As Industry 4.0 gains momentum in the manufacturing world, executives are calculating the risk-reward ratio of becoming early adopters of this technology. Some are considering the cost, in money and time, against the potential gains. Others are determining whether they should wait until their competition shows definitive proof of the benefits before striking out into the largely unknown territory. Still, others, stung by the over-blown promises of overly complex and costly earlier technologies, are simply wary. All of them are working to figure out what exactly is at stake in leading or lagging behind the Fourth Industrial Revolution.
To put it simply, the answer is that the future of your business is at stake. But most executives will see that answer as too simple or abstract, if not too glib.
To truly understand the risks and rewards of being among your industry’s leaders during this transformation, bring the debate down to earth. Consider one of the fundamental issues you deal with every day: the cost of poor quality and the cost of downtime.
Reducing the cost of poor quality and downtime
The daily battles that manufacturers wage to make better products and keep machines running figure prominently in Industry 4.0. Driving down the cost associated with these basic elements of manufacturing are among the most critical challenges a manufacturer must address — and for good reason.
The true cost of poor quality — the sum of the costs from repair, rework, scrap, service calls, warranty claims and write-offs from obsolete finished goods — can range between 5 and 30% of a manufacturing company’s total revenues, with the range for a majority of companies falling between 10 and 20%.
And that’s not counting the costs associated with lost customers.
This profit leakage is a staggering amount for an individual company, alone. When you calculate how it compounds through the supply chain, impacting the bottom line and ultimately the customer, the value of fixing the problem becomes clear.
Likewise, the cost of downtime reduces profitability in a variety of ways too numerous to detail here: lost production and capacity, higher labor cost per unit and inventory costs and added stress on employees and machines. When the machines are down, everyone’s attention is diverted from growing the business, whether it’s responding to new opportunities or innovating new products and services.
Though variable industry to industry, one survey places the cost of one minute of downtime in the automotive industry at an average of $22,000 per minute. If you can reduce your downtime costs to a fraction of that, the benefits to the bottom line alone will be substantial.