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Cloud Transformation and the Future of Manufacturing

By now, there is widespread awareness of how the global manufacturing sector was affected by the COVID-19 pandemic from 2020 till today. Lockdowns across the world led to suppliers being unable to operate, which in turn disrupted the supply chain for manufacturers. A survey by McKinsey during the peak of the pandemic in 2021 found that 85% of global executives reported ongoing supply chain disruptions.

This in turn led to shortages of various manufacturing components, while on the other hand, demand for work-from-home tech products rose exponentially. The result was a significant increase in the prices of electronics and computing components. For example, the average selling price of a desktop GPU rose to US$1077 in 2021, triple the pre-pandemic average according to data from 3DCenter.

Since then, manufacturers have been trying to improve the resilience of their supply chains and operations by undergoing or completing their cloud transformation. You might ask: How does cloud transformation help to improve the resilience of the manufacturing supply chain? This is where we will take you through the multiple benefits of digital transformation.

Manufacturing Capabilities Enabled by Cloud

For context, manufacturers that were heavily impacted by supply chain disruptions were those that mainly relied upon on-premise infrastructure and legacy systems. These include physical servers, databases, network equipment, and other hardware to support manufacturing operations. These legacy systems were unable to adapt to the sudden changes in demand and supply as there was no visibility into the supply chain due to inadequate data management and data analytics. Legacy systems also commonly lacked integrations with modern data analytics solutions, leading to a lack of real-time insights into supply chains and the ability to quickly respond to changes in demand and supply.

The usual first step to addressing these inefficiencies is to undergo cloud migration and implement a cloud ERP module such as Microsoft Dynamics 365. The migration and cloud ERP modules are designed to help enterprises manage their operations and resources, including financials, supply chain, inventory, sales, and customer service, all in one integrated cloud platform and depending on which modules are chosen. The diagram below illustrates some of the main capabilities enabled by cloud.

Sources: Vibranium Consulting, Microsoft

Depending on which cloud ERP was chosen, manufacturers may choose to implement an additional manufacturing execution system (MES) to fully enable the supply chain and smart factory capabilities listed above. An MES is the cornerstone of enabling a disruption-resilient supply chain in manufacturing as it provides real-time operational visibility and control over manufacturing operations. MESs also enable real-time monitoring of production progress, tracking of inventory levels, and identification of potential bottlenecks or quality issues before they become major problems.

While manufacturers would like to access all the advantages of cloud transformation rapidly, the entire process of transitioning to the cloud requires substantial amounts of time, especially for international companies with large amounts of data, systems, and employees. Hence, manufacturers can adopt a transformation framework, shown below, that first lays out the strategy for migration, including prioritizing the key capabilities to be established first.

Digital Transformation Process in Manufacturing

Source: Vibranium Consulting

Applying process frameworks such as the one above ensures that manufacturers can implement the highest-priority cloud capability quickly without impact on business operations. For example, manufacturers will be typically implement a cloud ERP as the foundation for other cloud modules. Using the framework ensures that existing infrastructure and employees will be able to adapt to the new ERP before more complexity from new modules is introduced. Subsequently, the manufacturer can then utilize the above framework to implement the next highest priority capability it requires.

While there are many benefits offered by cloud transformation as discussed above, it is also a process that requires a significant period for full completion. Research from Unisys in 2020 found that 36% of organizations took between 1-2 years to complete their cloud migration, while 22% took more than two years. Manufacturers who started their transformation during the pandemic are more than likely still in the process and those that have not started should look to starting now, as there are two potential future technological trends impacting the future of manufacturing that can only be leveraged after a company undergoes digital transformation.

The Future of Manufacturing with Mixed Reality and AI Could Lie in Microsoft’s Hands

One key upcoming trend in digital collaboration in manufacturing is mixed reality (MR) solutions, which include both augmented reality (AR) and virtual reality (VR) solutions. While XR is currently more popular for B2C use cases, the B2B market is growing due to an increasing number of hardware solutions like Microsoft's HoloLens 2.

While enterprise MR solutions are still a nascent market, the HoloLens 2 is considered the leading enterprise solution, with data from goHere AR stating that half of all Fortune 500 companies have at least 1 of Microsoft’s HoloLens 2. In another survey by XRHealth, a provider of virtual and augmented reality solutions for healthcare, 67% of respondents in the healthcare industry reported that they were either currently using or planning to use HoloLens 2 or similar XR technology in their organizations. While not manufacturing-related, it does indicate that enterprises are choosing the HoloLens 2 over other solutions.

The reason for the HoloLens 2’s lead is due to its MR capabilities which is MR-first with a see-through display that is overlaid with virtual assets. This is compared to other headsets which are VR-first, meaning that you would have to view your real-world surroundings through an in-built camera. The HoloLens 2 integrates with Microsoft's suite of business applications, such as Dynamics 365 and Teams, which makes it easy to use in conjunction with other business tools that many enterprises already utilize.

For manufacturing, the HoloLens 2 takes productivity to the next level as it enables virtual demos and visits of factories through Dynamics 365 Remote Assist. It can be used to enable remote collaboration between teams and experts, by displaying live video feeds and digital overlays, allowing remote team members to see and interact with a manufacturing environment in real-time. This also allows for remote or AR-assisted training for newer employees. These features have resulted in quantifiable benefits, especially in the reduction of operational costs. A survey by Forrester found that HoloLens 2 on average reduced operational costs by US$2.9m, based on a three-year risk-adjusted present value for organizations using the HoloLens 2. The cost savings were derived from MR minimizing consumables usage by 80% for instruction and training; materials cost by 10% for design, testing, and enablement; and PPE (what is PPE) usage by 60% per user.

The next key trend is the utilization of generative AI in manufacturing. While industry-specific generative AI applications have yet to be developed, it is predicted that the use of generative AI will directly impact manufacturing through the augmentation of core manufacturing operations and processes. An immediate use case for AI in manufacturing would be the generative design of components. Engineers can input their requirements (e.g. dimensions, performance goals, materials, etc.) into an AI model that will then generate a component with the specifications required, accelerating the whole design process and potentially driving innovation for the manufacturing sector. If you want more information, we have a whole piece on other AI use cases here.

We believe that Microsoft is well poised to take the leading position in both the MR and generative AI spaces for manufacturing due to its current market leader status in both B2B spaces. Hence, manufacturers which are in the early stages of digital transformation should consider Azure if they are intent on undergoing transformation to implement XR or generative AI solutions in the future.


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Cloud Transformation and the Future of Manufacturing

By now, there is widespread awareness of how the global manufacturing sector was affected by the COVID-19 pandemic from 2020 till today. Lockdowns across the world led to suppliers being unable to operate, which in turn disrupted the supply chain for manufacturers. A survey by McKinsey during the peak of the pandemic in 2021 found that 85% of global executives reported ongoing supply chain disrupt ....

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