional IT elements (cloud computing, edge computing, artificial intelligence, augmented reality, 5G wireless) and new OT devices and capabilities (advanced robots, cobots, autonomous transport, additive manufacturing machines, computer vision). This convergence is what many describe as “industry 4.0”—technologies that make possible “smart factories” with new levels of process automation, greater efficiency and utilization, right-time right-place inventory, and increased safety.

This much, you already know. And some of the near-term possibilities are easy to envision. Already in 2024, a humanoid-style robot built by Figure.ai learned, reportedly in 10 hours of training time, how to make coffee by watching humans do it, then trying, failing, and improving. The distance between that extremely expensive prototype Keurig-butler and a robotic system that learns complex assembly line tasks through computer vision isn’t far.

But you also know that other, currently unforeseen smart-factory advances will lurk further over the horizon.

So how to be prepared to assimilate new technology constantly, rather than seeing each wave render current machines or whole factories obsolete? That’s one motivator behind the idea of software-defined factories, where more flexible, programmable shop floor equipment can add features, change configurations, and connect to new systems with software updates rather than hardware swaps.

However, as “Production Logistics and the New OT” find, staying on top of changes in operational advances relies on process and personnel as much as on technology: The time for meaningful IT/OT collaboration is truly overdue.

When these historically siloed teams cooperate effectively, their companies can get better end-to-end visibility of manufacturing processes, machine health, efficient staffing and inventory movement, and much more while building a flexible technical architecture that more readily absorbs change and integrates whatever’s next.

Companies including Pfizer, Chobani, and Kohl's show ways to cross this long-standing divide:

• Involve both functions earlier in each other’s projects.
• Provide training and exposure for OT people in IT processes, and vice versa.
• Set up CIOs, most often from an IT background, as leaders and learners-in-chief—actively diving into OT technology.
• Create leadership development programs that bring IT and OT people together.
• Address the divide head-on with humor and empathy. Try an exercise in which each side role plays the other.
• Consider using cybersecurity as a natural starting point for tighter IT/OT collaboration (see the next point).

The secure factory

About that security thing, in this highly connected factory...

A shop full of networked, intelligent machines needs to rethink its approach to security. Ransomware attacks knocking over manufacturing operations in the past few years have made this abundantly clear. The so-called attack surface is expanding as more OT comes online and data drives more automated processes.

In “12 Security Issues to Address as Your Factories Evolve,” our experts list key steps, including:

• Increase visibility. “Manufacturers will need to clarify the data flows between the IT and OT networks, as well as the assets that bridge this gap—for example, addressing the Internet of Things (IoT), edge computing, and building automation systems.”
• Protect power supplies and building automation systems. IT/OT security keeps adding more potential targets to defend. Local generation and storage create new challenges for safety, security, and reliability.
• Consider mobile vulnerabilities. The fast-changing world of autonomous shop floor tools that use new communication protocols that aren't yet well tested for security.
• Raise your threat awareness game. “Another strong pillar of defense is maintaining knowledge of the common tactics, techniques, and procedures enacted by adversaries and forming an accurate view of your organization’s posture relative to them,” says former chief information security officer Dawn Cappelli.

Converting the old factory into a new factory

Last but not least: retrofitting to bring older factories into the game.

Elon Musk could scare up €5 billion to build Tesla’s “Gigafactory Berlin” from scratch, chock-full of automation and AI. Maybe your company doesn’t have that kind of money sitting around.

Does that mean you stay on the sidelines? Do you need billions for a brand-new shop to even get into this smart-factory game? Do old factories really have to sit in the corner wearing a dunce cap?

Happily, they don’t. “How Industry 4.0 Factories Can Still Embrace the Past” explains why and how modernization strategies can connect older machines and buildings to modern data-driven manufacturing operations.

True, it’s not as simple as slapping sensors on everything; collecting terabytes of environmental and performance data doesn’t guarantee you’ll find the right signals needed for predictive maintenance or more efficient materials movement. However, careful analysis of likely areas of improvement, the data types needed, and cost-benefit tradeoffs can lead to targeted investment and big payoff.

For example:

• Shift-by-shift, smart sensor data can provide granular insights to increase throughput.
• Supply chain sensor data can improve the traceability of raw material flow, indicating if a manufacturer is spending unnecessary time sourcing and procuring raw materials.
• Correlating real-time environmental and machine performance data may indeed reveal risks for machine and assembly line downtime.
• Networking and geolocation technologies can help track the movement of materials and goods, spotting inefficiencies, low inventory levels, or misplaced palettes.
• Combining new data sources over time can help build an increasingly valuable digital twin of an older facility and its workflows.

The experience of companies like Spirit AeroSystems and Gary Works provides modernization guidance tips:

• Ongoing employee training and assessment is vital.
• IT and OT teams need clear, shared goals (notice a theme here?).
• Top executives have to lead the change management charge.

