Best Practices for Planning a Budget for Smart Manufacturing

By: Adam Carpenter - Guest Contributor on January 31, 2023

As is the case with all technologies, to realize the full potential of smart manufacturing, small and midsize business (SMB) decision-makers have to find a way to pay for it. Depending on your type of manufacturing and the data you need to collect, the costs can be substantial, so you need a strategy before even floating the idea to other stakeholders. Here are some best practices when formulating a smart manufacturing budget and some key considerations that can prevent hang-ups along the way.

What is smart manufacturing?

Smart manufacturing refers to collecting and analyzing data from your machines and manufacturing process in an effort to boost efficiency and prevent downtime. The machines manufacturers use to produce goods are constantly spitting out data regarding what they produce, how long it takes, materials used, maintenance requirements, and more. Unfortunately, much of this data may fall by the digital wayside and never get used.

But with smart manufacturing, as an SMB leader, you can leverage systems that empower you to glean this data and then use it to improve your processes. As a result, you can produce more products, lower the cost per product, prevent interruptions in the manufacturing process, and reduce your overall overhead—not to mention make the lives of your staff a lot easier.

Best practices for creating your smart manufacturing budget

Best practices that can make it easier to create the kind of smart manufacturing budget you can rely on break down into three complementary strategies:

  • Shift investment planning to an agile model

  • Adopt composable thinking

  • Use early adopter incentives to mitigate risk

Shift investment planning to an agile model

Agile investment planning involves maximizing flexibility when it comes to how you spend your funds. In this way, agile investment planning complements the smooth, frequent delivery of desirable business outcomes.

In practice, the most important component of agile investment planning is providing teams with funds and giving them the freedom to choose how they’re invested—according to the needs of the process. This makes agile financial planning very different from a traditional model: Instead of chunking your smart manufacturing budget into phases and assigning dollar amounts for each one (traditional investment planning), you give the team an overall number and let the development process dictate how you spend it (agile investment planning).

Too rigid: Traditional investment planning

Suppose you work for a company that manufactures circuit boards. The first step of your smart manufacturing transition is relatively simple: You want to automate the ordering process by considering two factors: the volume of solder you use and each type of solder’s shelf life.

With traditional investment planning, you would do your best to sketch out how the process would go and break it down into chunks—each of which gets its own predetermined funding.

Phase 1


Research and development of an application for determining types and shelf life of solder used in circuit boards

Phase 2


Research and development of applications for determining volume of solder used based on sales volume, how and when clients place orders, and cost of solder with different supply chains

After completing each phase, you evaluate how much money was spent and what it was spent on, as well as ways you can improve your funding strategy. In other words, you perform a post-mortem analysis.

But here’s the problem: This method provides very little flexibility.

For instance, team members may feel like they have to conserve funds up front to have more to play around with later in the process. On the contrary, they may invest heavily up front, then run out of funds. Or, in an attempt to be “flexible,” they may borrow from the $15,000 allocated to the second phase to fill budget gaps encountered during the first phase.

Just right: Agile investment planning

Agile investment planning introduces flexibility and solves these issues before they arise.

Instead of the rigid phased approach, you could take the overall $40,000 ($25,000 + $15,000) and set that as the not-to-exceed figure. Then you would encourage the team to frequently reassess how they’re spending money, adjusting budget figures as necessary.

For example, the team may be able to outsource the development of an app that analyzes the kinds of solder used in different circuit boards and their shelf lives. Say that costs $10,000; the team then reevaluates their needs and decides what to do with the rest of the $30,000.

Thanks to agile investment planning, if something goes wrong, it’s not the end of the world. For example, if the outsourced developers deliver a product that needs significant tweaking, you have the freedom to decide whether to pay your internal staff to make the changes themselves or dedicate some funds to pass the job onto another external dev team.

Regardless of how you put it to work, an agile investment strategy gives you the leeway you need to experiment, make mistakes, double down on strategies that work—and get your smart manufacturing process off the ground.

Adopt composable thinking

Composable thinking involves seeing everything—from your business strategies to your investment planning—as modular, like building blocks you put together, rearrange, and toss aside as you see fit. As such, composable thinking also involves considering solutions for your processes from non-traditional sources, such as employees from different departments, best practices from other companies, and even things that have worked in other industries.

Composable thinking can also play a significant role when planning your smart manufacturing budget.

Composable thinking in the context of a smart manufacturing budget

Composability consists of three components:

  • Context. You let your desired outcome decide the architecture you use.

  • Architecture. You design your approach using the principles of orchestration, autonomy, and discovery.

  • Modularity. You make sure that each approach, capability, or product is its own building block—one you can use in other situations.

Smart manufacturing and its budget planning process go hand-in-hand with composability. Here’s why:

  • Composable thinking can save you considerable money. Once you engineer one smart manufacturing process, you can use it as a modular building block, repeating it for other elements of your manufacturing. In this way, you could, for example, invest heavily in the first smart implementation and then spend far less on the rest of your projects—you’ve already laid the groundwork, so the rest are easier.

  • Composable thinking paves the way for “borrowing” other solutions. With smart manufacturing, there’s no need to reinvent the wheel. Many data analysis processes work with very different kinds of data. So you can conserve funds by using a system that’s already working for another organization.

  • Composability produces repeatable budget strategies. The amount of time you allocate to a project, the staff, and support resources, like hardware or cloud-based tools, can all be “copied and pasted” to another project. This simplifies and speeds up the budgeting process.

Use early adopter incentives to mitigate risk

Early adopter incentives can be powerful tools in getting the ball rolling, especially on an initiative like smart manufacturing, which could have some detractors. By giving different departments and managers incentives, you grease the wheels of your smart transition machine. As a result, you can alleviate some of the pressure associated with the budgeting process.

For example, you can:

  • Offer bonuses to a team that fully implements a smart manufacturing process within a certain time frame, such as six months.

  • To promote composability, offer incentives to workers or managers that provide constructive feedback and ideas regarding how to improve a smart system. In addition to creating a better solution, this can also boost personal investment in your solution.

Once your early adopter incentives achieve the buy-in you need, it’ll be easier to get the funds necessary to power successive phases of your implementation.

Key considerations

It’s important to watch for hidden costs as you move toward a system built on smart manufacturing. Often, the process involves far more than grabbing an app, assigning inputs, and firing it up.

For example, you may have to deal with application and hardware upgrades. Some machines may not be able to output the data you need to achieve adequate efficiency improvements. In that case, you may be forced to get a newer model.

At the same time, the situation could be reversed: A current application may not be able to process all the data your machines and sensors make available. That could leave you with no choice but to upgrade platforms.

Integrations can get expensive as well, particularly when it comes to making sure systems have a common language with which to communicate, such as data in the correct format. Also, as with any digital transformation or upgrade, you’re bound to face new security challenges, and you’ll have to train staff—both of which can inflate the price tag of your smart manufacturing implementation.

Next steps for your smart manufacturing budget plan

Check out these related resources, all of which can make your move toward smart manufacturing smoother: