What Is a Smart Factory, and Is It Right for Your Business?

By: Stephan Miller on April 28, 2023

Manufacturers are always looking for ways they can increase their profit margins and streamline processes. With the prices of shipping and raw materials increasing, this is not an easy task. But advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) that have innovated other industries are now doing the same for manufacturing in the form of smart factories.

Despite the innovations they can bring, many small and midsize businesses (SMBs) are still unaware of smart factories. If you're a business leader in the manufacturing industry who is looking for ways to optimize your processes and increase revenue, you've come to the right place.

Using tips from "Innovation Insight for Smart Factory," [1] this article will explain what smart factories are, how they can benefit your business, and how to get started making your own factory smarter.

What does a smart factory do?

A smart factory is a facility that uses smart manufacturing to digitize the manufacturing process. In a smart factory, the factory floor constantly gathers and shares data via production systems, devices, and machines. Smart factories are part of Industry 4.0 initiatives, and the technologies they use are diverse and constantly changing as advances are made. [1]

Smart factories feed the real-time data collected from sensors on machines and Industrial Internet of Things (IIoT) devices into artificial intelligence (AI) and machine learning (ML) algorithms. By using this data and the insights derived from it, employees can quickly find and handle issues as they happen, minimize downtime, and continuously adjust manufacturing parameters to optimize the process. When a business transforms its factory into a smart one, it can streamline workflows, reduce waste, and make agile operations possible.

What are the benefits of a smart factory?

With a smart factory, manufacturers can gather data on operations in real time, optimize those operations dynamically, and respond quickly to changes in product demand or production issues. Here are some of the key benefits of smart factories.

Improves reliable supply through efficient operations

Using equipment tags, historical data, and vibration sensors, a smart factory can predict when downtime will happen and automatically schedule maintenance to minimize it. With computer vision and AI, the factory can identify and stop defective goods from making it to market. A smart factory can also make your quality assurance process stronger by automatically capturing data for use in integrated quality management software.

Enables new ecosystem models or different capacity orientations

Smart factories can connect various parts of the supply chain, from suppliers to end-users, creating a seamless flow of information and materials among them. This connectivity enables new ecosystem models where companies can collaborate and share resources to achieve mutual benefits.

Smart factories can also be set up with flexible production capacities, which can adjust to the needs of the market dynamically. When goods are in demand, production can be ramped up, and when there is a slump in sales, it can be cut back, making the factory more agile.

Contributes to sustainable resource management

Using predictive maintenance software, a smart factory will find machinery that is close to breaking down or currently running inefficiently and schedule maintenance automatically. Real-time monitoring can also help factories track energy usage, and employees can use this data to determine where it can be reduced.

Smart factories can also enable manufacturers to adopt a circular economy model that adds re-manufacturing, refurbishment, and recycling to the manufacturing workflow and recover and reuse materials that would otherwise be discarded.

Enhances product and process engineering by integrating customer applications

Customer and client applications can be integrated with the manufacturing process. This will allow your customers to design and build their own custom products at scale with the same efficiency and quality as the rest of your product lines. Customer requirements and feedback can be used as a data source to adjust factory processes and optimize product lines for their needs.

What kind of business should consider a smart factory?

Smart factory technology can be used in a wide variety of industries, with diverse supply chains, and can facilitate many manufacturing styles. Chances are, if your business is manufacturing, you can benefit from smart factory techniques.

Here are some smart factory success stories [1] :

  • Hindustan Unilever Limited uses machine learning algorithms to track and make predictions based on over 1,000 production parameters. The factory has reduced energy consumption by 48%, material losses by 35%, and water usage by 36%.

  • DuPont’s Laird Performance Materials expanded its lights-out manufacturing process so work can continue after employees clock out, and it has reduced labor costs and improved quality as a result.

  • Nissan’s Intelligent Factory is designed to adapt itself to electric vehicle demand and uses autonomous robots for assembly. The organization anticipates a 10% cost improvement compared to prior production methods.

By aggregating real-time production data and analyzing and visualizing key performance indicators (KPIs) through dashboards, manufacturers in any industry can improve their understanding of performance, make better, faster decisions, and adapt to changing market demands.

