The smart factory

Responsive, adaptive, connected manufacturing

A Deloitte series on Industry

4

.0, digital manufacturing enterprises, and digital supply networks

Deloitte Consulting LLP’s Supply Chain and Manufacturing Operations practice helps companies
understand and address opportunities to apply Industry 4.0 technologies in pursuit of their busi-
ness objectives. Our insights into additive manufacturing, the Internet of Things, and analytics
enable us to help organizations reassess their people, processes, and technologies in light of
advanced manufacturing practices that are evolving every day.

COVER IMAGE BY: SAM FALCONER

The new frontier of manufacturing systems | 

2

Defining the smart factory | 

5

Benefits of the smart factory | 

10

Making the transition to the smart factory:
Areas for consideration | 1

3

Getting started: Taking steps toward the
smart factory | 

15

Endnotes | 1

7

CONTENTS

The new frontier of
manufacturing systems

CONNECTIVITY within the manufacturing process is not new. Yet recent trends such as the rise of the fourth industrial revolution,
Industry 4.0,1 and the convergence of the digital and
physical worlds—including in-
formation technology (IT) and
operations technology (OT)—
have made the transformation
of the supply chain increas-
ingly possible. Shifting from
linear, sequential supply chain
operations to an interconnect-
ed, open system of supply op-
erations—known as the digital
supply network—could lay the
foundation for how compa-
nies compete in the future. To
fully realize the digital supply
network, however, manufac-
turers likely need to unlock
several capabilities: horizontal integration through
the myriad operational systems that power the or-
ganization; vertical integration through connected
manufacturing systems; and end-to-end, holistic
integration through the entire value chain.2

In this paper, we explore how these capabilities in-
tegrate to enable the act of production. This integra-
tion is colloquially known as the smart factory, and
signifies the opportunity to drive greater value both

within the four walls of the
factory and across the supply
network.

The smart factory represents
a leap forward from more
traditional automation to a
fully connected and flexible
system—one that can use a
constant stream of data from
connected operations and
production systems to learn
and adapt to new demands.3
A true smart factory can in-
tegrate data from system-
wide physical, operational,
and human assets to drive

manufacturing, maintenance, inventory tracking,
digitization of operations through the digital twin,
and other types of activities across the entire manu-
facturing network. The result can be a more efficient
and agile system, less production downtime, and a

The smart factory
represents a leap

forward from
more traditional
automation to a

fully connected and
flexible system.

The smart factory
2

greater ability to predict and adjust to changes in
the facility or broader network, possibly leading to
better positioning in the competitive marketplace.

Many manufacturers are already leveraging compo-
nents of a smart factory in such areas as advanced
planning and scheduling using real-time produc-
tion and inventory data, or augmented reality for
maintenance. But a true smart factory is a more
holistic endeavor, moving beyond the shop floor
toward influencing the enterprise and broader eco-
system. The smart factory is integral to the broader
digital supply network and has multiple facets that
manufacturers can leverage to adapt to the chang-
ing marketplace more effectively.

The concept of adopting and implementing a smart
factory solution can feel complicated, even insur-
mountable. However, rapid technology changes and
trends have made the shift toward a more flexible,

adaptive production system almost an imperative
for manufacturers who wish to either remain com-
petitive or disrupt their competition. By thinking
big and considering the possibilities, starting small
with manageable components, and scaling quickly
to grow the operations, the promise and benefits of
the smart factory can be realized. In this paper, we
define and describe the concept of the smart factory:

• What it is, its key features, and the trends that
have contributed to its rise

• The components and technologies that comprise
the smart factory, and how it fits within the digi-
tal supply network

• How the smart factory can drive value and its
other benefits

• Ways organizations can begin building and en-
acting a true, holistic smart factory

Responsive, adaptive, connected manufacturing

3

DIGITAL
CORE

Synchronized Planning

Connected
Customer

Dynamic
Fulfillment

Digital
Development

Smart

Factory

Intelligent Supply

Figure 1. Shift from traditional supply chain to digital supply network

Deloitte University Press | dupress.deloitte.comSource: Deloitte analysis.

