Technology Smart Manufacturing: Digitizing the Industry

Author / Editor: Prof Boris Otto, Director – Information Management & Engineering, Fraunhofer IML / Rosemarie Stahl

Smart manufacturing is a capability to use digital technologies for more efficient, more effective and ecologically more sustainable value creation systems. The emergence of smart services brings about not only new challenges but also great opportunities.

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Smart manufacturing can be defined as an enterprise capability to leverage digital technologies for better.
Smart manufacturing can be defined as an enterprise capability to leverage digital technologies for better.
(Bild: Vogel Business Media India)

Customer value creation is no longer solely dependent on physical product offerings, but rather on how one materializes it as hybrid product-service bundles. Competitive advantage in the long-run will be increasingly determined by a company’s ability to offer digital services around their traditional service and product offerings. Successful examples can be found at tool machine manufacturer TRUMPF, for example. The company is offering an App Store around sheet metal processing on top of their tool machinery product portfolio. Furthermore, the automotive sector is planning autonomous driving of trucks not only in Germany, but also elsewhere in the world.

The business logic of smart services follows four common principles. Firstly, smart services address a comprehensive customer demand; they support an end-to-end customer process. Secondly, as a consequence of that, they tend to be highly individualized, i.e., lot-size ‘one’. Thirdly, as no player in traditional value chains is able to orchestrate all the capabilities needed to do so, smart services require an ecosystem. Lastly, many smart services are ubiquitous, i.e., they can be consumed anywhere at any time.


So-called digital native companies such as Uber and AirBnB have mastered the business logic of smart services. However, many enterprises in countries with strong manufacturing sectors want to leverage their traditional asset, i.e., the physical product. They do not want to only rely on the ‘digital’ aspect of smart services. For instance, in Germany, they have been successful by offering world-class products and through excellence in managing supply chains. However, the trend towards individualized, hybrid products—in line with parallel developments towards more regional products, for example—results in dramatically increasing complexity of our value creation processes (see Figure 1).

To cope with this complexity industrial enterprises deploy cyber-physical products, manufacturing analytics and autonomous devices and machinery in their factories; in short: smart manufacturing approaches.

Smart manufacturing can be defined as an enterprise capability to leverage digital technologies for better, i.e., more efficient, more effective, more resilient and more eco-friendly value creation processes.

Convergence of manufacturing and information technology

In brief terms, smart manufacturing is about making use of the convergence of manufacturing and information technology. But this convergence is not an end in itself, of course. It is rather a requirement of the design of innovative hybrid products that follow different business logics as the ones we used to produce over decades.

Figure 2 shows the architectural layers of hybrid products in their context of the digital economy. As can be seen on the left hand side, hybrid products materialize as bundles of smart services based on smart data on one hand side and smart (physical) products based on smart infrastructure spaces on the other. Many digital native companies make use of the fact that these architectural layers can be decoupled. For example, Uber does not own taxis and AirBnB does not own hotel rooms. Instead these companies concentrate on offering smart services to the end customer. The physical product itself is threatened to be commoditized.