The future manufacturing workforce

New factories require new skills. In “Advanced Manufacturing Skills Workers Will Need,” experts foresee how common roles will change. For instance:

• Production planners will use predictive analytics to anticipate machine downtime or late-arriving materials; work out solutions, such as predictive machine maintenance or purchasing more materials in advance; and look for continuous improvement ideas to reduce waste.
• Line leaders will spend less time creating reports and more time coaching and problem solving with their team members.
• Machine operators will probably have more general training, oversee more machines at once, and work with AI tools for problem solving and light maintenance. They may rely on voice and gestural commands to operate the equipment.

These changes put a premium on flexibility, continuous learning, and problem-solving skills for all manufacturing employees.

Finding or creating the workforce for these challenges will involve a mix of strategies, as noted in “Four Steps for Hunting for Advanced Manufacturing Talent,” including:

• Rewriting job descriptions. You may find help with this from industry associations or other groups. Research Institute AIM Photonics worked with MIT to develop advanced job descriptions specific to the photonics industry.
• Reskilling current employees. Bosch plans to spend €1 billion over five years to reskill employees in advanced tech areas ranging from AI to electric vehicle engineering, Business Insider reports.
• Partnering with local educational institutions to expand the talent pool. In southern China, Guizhou Equipment Manufacturing Vocational College has created new courses covering digital process design, advanced machine tools, and debugging industrial robots. It provides specific retraining for workers in all career stages, including laid off and unemployed persons, as detailed in an Autodesk article.

Refurbishing your workforce and investing in local education is also part of how the future factory provides regenerative benefits to its local community.

Beyond the factory—the future supply chain

Inevitably, the future factory will connect more directly to more partners—that's the only way to work toward real-time, decision-making, based on demand.

Your contract manufacturers (CMs) may be your closest partners. Yet typically this is an area of limited (i.e., almost zero) visibility in manufacturers’ supply chains. “Contract Manufacturing: Supply Chains’ Blind Spot” explains why: it's not fundamentally a tech issue, it's a problem of trust, trust, trust!

Germany's LkSG law (also known as the Supply Chain Due Diligence Act) demands more visibility into a manufacturer’s supply chain—both EU- and worldwide—to help weed out labor abuse and similar problems. But whether you're solving for compliance or something else, every disruption or change can present a chance to improve supply chain performance too. Example: during the pandemic, Haier Group, based in China, mobilized its supply chain, including CMs, to share information through a homegrown cloud application. Its CM partners reported results, including a reduction in cycle time, reduced procurement costs, and increased customer orders.

How to improve visibility and collaboration with CMs:

• Communicate to partners that regulatory requirements are an opportunity to improve processes and profits for both OEMs and CMs.
• You go first in sharing systems and data with your contract manufacturing partners. Show trust to earn trust and provide value to gain value.
• Rework contracts to formally spell out how the parties will work together in a mutually beneficial way, as opposed to just defining a transactional model. For example, a Harvard Business Review article details a method of contracting that uses a “vested sourcing model.”

With trust improving, improved supply chain technology should surely yield better performance—right? But somehow, often, it doesn’t.

In “Supply Chain Innovation: What’s Next?,” three experts explore why roughly eight out of 10 supply chain tech projects fail, and how to flip that ratio.

Their recommendations include:

• Innovation benefits from a digital officer who can “paint a picture of the possible” to secure investment in pilot projects.
• However, they then have to let go of successful pilots and hand ownership over to the business.
• Innovators and project leads should “show return over and over.”
• Get your innovation funding model right. Pilots are often funded from centralized technology budgets, but then quickly the model should shift to the infrastructure budget plus co-funding from business lines and factories.
• Shared goals help get the plants to invest.

Beyond the factory—understand the value you create

As we said at the outset—there’s a lot of detail to consider and work through. Here’s a parting idea to help clear the mind and prioritize decisions: start by reexamining how your company creates value.

A factory is one link in a chain, and (ostensibly) the whole chain is designed to deliver something of great value to a customer who really needs it. Consultant Simon Wardley argues that a better understanding of how value is created in, and by, the product should yield smarter business decisions, resulting in better factory design and use.

Seems obvious? Wardley contends most companies fail at this fundamental level: “My experience has been that organizations are not very strong at understanding users, they’re much poorer at understanding users’ needs, and they can be quite poor at understanding the chain of components required to meet those needs.”

• He says lack of visibility beyond the next step in the value chain is one culprit.
• Failure to map your competitive space is another—accounting for change over time, such as a gradual commodification of components.

Test your future-factory assumptions with Wardley's insights in “A Landscape View into Value Chain Relationships.” You’ll gain a fresh outlook on familiar terrain.

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