Traditional supply chain

Digital supply networks

Develop

3D Printing

Quality Sensing

Plan Source Make Deliver Support

Sensor-driven Replenishment

Cognitive Planning

A BRIEF LOOK AT THE DIGITAL SUPPLY NETWORK

In Deloitte’s first publication of this series, The rise of the digital supply network,4 we examined how
supply chains traditionally are linear in nature, with a discrete progression of design, plan, source,
make, and deliver. Today, however, many supply chains are transforming from a static sequence to
a dynamic, interconnected system—the digital supply network—that can more readily incorporate
ecosystem partners and evolve to a more optimal state over time. Digital supply networks integrate
information from many different sources and locations to drive the physical act of production
and distribution.5

In figure 1, the interconnected lattice of the new digital supply network model is visible, with
digital at the core. There is potential for interactions from each node to every other point of the
network, allowing for greater connectivity among areas that previously did not exist. In this model,
communications are multidirectional, creating connectivity among traditionally unconnected links in
the supply chain.

The smart factory
4

Defining the smart factory

AUTOMATION has always been a part of the factory to some degree, and even high lev-els of automation are nothing new. However,
the term “automation” suggests the performance of
a single, discrete task or process. Historically, situ-
ations in which machines have made “decisions”
have been automation based and linear, such as
opening a valve or turning a pump on and off based
on a defined set of rules. Through the application
of artificial intelligence (AI) and increasing sophis-
tication of cyberphysical systems that can combine
physical machines and business processes, automa-
tion increasingly includes complex optimization de-
cisions that humans typically make.

6

Finally—and
perhaps most crucially—the term “smart factory”
also suggests an integration of shop floor decisions
and insights with the rest of the supply chain and
broader enterprise through an interconnected IT/
OT landscape. This can fundamentally change pro-
duction processes and enhance relationships with
suppliers and customers.

Through this description, it becomes clear that
smart factories go beyond simple automation. The
smart factory is a flexible system that can self-op-
timize performance across a broader network, self-
adapt to and learn from new conditions in real or
near-real time, and autonomously run entire pro-
duction processes.7 Smart factories can operate
within the four walls of the factory, but they can
also connect to a global network of similar produc-
tion systems, and even to the digital supply network
more broadly.

It is important to note, however, that the smart fac-
tory as defined and described in this paper should
not be considered the “end state,” given the rapid
pace of technological development. Rather, it rep-
resents an ongoing evolution, a continuous journey
toward building and maintaining a flexible learn-
ing system—rather than the “one and done” factory
modernization approach of the past.

The true power of the smart factory lies in its ability
to evolve and grow along with the changing needs
of the organization—whether they be shifting cus-
tomer demand, expansion into new markets, devel-
opment of new products or services, more predic-
tive and responsive approaches to operations and
maintenance, incorporation of new processes or
technologies, or near-real-time changes to produc-
tion. Because of more powerful computing and ana-
lytical capabilities—along with broader ecosystems
of smart, connected assets—smart factories can en-
able organizations to adapt to changes in ways that
would have been difficult, if not impossible, to do
so before.

Features of the smart factory:
What makes it different?
As many manufacturers grapple with the myriad or-
ganizational and ecosystem-wide changes exerting
pressure on their operations (see the sidebar “The
smart factory: Why now?”), the smart factory offers

The smart factory
is a flexible system
that can self-optimize
performance across a
broader network, self-
adapt to and learn from
new conditions in real
or near-real time, and
autonomously run entire
production processes.

Responsive, adaptive, connected manufacturing
5

ways that can successfully address some of those is-
sues. The ability to adjust to and learn from data in
real time can make the smart factory more respon-
sive, proactive, and predictive, and enables the or-
ganization to avoid operational downtime and other
productivity challenges.

As part of its efforts to implement a smart factory
while producing air conditioners, a leading elec-
tronics company used a fully automated production
system, three-dimensional scanners, Internet of
Things (IoT) technologies, and integrated machine
control. The benefits of this automation included

lower lead times for customers and lower overall
costs, along with production capacity improve-
ment of 25 percent and 50 percent fewer defective
products.

