Currently, building a digital factory has become an important goal for many enterprises, but no company has yet announced that they have built a fully digital factory. So, what is a digital factory? How can we build a true digital factory?

The digitization of factories is not just about the digitization of manufacturing

The digital factory that is often mentioned now is just one component of "intelligent manufacturing". Under intelligent manufacturing, traditional manufacturing processes will be reorganized with the ultimate goal of achieving product intelligence. Personalized customer needs and design, information access and sharing between suppliers and manufacturers, and rapid response to after-sales service, along with digital factories, have become crucial components of intelligent manufacturing.

Digital factories can not only cover various business processes from research and development to after-sales, but also expand into the horizontal field of supplier management.

The application of Industry 4.0 in R&D engineering includes digital collaboration, digital modeling, and product virtualization. By utilizing information technology, the R&D cycle can be greatly shortened, R&D risks can be reduced, and innovation efficiency can be improved. Supply chain management mainly considers the application of Industry 4.0 from two perspectives: vertical, namely product lifecycle management, and horizontal, namely supplier integration management. The application level is very broad, including well-known smart factories, smart supply chains, production information management systems, etc. in China, which can help enterprises improve the efficiency of the entire supply chain, reduce costs, and standardize the management of upstream supplier quality. Moving further to the backend, Industry 4.0 technology can also be widely applied to intelligent equipment maintenance and real-time services, creating a digital work environment, and using digital technology to improve marketing efficiency and provide better sales and after-sales services.

The construction of digital factories is different from traditional business models

Digitization can fundamentally transform manufacturing enterprises. The core characteristics of a digital factory are: intelligence of products, automation of production, and integration of information flow and material flow. Currently, no company has announced the construction of a fully digital factory on a global scale. Although Siemens has model factories worldwide, it has not yet been fully promoted globally. Leading manufacturing enterprises are adopting a series of advanced technologies to digitize production and even the entire supply chain. These technologies include big data analysis solutions, end-to-end real-time planning and interconnection, self-control systems, digital twins, and more. With these technologies, efficiency can be improved and enterprises can mass produce highly customized products. However, in order to fully unleash the potential of digitization, companies still need to connect in real-time with major suppliers and major customers.

When discussing the future prospects of digital factories, the most commonly mentioned is "mass customization production", which requires companies to establish relevant corporate capabilities from six dimensions:

Strong ability to collect and analyze customer needs;

A socialized interactive product development system;

Modular and intelligent product manufacturing process;

High flexibility supply chain management;

Production capacity that matches customer needs (including equipment maintenance capability);

Intelligent inventory and logistics management system.

In addition to large-scale customized production, the future vision of digital factories also includes energy conservation (estimated to have about 12% of energy saving space), making the supply chain safer, and accurately finding solutions from experts in related fields. Moreover, the production mode of digital factories is not limited to enterprises that produce end consumer goods. Enterprises that produce equipment can also better meet customer needs, reduce costs, improve delivery efficiency, and manage production capacity reasonably by practicing digital factories.

The digital transformation of Chinese manufacturing

Germany's "Industry 4.0", the United States' "Third Industrial Revolution", and China's "Manufacturing 2025" have led countries around the world to propose a new generation of manufacturing concepts, mainly to guide the development of industrial manufacturing. In the global environment of digitization, intelligence, and networking, they aim to upgrade traditional manufacturing towards intelligent manufacturing, meet the faster and more personalized demand response of future markets, and achieve lower manufacturing costs.

Germany's "Industry 4.0" aims to develop "intelligent manufacturing" and build "digital factories". Through a series of means such as information technology, extensive interconnection, information exchange, and process reengineering, it meets the differentiated and customized needs of consumers, improves production activity, and provides better decision support to managers.

The "Third Industrial Revolution" in the United States was proposed relatively early, emphasizing more on the impact and influence of informatization and automation on the manufacturing industry. Of course, leading manufacturing companies in the United States have also laid out and researched the trend of intelligent manufacturing, such as the Industrial Internet concept proposed by General Electric, which focuses on connecting machine analysis, industry insights, automation, and business forecasting. Made in China 2025 was introduced in 2015, becoming the first ten-year action plan for China to implement the strategy of building a strong manufacturing country. Implement five projects including the construction of manufacturing innovation centers, intelligent manufacturing, green manufacturing, industrial strengthening, and high-end equipment innovation, and carry out two special actions: quality improvement and service-oriented manufacturing. Its strategic path is driven and led by innovation, based on industrial strength and quality improvement, with intelligent manufacturing as the main direction, and green manufacturing and service-oriented manufacturing as the wings.

