So much for “too expensive”: this investment is worth it

It sounds like all a CEO’s dreams come true: digitisation offers tremendous potential to save. From retailers to producers to service providers: cost reductions could be huge for any industry. For a study by HTWK Leipzig and the eCommerce service provider Mercateo, 110 decision makers in procurement and purchasing in German companies were asked about financial savings through digitisation. The results are promising. Companies could use digitisation to shorten the duration of certain processes, while reducing process costs at the same time. Read on to find out how you as the CEO of a medium-sized enterprise can use the savings potential of digitisation.

For example, ask yourself how much time your company needs to procure the materials required every day for administration, operation or maintenance - regardless of the goods you need for production. An average medium-sized enterprise with around 7,100 orders per year can use digitised processes to reduce order costs from just under 820,000 euros by 40 percent to 480,000 euros. The study also covers the impact of digitisation on individual aspects - such as choosing suppliers, ordering products, receiving goods and payment. If a company uses a cohesive but manual process that costs around 115 euros, digital tools can reduce these costs to 67.94 euros.

Industry 4.0 for more efficiency

In another study, PricewaterhouseCoopers (PwC) has shown that industry 4.0 will lead to an increase in production and resource efficiency of 18 percent. At the same time, the companies asked expect additional annual savings of 2.6 percent beyond standard cost savings thanks to industry 4.0. With an estimated cost reduction of 1.9 percent, the expectations of the process industry are significantly more conservative than those of the prudent production industry. Expected cost savings are not just based on internal efficiency increases, but also the results of strong horizontal integration.

Digitisation has a major impact on the overall result. Breit tax consultancy uses a Hamburg-based company from the food industry as an example: before digitisation, they stored 400 metres of boxes filled with receipts. Just as in many German companies, a mountain of paper had formed over time due to retention period of seven to ten years. When audited, an employee had to search out specific receipts - and then refile them later on. The storage and upkeep of these receipts took time, organisation and caused stress.

Sounds familiar? Then you might be interested in knowing that this company was able to save 40,000 euros per year with digitisation. This sum is based on doing away with storage costs, administration costs and staffing costs. And more importantly: this saving has even greater impact on the company’s value. Without digitisation, they were simply giving away profit and value each and every day.

 

The first steps toward digitisation

Are you ready for the future? With three very pragmatic steps, PwC shows how companies can begin their journeys towards digitisation and start using industry 4.0 concepts.

Naming things

You can only digitise and connect value creation, and therefore your core processes, based on clear identification. To this end, give each product and production material a clear ID, such as a barcode, so it has an unmistakeable name. Data can be collected, and products and product components can be digitally described in full. The result? Efficient stock and supply chain management is much easier.

Measuring and evaluating

Measure all process and sensor data all along the whole value creation chain in order to establish the current status of products and production materials. Where not already in place, install sensors at multiple measuring points along the production line to get the best possible overview. The availability of measurement data facilitates an improvement of lead times, better product quality and a reduction in process costs.

Networking and analysing

Connect your clearly identified products with your digital description and production materials as well as the relevant process and sensor data, and link the various data sources. Create the necessary communication and IT infrastructures to facilitate networking, and make data combinable and analysable - ideally, in real time. If you do so, you will be taking your first steps towards big data management, from which you can derive measures to increase the efficiency and optimise the quality of your own company as well as the performance of your value creation partners.

Digitisation is, therefore, much more than just keeping up with the latest technology. It is a fundamental change to all processes - with business impact for all areas of your company. Despite the cost of initial investment, the aim is clear: by firing the starting shot for digitisation, you will automatically ensure more efficiency and better working conditions for your staff - as well as increase the value of your company.