What are the frameworks and core building blocks for smart factories?

A few building blocks are required in order to label a factory as "smart." These components of a smart factory enable the collection of process control data, give employees visibility into the manufacturing process, and allow for root-cause analysis and condition monitoring. These key ingredients are:

  • Industrial Internet of Things (IIoT): Internet of Things (IoT) devices are integrated with legacy operational technology such as equipment and programmable logic controllers. These devices are internet-enabled to provide real-time data for visibility, root-cause analysis, or condition monitoring.

  • Analytics to visualize production data: Operators and managers will use the charts and graphs from visual analytic tools to find trends, spot anomalies, and take action to improve the process.

  • Autonomous things: Robots or cobots (collaborative robots) will automate specific tasks in the production line. Autonomous things can reduce manual labor and lower the error rate.

These building blocks are important when it comes to defining the data you will use for visibility or finding the root cause of an issue. Standard work acts as the central component of these blocks and provides consistency and stability for a factory's processes and procedures. It is the underlying support for digital applications in the manufacturing processes.

Moving up from these core building blocks, we reach the layer where you enable use cases. Here you combine the smart technologies, data management techniques, and workflows you've created into use cases that can be reused across sites. To make this layer more effective, it helps to use a dedicated platform as a service (PaaS) that aggregates use cases and acts as a menu of options that you can apply to processes as needed, making your sites more scalable.

The outermost layer of the framework is known as the operating model, which governs how the factory aligns with the product supply strategy and overall business operations. This layer ensures that the workforce has the necessary skills or identifies a clear path for employees to upgrade their skills. The operating model also uses supply network design and segmentation techniques to define the role of a production unit in supporting the supply chain. Finally, it connects engineering, technology, and production standards with broader functional operating systems to ensure continuous improvement.

Prepare your business for a smart factory

While making your factory smarter can bring a lot of benefits with it, it is important to remember that any major change will come with some risks. 

Challenges to watch out for

  • Confusing optimization with transformation: While automation and optimization are good goals, they don't naturally lead to the changes in business strategy, structure, and culture that drive transformation. Being short-sighted can impede scalability.

  • Overlooking process changes: A smart factory will cost you more than the price of new technologies. It will also take a significant investment of time, money, and skills to implement new data sources and performance targets.

  • Aligning information technology (IT), operational technology (OT), and enterprise technology (ET): For a smart factory to function efficiently, these teams have to work together, which may require new organizational structures.

  • Upskilling and talent development: Employee training will have to be upgraded to make sure employees are ready for the new processes, procedures, and technology.

  • Focusing too narrowly: Focusing on a single use case or technology can result in other areas being ignored, which can lead to significant technical debt.

To mitigate some of these risks and position themselves for implementing a smart factory, SMBs should take several key steps.

Key Steps To Mitigate Risk

  • Shift to an agile model: This will reduce the pressure on site leaders to show ROI by using a flexible approach to achieve the outcome in a faster and more affordable way by making changes and seeing improvement incrementally rather than tackling everything at once.

  • Create a repository of enabling use cases: The collection of use cases will help guarantee that the technology will be adopted and can be used across different factory sites for a modular approach.

  • Focus on needed capacity first: Prioritize the capabilities you need the most in order to get more mileage out of use cases and achieve quick wins while still fulfilling long-term goals.

  • Prepare for shifts in workforce development: Create hybrid teams that blend stakeholders across all business functions to facilitate communication, upskilling, and alignment in the new way of working.

Next steps

Transforming a manufacturing facility into a smart factory comes with some undeniable benefits. It can increase productivity, improve the quality of products, improve efficiency, save money, and even reduce negative impact on the environment.

It is important not to forget that implementing a smart factory involves more than just buying technology and plugging it in. There will be some challenges. Your operating model and team structures may have to adapt to support change. Employees will have to be trained on the new processes, and there will be a learning curve. But the tips above should point you in the right direction and help you tackle these challenges.

To learn more about smart factories and manufacturing automation, check out these other Software Advice resources: