By Mike Tomera
In our survey of 157 senior executives in 26 countries, they say they are investing about 4% of annual revenue, about one percentage point below other sectors. A little less than a third, 31%, say they’ve reached an advanced level of digitization and 62% think they’ll be there in five years. As with the other sectors in our survey, metals is counting on Industry 4.0 initiatives to help reduce operational costs and increase revenue growth.
The focus of their digitization efforts. Metals companies are focusing on digitizing the vertical (40%) and on the horizontal value chain (38%). It’s easier for companies to accomplish vertical integration, since it deals with their own processes, than to coordinate across other parties in the value chain. Despite the benefits of greater horizontal integration on order coordination, material flows, and production data, only 55% expect horizontal integration to reach a high level of digitization in five years vs. 67% for vertical integration.
In five years, 63% of metals companies expect to see high levels of digitization in product development and engineering. Even now, these functions are being increasingly integrated with customer design requirements. And data analytics are being used by metals companies to optimize the production process in real time. A similar number (60%) say they will achieve high levels of digitization in customer access, sales channels, and marketing. For example, they can use digitization to support initiatives that allow customers and producers to respond rapidly to varying demand. The lowest levels of digitization, both today and tomorrow, are reserved for digital business models and product and service portfolios.
When I look at these numbers, I can’t help but think that metals companies may move faster on horizontal integration than they’re now projecting. The benefits of digitizing the supply chain are just too great to ignore. More and more customers will come to expect strategic collaboration in volume and market planning and product development. Also, digitization will help clients tactically and operationally. For example, it would be much easier for customers to have orders automatically replenished or to share digital systems for technical specification sheets
The challenges ahead. The two top challenges identified by metals companies are the unclear economic benefits of digital investments (49%) and the absence of a clear digital operations vision and leadership from senior management (39%). These challenges tend to go hand-in hand. Leadership needs to understand the benefits of digitization, develop a clear roadmap, and communicate that roadmap to the rest of the company. This is particularly hard for many metals companies where different business units operate in isolation from each other; they need to be shown how the closer integration of separate processes through digitization can deliver more efficient and flexible production.
Metals companies are a little behind the other sectors we surveyed in terms of data analytics. Only 11% rate the maturity of their data analytics capabilities as advanced compared to 18% across all sectors. And 58% cite lack of data analytics skills in their own workforce compared with 53% across all the sectors. Nearly three-quarters (71%) say that increasing in-house data analytics technology and skill levels is the single biggest improvement route to boost their data analytics capabilities. Yet, we found that many companies (42%) still have ‘ad hoc’ approaches to data analytics, while another 3% per cent have no significant data analytics capabilities.
But some metals companies are further along the curve. A little over a third (35%) have embedded data analytics into specific functions, which helps increase their business knowledge and prepares them for further digitization. Another 12% have a dedicated department for data analytics serving many functions across the company
What the future holds. Relatively few (5%) companies think it will take any longer than five years for Industry 4.0 investments to pay for themselves. Given this prediction, it’s a little surprising that about a third still expect to keep their future investment relatively low. Unfortunately, the longer companies wait, the harder and more expensive it will be for them to catch up. In fact, some companies may soon find they’ve waited too long.
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