Data shows that job shops not adapting to digital changes are risking their current and future operations. The repercussions of clinging to outdated operational systems are ominous and far-reaching. This impacts revenue, future-proofing strategies, workforce management, and security. Let’s walk through the dangers that await manufacturing job shops that choose to remain in the analog era.
Major Loss of Revenue
Wasting Wages on Redundant Tasks
The biggest wasteland in outdated systems is in how much time you are sinking into redundant tasks. For example:
- You get a call from a customer requesting an ETA on an order.
- You might need to go to the production floor to find an order.
- Then, you would return to your desk from the shop floor.
- After that, you would take the customer off hold and give them an update.
- Finally, you may even have to transcribe the communication to follow up via email.
Although this seems like a small detail, many shops operating like this are wasting valuable hours every day. Imagine using those hours on building your business, instead.
According to a study by McKinsey, inefficient workflows and manual processes can result in a 20-30% loss of productivity in manufacturing. Without streamlining workflows through optimized operations, job shops waste precious hours each week, leading to significant financial losses. The accumulated time inefficiencies could easily translate to the equivalent of a full-time salary.
Job Costing Errors Cause Profits to Leak
Do you know how much you are making on each work order? While some shops use timers and clipboards to track the time to process an order, others miss this step in full. Without knowing exactly how much time and resources go into a project, how do you know if you are making money?
Companies using manual job costing methods have 13% higher project costs than those with automated systems, according to the Aberdeen Group. Manual production job costing can lead to mistakes in tracking the time and resources used for each project in job shops. This mistake causes significant financial losses, particularly on large projects. Thousands of dollars are wasted due to a lack of automation.
Invoicing Errors Eat Into Profits
Redundant data entry and manual calculations increase the likelihood of invoicing errors. Human errors in these processes can go unnoticed, leading to financial discrepancies that erode profits. APQC reports that mistakes on invoices can make businesses lose 1-5% of their yearly earnings.
Lack of Future-Proofing
Succession Planning
Do you have a plan to sell or transition ownership? No matter what your future plan entails, without a system, your plant is operating on thin ice.
Delaying digital transformation denies businesses critical data sets essential for succession planning. Digital transformation boosts a business's value by finding growth opportunities and areas of loss.
A PwC survey found that 73% of family-owned businesses think digital technology is crucial for future success and continuity. Even if your future owner grew up in the plant, information tracking and shop data add essential value and stability to your business.
Workforce Management Challenges
Without clear digital systems, losing just one employee can disrupt the whole operation. Digital tools equipped with video and photographic instructions empower and engage employees, ensuring continuity in operations.
Deloitte's report says companies with good digital tools for engaging employees are 2.3 times more likely to do better than others. This is a testament to improved quality and productivity. These workforce insights can fuel recognition programs to acknowledge and celebrate employee contributions.
Companies with formal employee recognition programs have 31% less employees leaving on their own compared to companies without programs. Consider technology to help retain your Operators, improve communications, and shorten training cycles.
Weak Systems Equal Weak Security
Manufacturing companies must have robust digital systems for cybersecurity and compliance with regulations. This is necessary to prevent expensive fines that could lead to financial difficulties for job shops.
If your customers are large OEMs, they likely have an eye on these changing regulations. Some OEMs are dropping job shops from their supplier lists completely if they don’t have a formal cyber security program.
A job shop spent almost $200,000 to follow new security rules from NIST. The Ponemon Institute found that cyber-attacks cost manufacturing companies $5.2 million on average. This means that both OEMs and their service providers require strong data encryption and cyber security standards.
Impact on Business Valuation
Calculating Total Profitability
The systems in place today play a pivotal role in determining the value of a business. Failure to adopt modern technologies can lead to a decline in business value, affecting potential sales and partnerships. A report by EY found that companies with clear digital plans are almost twice as likely to make more money.
Increased Business Value with Digital Transformation
Harvard Business Review says companies with good planning and digital systems have 20-25% higher valuations and investor returns. Using technology to streamline office and production activities saves time and provides important data for making informed decisions.
Real-World Success Stories
A study by Capgemini found that 62% of companies with a strong digital transformation plan have higher value than their competitors.
Dana Schnepf, Owner of D&K Powder Coating, shares how digital transformation contributed to increasing their valuation from zero profitability to approximately $15 million. This success story highlights the transformative power of embracing modern manufacturing ERP solutions.
Summary
The fear-inducing consequences of avoiding digital transformation in manufacturing job shops are stark and undeniable. Sticking with old technology and systems can lead to big problems. These problems include losing money, struggling to keep up with changes, managing employees, and facing security threats.
Now is the time to adapt to digital transformation. It protects job shops and opens up new opportunities for growth and success in a constantly changing industry. Learn more about Steelhead's custom, all-in-one job shop software by booking a demo today.