Fourth Industrial Revolution

5 reasons not to delay your digital transformation

A worker on an Audi assembly line in Hungary.

A worker on an Audi assembly line in Hungary. Image: REUTERS/Laszlo Balogh

Lawrence Whittle
CEO, Parsable
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Technological Transformation

This article is part of: Annual Meeting of the New Champions

We are in an increasingly volatile global climate, from trade wars on multiple fronts to political unease to economic crises, to name just a few. During periods like these, it makes sense that corporations generally shift toward a more conservative stance, taking a “wait-and-see” approach to business decisions.

However, instability can provide exceptional opportunities for companies to innovate and accelerate ahead of more conservative competitors.

One of the biggest, and often hidden, issues for the global economy is the massive number of industrial workers who are at or close to retirement age. In the US alone, there are an estimated 53 million baby boomers still working, with the oldest 73 years of age. This is a timebomb of knowledge leaving the workforce.

In manufacturing, the Fourth Industrial Revolution is fully upon us. Yet, according to a poll by the Manufacturing Institute and PwC, only about half of manufacturing companies are in the early stages of smart factory transformation, and 20% “have a desire to adopt” digital, but are experiencing blockers. The number of companies just watching rather than acting needs to decrease and those that are already in the midst of digital transformation should consider leveraging this moment to accelerate their journeys.

Here are five reasons why manufacturing leaders must get started on implementing their digital strategies now:

1. Factories will come home

When factories first moved overseas from first-world countries, the idea was to reduce the largest input in product development: the cost of labor. But those cost savings are shrinking. As Boston Consulting Group’s Justin Rose and Martin Reeves argue in the Harvard Business Review: “In 2004, the cost of manufacturing on the east coast of China was approximately 15 percentage points cheaper, on average, than in the United States. In 2016, that gap was down to about 1 percentage point.”

Another reason factories have remained overseas is that as products became more complex, equally complex supply chains developed around those factories to make producing these complex goods possible. But with technologies like 3D printing, there are already documented examples of 20x reductions in parts in a given product. This means factories are free to come home, since they are no longer beholden to their supply chains.

The implication: Your company should get operationally and financially ready to expand operations in their domestic markets. Detailed process insight into how your products get made in your overseas factories should be thoroughly studied, and your industrial engineers should already be considering what these processes will look like in your repatriated factory of the future. Just as important, bringing your factories back also provides a massive opportunity to rethink your technology infrastructure, including IT and OT systems, and identify new efficiencies for both the front office and the front lines.

2. Factories will shrink

With atoms becoming as easy to manipulate as bytes, and as supply chains become regional and are cut to a fraction of their current size, smaller footprint factories – or localized microfactories – will be able to produce more products to meet demand in a fraction of the space. This means factories can now be near the urban centers they serve, following the trend that Amazon has already established in fulfillment. And as retail continues to vanish from main streets and malls, the cost of land in the middle of or at the edge of cities will drop.

The implication: You’ll need to consider what a small factory that would manufacture your products would look like, what technology it would utilize, and what the jobs that operate it would look like. This requires a test or a prototype so that you can carefully determine your approach before the competition follows.

3. The number of product variations – “SKU explosion” – will be the new norm

It’s no surprise that consumers are demanding more customized choices; take, for example, the trend of manufacturing smaller or single-serving products targeted at solo households. The proliferation of more variations of products – known as SKU explosion – will only accelerate, and technologies like 3D printing will enable manufacturers to meet the demand. To control operating costs, though, factories will not only have to be infinitely flexible, they will need to be very efficient. Changeovers, for example, will move from something performed a few times a day to a continuous exercise.

The implication: In your prototype factory, you should be considering which products you’ll want to offer customizations to, or multiple variations of. This means more customer research to understand these “micro-needs”; what configuration capabilities you would need to serve them; and which technologies, machines and procedures are required to make this level of customization operationally possible.

4. The experienced labor shortage will get worse

An infinitely flexible, smaller factory will be significantly more automated and require workers with a vastly different skill set than what most factories have now. Advanced manufacturing jobs are increasingly becoming sophisticated jobs that contribute to the widening skills gap; in a 2018 study, Deloitte and the Manufacturing Institute predicted that an estimated 2.4 million positions will remain unfilled between 2018 and 2028, with a potential economic impact of $2.5 trillion.

The implication: As the people who work in these future factories become more strategic, you can afford to pay more. This means you can attract workers from other professions, potentially high-tech workers who would prefer to be more hands-on. You can also refine what it means to be high potential at your company and develop the most tech-savvy workers already in your midst for these new roles.

5. Workers will need to be more connected

In the factory of the future, each worker will command a small army of machines. They will need to communicate with those machines and each other in real time. And with millions of dollars in complex equipment and output on the line, work needs to happen with even more surgical precision that ever before.

The implication: A clear operating plan, instructions and real-time feedback loop between the factory floor and plant managers need to be available to every worker at all times. Today, this means leveraging technologies where workers can access the information, expertise and insight they need to do their critical jobs as effectively as possible.

As with most sea changes, the spoils generally go to the bold first movers. Manufacturers who leverage these trends as catalysts for their digital innovation efforts will take the lead.

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Related topics:
Fourth Industrial RevolutionManufacturing and Value ChainsSupply Chains and Transportation
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