Overall, the digital transformation of the manufacturing industry in China is still in its early stages. As we move towards intelligent manufacturing and digital factories in the future, we must also fully utilize the industrial automation equipment widely used by Chinese manufacturing enterprises.

The future digital factory will first be based on redesigned production processes, supply chain management processes, product redesign, as well as data collection, analysis, and decision-making systems. It needs to form a standard, and automation equipment needs to be integrated into such a production system - firstly, it needs to have rich functions and application scenarios to meet production needs; Secondly, meet the demand for information collection, which includes product information and operational information; Thirdly, while achieving standardized production (standardization of process technology, standardization of components), a certain degree of production flexibility should be retained; Finally, the user-friendly interface, low maintenance costs, and simple debugging of automated equipment will also accelerate the popularity of such devices.

Bosch China Digital Factory Practice - Bosch is one of the important initiators of Industry 4.0, with leading capabilities and unique advantages in the field of Industry 4.0; Relying on accumulated experience in mechanical design, manufacturing, and software services, as well as extensive manufacturing knowledge from over 250 factories worldwide, we have become a leading enterprise in Industry 4.0. It provides a one-stop solution including sensors, hardware devices, software, and services to the outside world. At the same time, over 100 Industry 4.0 pilot projects have been launched internally.

The Industry 4.0 application currently being carried out at Bosch Suzhou Automotive Electronics Factory covers multiple aspects, with particularly evident benefits in material management, production order scheduling, equipment maintenance, and personnel efficiency improvement. In the production area, all workstations and raw materials are in an orderly management state. According to production orders, achieve automatic material calling of equipment, accurate positioning of robots, and automatic material distribution. Relying on big data collection and analysis to complete predictive maintenance. The shared knowledge base and visual communication system provide strong support for real-time maintenance. Implement customized reports on multiple terminals and provide employees with the most timely and reliable key data for different scenarios.

The Four Major Challenges in Transformation

The vigorous development of China's digital factories is certainly gratifying, but we have also discovered some problems. When we approach clients who want to build a digital factory, we often hear them say, "We want to build a fully automated or 'intelligent' factory similar to a certain enterprise." And the next question we ask is, "How does your company define 'intelligence'? Do you have a clear digital factory strategy? Do you have clear evaluation criteria?" However, most companies cannot clearly articulate their desired digital factory, but rather hope to have a ready-made definition of an intelligent factory that can be easily copied directly. In our view, the definition of a digital factory and the evaluation criteria for success are based on multiple factors.

Challenge 1: Lack of comprehensive strategic planning

We have observed that many projects lack a comprehensive strategic plan, resulting in unclear specific requirements for future digitalization and insufficient understanding of the current level of digitalization in the enterprise. As a result, it is difficult to objectively judge the gap between the two and determine the required reinforcement capabilities.

Many Chinese companies consider the development and construction of digital factories from the perspectives of software (technology) and hardware (equipment), relying on experienced internal engineers and professionals to collaborate with external suppliers, and integrating various solutions to achieve automation and tracking of specific links on the production line.

Although this move is effective, in many cases it does not solve the fundamental strategic question of 'why build a digital factory'. Therefore, enterprises should promote the construction of digital factories in a top-down manner, considering issues from a holistic perspective such as strategy, product design, and operational mode changes, and selecting suitable technologies based on their own actual situation and goals, rather than blindly pursuing so-called cutting-edge technologies. For example, Haier's development strategy centered around the Internet Factory not only aligns with the group's development direction of mass customization, but also fits Haier's rich experience in modularization and digitization, thus successfully creating an ecosystem of Internet Factories.

Challenge 2: Unable to overcome the narrow misconception of benefits

In certain industries, especially in the field of discrete manufacturing, the degree of digitization and automation depends on the current infrastructure, the products produced, and the entire production process. To achieve high digitalization or automation, it may take a long time to accumulate technical expertise before it is feasible. From a cost-benefit perspective, it also takes a long time to recoup the investment. Therefore, if we purely consider the issue of profitability from the perspective of investment return, it will make companies hesitate when facing digital factories. In today's world where sustainable development is increasingly valued, production safety is constantly regulated, and labor dividends are gradually disappearing, the energy conservation and emission reduction, human-computer interaction, remote control, and other aspects achieved by digital factories closely follow the requirements of the current situation and can bring significant social benefits.