8

Figure 2 depicts the smart factory and some of its
major features: connectivity, optimization, trans-
parency, proactivity, and agility. Each of these fea-
tures can play a role in enabling more informed
decisions and can help organizations improve the
production process. It is important to note that no
two smart factories will likely look the same, and

Deloitte University Press | dupress.deloitte.comSource: Deloitte analysis.

•Predictive anomaly identification and
resolution

•Automated restocking and replenishment
•Early identification of supplier quality
issues

•Real-time safety monitoring

PROACTIVE

•Reliable, predictable production capacity
•Increased asset uptime and production
efficiency

•Highly automated production and
material handling with minimal human
interaction

•Minimized cost of quality and production

OPTIMIZED

•Continuously pull traditional datasets
along with new sensor and
location-based datasets

•Real-time data-enabling collaboration
with suppliers and customers

•Collaboration across departments (e.g.,
feedback from production to product
development)

CONNECTED

•Live metrics and tools to support quick
and consistent decision making

•Real-time linkages to customer demand
forecasts

•Transparent customer order tracking

TRANSPARENT

•Flexible and adaptable scheduling and
changeovers

•Implementation of product changes to
see impact in real time

•Configurable factory layouts and
equipment

AGILE

Figure 2. Five key characteristics of a smart factory

The smart factory
6

manufacturers can prioritize the various areas and
features most relevant to their specific needs.

Perhaps the most important feature of the smart fac-
tory, its connected nature, is also one of its most
crucial sources of value. Smart factories require the
underlying processes and materials to be connected
to generate the data necessary to make real-time
decisions. In a truly smart factory, assets are fitted
with smart sensors so systems can continuously pull
data sets from both new and traditional sources, en-
suring data are constantly updated and reflect cur-
rent conditions. Integration of data from operations
and business systems, as well as from suppliers and
customers, enables a holistic view of upstream and
downstream supply chain processes, driving greater
overall supply network efficiency.

An optimized smart factory allows operations to
be executed with minimal manual intervention and
high reliability. The automated workflows, synchro-
nization of assets, improved tracking and schedul-
ing, and optimized energy consumption inherent
in the smart factory can increase yield, uptime, and
quality, as well as reduce costs and waste.

In the smart factory, the data captured are trans-
parent: Real-time data visualizations can trans-
form data captured from processes and fielded
or still-in-production products and convert them
into actionable insights, either for humans or au-
tonomous decision making. A transparent network
can enable greater visibility across the facility and
ensure that the organization can make more accu-
rate decisions by providing tools such as role-based
views, real-time alerts and notifications, and real-
time tracking and monitoring.

In a proactive system, employees and systems can
anticipate and act before issues or challenges arise,
rather than simply reacting to them after they occur.
This feature can include identifying anomalies, re-
stocking and replenishing inventory, identifying and
predictively addressing quality issues,

9

and moni-
toring safety and maintenance concerns. The abil-
ity of the smart factory to predict future outcomes

based on historical and real-time data can improve
uptime, yield, and quality, and prevent safety issues.
Within the smart factory, manufacturers can enact
processes such as the digital twin, enabling them to
digitize an operation and move beyond automation
and integration into predictive capabilities.10

Agile flexibility allows the smart factory to adapt to
schedule and product changes with minimal inter-
vention. Advanced smart factories can also self-con-
figure the equipment and material flows depending
on the product being built and schedule changes,
and then see the impact of those changes in real
time. Additionally, agility can increase factory up-
time and yield by minimizing changeovers due to
scheduling or product changes and enable flexible
scheduling.

These features afford manufacturers greater visibil-
ity across their assets and systems, and allow them
to navigate some of the challenges faced by more
traditional factory structures, ultimately leading to
improved productivity and greater responsiveness
to fluctuations in supplier and customer conditions.
For example, an apparel, accessories, and shoe com-
pany is exploring ways to address some of the chal-
lenges manufacturers typically face, including glob-
al fragmentation of production and rapidly shifting
demand (see the sidebar “The smart factory: Why
now?”), by building one new smart factory each in
Europe and North America. Traditional factories
and supply chains can face challenges in keeping
up with ever-shifting fashions. Located close to the
point of customer demand, the new smart factories
can better adapt to new trends and allow shoes to
reach customers faster—an estimation of less than a
week, compared with two to three months with tra-
ditional factories. Both smart factories will leverage
multiple digital and physical technologies, includ-
ing a digital twin, digital design, additive manu-
facturing machines, and autonomous robots. The
company plans to use lessons learned from the two
initial smart factories as it scales to more facilities in
other regions, such as Asia.

11

Responsive, adaptive, connected manufacturing
7

THE SMART FACTORY: WHY NOW?
While automation and controls have existed for decades, the fully smart factory has only recently gained
traction as a viable pursuit for manufacturers. Five overarching trends seem to be accelerating the drive
toward smart factories:

• Rapidly evolving technological capabilities

• Increased supply chain complexity and global fragmentation of production and demand

•

Growing competitive pressures from unexpected sources

• Organizational realignments resulting from the marriage of IT and OT

• Ongoing talent challenges, as described below

Rapidly evolving technological capabilities
Until recently, the realization of the smart factory
remained elusive due to limitations in digital
technology capabilities, as well as prohibitive
computing, storage, and bandwidth costs. Such
obstacles, however, have diminished dramatically
in recent years, making it possible to do more
with less cost across a broader network.

12

Further,
the capabilities of technologies themselves
have grown more sophisticated: AI, cognitive
computing, and machine learning have enabled
systems to interpret, adjust to, and learn from the
data gathered from connected machines.

13

This
ability to evolve and adapt, coupled with powerful
data processing and storage capabilities, allows
manufacturers to move beyond task automation
toward more complex, connected processes.

Increased supply chain complexity and global
fragmentation of production and demand
As manufacturing has grown increasingly global,
production has fragmented, with stages of
production spread among multiple facilities and
suppliers across multiple geographies.

14

These
shifts, coupled with the increased demand for
regional, local, and even individual customization;
strong demand fluctuation; and increasingly scarce
resources, among other shifts, have made supply
chains more complex.15 Due to these changes,
many manufacturers have found it important
to be agile, connected, and proactive to address
ever-shifting priorities.

The smart factory
8

Growing competitive pressures from unexpected sources

The rise of smart digital technologies has ushered in the threat of entirely new competitors who
can leverage digitization and lower costs of entry to gain a foothold in new markets or industries
in which they previously had no presence,
sidestepping the legacy of aging assets and
dependence on manual labor encumbering
their more established competitors.

Organizational realignments resulting
from the marriage of IT and OT
Factory automation decisions typically occur at
the business unit or plant level, often resulting in a
patchwork of disparate technologies and capability
levels across the manufacturing network. As
connected enterprises increasingly push beyond
the four walls of the factory to the network
beyond, they are beginning to have greater
visibility into these disparities. The increasing
marriage of IT and OT has made it possible for
organizations to move many formerly plant-level
decisions to the business-unit or enterprise level.

16

This can illuminate where inefficiencies exist
or where changes in one plant have resulted in
complications in other facilities. It has also made
the notion of the smart factory more of a reality
than an abstract goal. While connectivity within
the factory is not new, many manufacturers have
long been stymied about what to do with the
data they gather—in other words, how to turn
information into insight, and insight into action.
The shift toward the connected digital and physical technologies inherent in Industry 4.0 portends
solutions to this challenge: the ability to not only gather data, but to now analyze and act upon them in
the physical world.

17

Ongoing talent challenges
Multiple talent-related challenges—including an aging workforce, an increasingly competitive job
market, and a dearth of younger workers interested in or trained for manufacturing roles—mean that
many traditional manufacturers have found themselves struggling to find both skilled and unskilled
labor to keep their operations running.

18

Deloitte has estimated that the US manufacturing industry
could face a 2 million worker shortage over the next decade.

19

Many companies are making investments
in smart factory capabilities to mitigate the risk associated with this possibly pervasive labor shortage.