Enterprises can use quantitative indicators such as production efficiency, individual output, energy consumption, quality control (defect rate), production cycle, etc. to evaluate the benefits of digital factories. Qualitative indicators such as reducing manual labor, improving employee morale (work is no longer boring, but more interesting and has higher added value), and increasing employee loyalty can also be used to assist in evaluation. The different demands of industries and enterprises themselves can also have a certain impact on the selection of indicators. In addition to common indicators such as production efficiency, yield rate, and production cycle, a leading textile enterprise has also chosen indicators such as turnover time and number of workers to measure the effectiveness of its digital factory. A construction machinery giant has added indicators such as production errors and logistics efficiency to its demonstration workshop to address its own pain points.

Challenge 3: Failure to fully consider technology

The development time of automation and digitization in China's manufacturing industry is relatively short, and even within the same industry, the degree of automation and technological routes of enterprises vary greatly. The data distribution is relatively scattered, making it difficult to obtain systematic data on the entire product lifecycle required by digital factories, and also making the development of standards challenging. In some traditional industries, Chinese companies are competing to plan for the leapfrog development of digital factories. However, the outdated equipment in the factory workshop makes it difficult to capture and transmit data in real time, which is the main problem that Chinese enterprises have to face. However, there are still solutions represented by lighting systems that can supplement manual operations and effectively integrate them into factory automation.

At the same time, Chinese companies often focus more on the automation rate of individual equipment, ignoring that the production system is an organic whole, and there is still room for improvement in the integration and integration of different systems such as enterprise resource planning (ERP), manufacturing execution system (MES), and product lifecycle management (PLM). It is rare to achieve interconnection between different factories. Therefore, enterprises need to develop a technology roadmap based on their own digital factory strategy, and implement various technological transformation measures in stages to minimize implementation risks and avoid impact on business and operations.

Challenge 4: Talent remains a bottleneck

Digitization and automation will undoubtedly reduce manual repetitive tasks, improve the working environment, and ensure personal safety. We believe that the manufacturing industry can seize this opportunity to change the traditional image of "poor working environment" and attract more new talents through upgrading. The digital factory highly integrates the production and operation process, which puts higher demands on technical talents. In the past, specialized talents in a single field will no longer be applicable, but will be replaced by composite talents who span multiple fields, have stronger learning abilities, and understand digital delivery.

Referring to advanced foreign experience, the vocational education system that combines classroom education with practical work has pointed out the path for the development of digital factory training projects for industry university cooperation. For example, a leading machine tool enterprise directly established a joint college with a local engineering college, through the integration of industry and education and complementary resources, to provide targeted training and talent for the construction of its digital factory. In addition to the education mechanism, vocational training courses themselves also need to be adjusted to achieve standardization of course training, and to increase talent cultivation efforts in traditional fields such as business, natural sciences, and engineering, cultivating interdisciplinary digital engineers proficient in data analysis, product management, project management, IT architecture, or information security.

Finally, due to the need for multi departmental coordination in the transformation of digital factories, top-level decision-makers often need to have strong determination and deep understanding of digitalization, be able to guide the entire enterprise in formulating digital strategies, lead the enterprise smoothly through the transformation, and create a successful digital factory.

Blueprint for Digital Transformation of Chinese Factories

Leading industrial enterprises have taken solid steps in the construction and development of digital factories, which can quickly and reliably produce more customized and high-quality products to serve the market while improving production efficiency. For many companies that have no plans to build digital factories, the lack of a digital vision and corporate culture is the biggest obstacle that keeps them from moving forward. In our view, this is a major factor that digital factory pioneers cannot obtain.

The digital vision not only considers various technologies, but also defines how these technologies complement each other throughout the entire product lifecycle and enterprise ecosystem. Other factors that hinder companies from developing digital factory plans include uncertain opportunities, unclear economic benefits, and high investment costs. Taking all these factors into consideration, what enterprises need is not only a clear vision, but also a practical and feasible digital roadmap. PwC has developed a blueprint consisting of six stages to assist businesses in developing or optimizing roadmaps to successfully address various challenges on the path to digital factories and Industry 4.0.

Developing a coherent strategy is absolutely of paramount importance. The digital factory involves the adoption of different technologies, many of which can easily be hastily implemented. Enterprises need to have clear ideas on how to match various technologies with overall strategic and operational goals, and how to coordinate with other existing technologies. The digital vision should also cover the entire organization, allowing the digital factory to play a role of 1+1>2. Before formulating a digital factory strategy, enterprises need to recognize their current maturity, ensure that talent and technology are equally valued, and focus on projects that can bring maximum value. Finally, it is necessary to build a team of supporters consisting of senior, middle, and workshop workers to jointly promote the implementation of the strategy.

Establish pilot projects

The economic benefits of digitization are sometimes not easy to quantify, and in the initial stage, teams can only provide very limited technical concepts and demonstrations, which may make it difficult to gain recognition from funding and stakeholders.

The solution to these problems is through pilot programs. Through pilot programs, companies can discover the most suitable way for themselves, showcase the quick win results to the entire organization and gain their recognition, thereby obtaining funds for large-scale promotion. As digital factories may bring profound changes to the entire workforce, it is necessary to involve workers in the pilot work.

Vertical integration from digital engineering design to real-time data supported production planning in one or two production bases is a feasible pilot scheme. Installing sensors and actuators on major production equipment, or using data analysis to explore predictive maintenance plans, can also achieve initial results. Digitization of specific product lines can also be achieved in specific factories as an opportunity for continuous learning and optimization. Of course, companies can also consider collaborating with external digital leaders such as startups, universities, or industry organizations to accelerate the pace of digital innovation.

Determine the required abilities

What is the most important in the production process? More complete and automated logistics? Provide timely and customized information for workers? Sensor integrated network? We believe that considering this issue from a capability perspective can bring greater value. The goal of a digital factory is not to implement the coolest new devices, but to achieve specific goals such as improving efficiency, enhancing quality, or strengthening the business itself. Based on the experience gained from the pilot program, the capabilities focused on by the digital factory and the architecture of the factory system should be outlined in detail from the four strategic dimensions of organization, talent, process, and technology, combined with the production strategy and overall business goals of the enterprise.

Becoming a leader in data analysis and interconnectivity

Process and quality improvement, resource management, and preventive maintenance are almost always closely related to interconnectivity in digital factories. Sensors assist in collecting data, analyzing it at the information layer, and then transmitting it back to networked logistics facilities and production equipment for real-time production adjustments. Every enterprise needs to be proficient in internet tools and systems that can generate and transmit data, as well as analytical tools used to improve efficiency and quality.

Promote the digital transformation of factories

The road to a digital factory is a path of transformation. Like other transformations, managing change and its impact on employees is the key to success. Difficulty in identifying qualified talents, lack of digital corporate culture, and reluctance of some employees to embrace digital change are common challenges. The solution to these problems lies in working with employees early on and investing in training and continuing education, which will be offset by the efficiency improvements brought by digital factories. The cultivation of a digital environment requires the full support of the leadership. The senior management must regard the digital factory strategy as the focus of their work, abandon conservative attitudes, accelerate the project approval process, and thus enable the digital team to accelerate the transformation process. At the same time, it is necessary to design concise reporting channels to ensure that the digital team focuses on various value-added activities rather than being overwhelmed by administrative requirements.

Integrating digital factories with enterprise digital ecosystems

In the process of promoting digital factories, many enterprises have focused their efforts on vertical integration within each factory. Implementing the connection between MES system and ERP system within the factory can indeed achieve significant improvements. But as part of the digital ecosystem, digital factories should play a greater role. When enterprises horizontally integrate supplier and customer information across the entire supply chain with digital factories, it will bring greater efficiency improvements. Imagine this: you can use real-time short-term customer demand to adjust planning and production situations, flexibly make adjustments according to customer requirements, and achieve maximum customer satisfaction with minimal cost. This vertical and horizontal integration strategy achieved through tracking technology not only enables enterprises to optimize planning processes and production execution, but also deepens the bond between enterprises and strategically significant suppliers and customers.

However, these tasks are just the beginning. If enterprises can integrate digital functions into their products, it is possible to create a series of services that transform abstract data into concrete value. The production process itself can also convert the collected data into revenue through various channels. Under the profound influence of digital factories, enterprises can expand or even completely change their current business models, no longer just focusing on the production process, but also have the opportunity to expand their market share in the lucrative after-sales market, improve profit margins, and enter new business areas.