20

However, this move can create a new set of talent-related consequences, as automated assets typically
require highly skilled personnel to operate and maintain;21 even the location of manufacturing facilities
would need to take into account factors such as this.

Responsive, adaptive, connected manufacturing
9

Benefits of the smart factory

T HE decision on how to embark on or expand a smart factory initiative should align with the specific needs of an organization. The reasons
that companies embark or expand on the smart fac-
tory journey are often varied and cannot be easily
generalized. However, undertaking a smart factory
journey generally addresses such broad categories
as asset efficiency, quality, costs, safety, and sustain-
ability. These categories, among others, may yield
benefits that ultimately result in increased speed to
market; improved ability to capture market share;
and better profitability, product quality, and labor
force stability. Regardless of the business drivers,
the ability to demonstrate how the investment in
a smart factory provides value is important to the
adoption and incremental investment required to
sustain the smart factory journey.

Asset efficiency
Every aspect of the smart factory generates reams
of data that, through continuous analysis, reveal
asset performance issues that can require some
kind of corrective optimization. Indeed, such self-
correction is what distinguishes the smart factory
from traditional automation, which can yield great-
er overall asset efficiency, one of the most salient
benefits of a smart factory. Asset efficiency should
translate into lower asset downtime, optimized ca-
pacity, and reduced changeover time, among other
potential benefits.22

Quality
The self-optimization that is characteristic of the
smart factory can predict and detect quality de-
fect trends sooner and can help to identify discrete
human, machine, or environmental causes of poor

quality. This could lower scrap rates and lead times,
and increase fill rates and yield. A more optimized
quality process could lead to a better-quality prod-
uct with fewer defects and recalls.23

Lower cost
Optimized processes traditionally lead to more
cost-efficient processes—those with more predict-
able inventory requirements, more effective hir-
ing and staffing decisions, as well as reduced pro-
cess and operations variability. A better-quality
process could also mean an integrated view of the
supply network with rapid, no-latency responses to
sourcing needs—thus lowering costs further. And
because a better-quality process also may mean a
better-quality product, it could also mean lowered
warranty and maintenance costs.24

Safety and sustainability
The smart factory can also impart real benefits
around labor wellness and environmental sustain-
ability. The types of operational efficiencies that a
smart factory can provide may result in a smaller
environmental footprint than a conventional man-
ufacturing process, with greater environmental
sustainability overall.25 Greater process autonomy
may provide for less potential for human error, in-
cluding industrial accidents that cause injury.26 The
smart factory’s relative self-sufficiency will likely
replace certain roles that require repetitive and fa-
tiguing activities. However, the role of the human
worker in a smart factory environment may take on
greater levels of judgment and on-the-spot discre-
tion, which can lead to greater job satisfaction and a
reduction in turnover.27

The smart factory
10

Impacts of the smart factory
on manufacturing processes
Manufacturers can implement the smart factory in
many different ways—both inside and outside the
four walls of the factory—and reconfigure it to adjust
as existing priorities change or new ones emerge.28
In fact, one of the most important features of the
smart factory—agility—also presents manufacturers
with multiple options to leverage digital and physi-
cal technologies depending on their specific needs.

The specific impacts of the smart factory on manu-
facturing processes will likely be different for each
organization. Deloitte has identified a set of ad-
vanced technologies that typically facilitate the flows
of information and movement between the physical
and digital worlds.29 These technologies power the
digital supply network and, by extension, the smart
factory—creating new opportunities to digitize pro-
duction processes. Table 1 depicts a series of core
smart factory production processes along with a se-
ries of sample opportunities for digitization enabled
by various digital and physical technologies.

Table 1. Processes within a smart factory

Process Sample digitization opportunities

Manufacturing
operations

• Additive manufacturing to produce rapid prototypes or low-volume spare parts
• Advanced planning and scheduling using real-time production and inventory data to

minimize waste and cycle time
• Cognitive bots and autonomous robots to effectively execute routine processes at

minimal cost with high accuracy
• Digital twin to digitize an operation and move beyond automation and integration to

predictive analyses

Warehouse
operations

• Augmented reality to assist personnel with pick-and-place tasks
• Autonomous robots to execute warehouse operations

Inventory tracking
• Sensors to track real-time movements and locations of raw materials, work-in-

progress and finished goods, and high-value tooling
• Analytics to optimize inventory on hand and automatically signal for replenishment

Quality
• In-line quality testing using optical-based analytics
• Real-time equipment monitoring to predict potential quality issues

Maintenance
• Augmented reality to assist maintenance personnel in maintaining and repairing

equipment
• Sensors on equipment to drive predictive and cognitive maintenance analytics

Environmental,
health, and safety

• Sensors to geofence dangerous equipment from operating in close proximity to
personnel

• Sensors on personnel to monitor environmental conditions, lack of movement, or
other potential threats

Source: Deloitte Analysis. Deloitte University Press | dupress.deloitte.com

Responsive, adaptive, connected manufacturing
11

It is important to note that these opportunities are
not mutually exclusive. Organizations can—and
likely will—pursue multiple digitization opportuni-
ties within each production process. They may also
phase capabilities in and out as needed, in keeping
with the flexible and reconfigurable nature of the
smart factory.

It is important for manufacturers to understand
how they intend to compete and align their digiti-
zation and smart factory investments accordingly.
For example, some manufacturers could decide to
compete via speed, quality, and cost, and may invest
in smart factory capabilities to bring new products
(and product changes) to market faster, increase
quality, and reduce per-unit costs. Others may
choose to focus on “lot size of one” product custom-
ization and fulfillment models, and invest in other
technologies to fulfill those goals.

The smart factory
12

Making the transition to
the smart factory: Areas
for consideration

JUST as there is no single smart factory configura-tion, there is likely no single path to successfully achieving a smart factory solution. Every smart
factory could look different due to variations in
line layouts, products, automation equipment, and
other factors. However, at the same time, for all the
potential differences across the facilities themselves,
the components needed to enable a successful smart
factory are largely universal, and each one is impor-
tant: data, technology, process, people, and security.
Manufacturers can consider which to prioritize for
investment based on their own specific objectives.

Data and algorithms
Data are the lifeblood of the smart factory. Through
the power of algorithmic analyses, data drive all
processes, detect operational errors, provide user
feedback, and, when gathered in enough scale and
scope, can be used to predict operational and asset
inefficiencies or fluctuations in sourcing and de-
mand.30 Data can take many forms and serve many
purposes within the smart factory environment,
such as discrete information about environmental
conditions including humidity, temperature, or con-
taminants. How data are combined and processed,
and the resulting actions, are what make them valu-
able.31 To power the smart factory, manufacturers
should have the means to create and collect ongo-
ing streams of data, manage and store the massive
loads of information generated, and analyze and act
upon them in varied, potentially sophisticated ways.

In order to move to higher levels of smart factory
maturity, the data sets collected will likely expand
over time to capture more and more processes. For

example, implementing a single use case might re-
quire the capture and analysis of a single data set.
Implementing further use cases or scaling an op-
eration to an industrial level will typically require
expanding the capture and analysis of greater and
different data sets and types (structured vs. unstruc-
tured), leading to considerations around analytical,
storage, and management capabilities.32

Data might also represent a digital twin, a feature of
an especially sophisticated smart factory configura-
tion. At a high level, a digital twin provides a digital
representation of the past and current behavior of
an object or process. The digital twin requires cu-
mulative, real-world data measurements across an
array of dimensions, including production, envi-
ronmental, and product performance. The power-
ful processing capabilities of the digital twin may
uncover insights on product or system performance
that could suggest design and process changes in
the physical world.33

Technology
For a smart factory to function, assets—defined as
plant equipment such as material handling sys-
tems, tooling, pumps, and valves—should be able
to communicate with each other and with a central
control system. These types of control systems can
take the form of a manufacturing execution system
or a digital supply network stack. The latter is an
integrated, layered hub that functions as a single
point of entry for data from across the smart factory
and the broader digital supply network, aggregat-
ing and combining information to drive decisions.34
However, organizations will need to consider other

Responsive, adaptive, connected manufacturing
13

technologies as well, including transaction and en-
terprise resource planning systems, IoT and analyt-
ics platforms, and requirements for edge processing
and cloud storage, among others. This could require
implementing the various digital and physical tech-
nologies inherent in Industry 4.0—including analyt-
ics, additive manufacturing, robotics, high-perfor-
mance computing, AI and cognitive technologies,
advanced materials, and augmented reality—to con-
nect assets and facilities, make sense of data, and
digitize business operations.35

Process and governance
One of the most valuable features of the smart fac-
tory—its ability to self-optimize, self-adapt, and
autonomously run production processes—can fun-
damentally alter traditional processes and gover-
nance models. An autonomous system can make
and execute many decisions without human inter-
vention, shifting decision-making responsibilities
from human to machine in many cases, or concen-
trating decisions in the hands of fewer individuals.
Additionally, the connectivity of the smart factory
may extend beyond its four walls to include in-
creased integration with suppliers, customers, and
other factories.36 This type of collaboration may
raise new questions about processes and new gov-
ernance models. With a deeper, more holistic view
across the factory and the broader production and
supply network, manufacturers could face new and
different questions. Organizations may want to con-
sider—and perhaps redesign—their decision-mak-
ing processes to account for these shifts.

People
A smart factory does not necessarily translate into
a “dark” factory. People are expected to still be key
to operations. However, the smart factory can cause
profound changes in the operations and IT/OT orga-
nizations, resulting in a realignment of roles to sup-
port new processes and capabilities.37 As mentioned

earlier, some roles may no longer be necessary as
they may be replaced by robotics (physical and logi-
cal), process automation, and AI. Other roles might
be augmented with new capabilities such as virtual/
augmented reality and data visualization. New, un-
familiar roles will likely emerge. Managing changes
to people and processes will require an agile, adap-
tive change management plan.38 Organizational
change management could play an important role
in the adoption of any smart factory solution. The
successful smart factory journey will require a mo-
tivated workforce that embraces the greater impact
of their roles, innovative recruiting approaches, and
an emphasis on cross-functional roles.39

Cybersecurity
By its nature, the smart factory is connected. Thus
cybersecurity risk presents a greater concern in the
smart factory than in the traditional manufactur-
ing facility and should be addressed as part of the
overall smart factory architecture. In a fully con-
nected environment, cyberattacks can have a more
widespread impact and may be more difficult to
protect against, given the multitude of connection
points. Cybersecurity risk seems to only grow more
pronounced as the smart factory scales and poten-
tially moves beyond the four walls of the factory to
include suppliers, customers, and other manufac-
turing facilities. Manufacturers should make cy-
bersecurity a priority in their smart factory strategy
from the outset.40

A smart factory does not
necessarily translate into
a “dark” factory. People
are expected to still be
key to operations.

The smart factory
14

Getting started: Taking steps
toward the smart factory

THE challenge to begin may seem daunting. The nearly limitless configurations of smart factory solutions provide a number of path-
ways to proceed on the journey that need to be de-
fined, planned, and executed at a pace suitable to
the organization and the challenge—or opportunity.
As manufacturers consider how to build their smart
factory, they can begin with the following steps:

Think big, start small,
and scale fast . . .
Smart factory investments often start with a
focus on specific opportunities. Once identified,

digitization and insight generation fuel actions that
can drive new value. Building and scaling the smart
factory, however, can be as agile and flexible as the
concept itself. Manufacturers can get started down
the path to a true smart factory at any level of their
network—value creation can begin with and scale
from a single asset, and use an agile approach to it-
erate and grow.

In fact, it can be more effective to start small, test
out concepts in a manageable environment, and
then scale once lessons have been learned. Once a

“win” is achieved, the solution can scale to additional
assets, production lines, and factories, thus creating
a potentially exponential value creation opportunity
(figure 3).

Figure 3. Starting small and scaling to unlock value

Deloitte University Press | dupress.deloitte.comSource: Deloitte analysis.

Single asset

Maximizing the
performance of a

single asset
(e.g., machinery,
tools, inventory,

equipment, people)

Exponential value can be unlocked for manufacturers by implementing a complete smart factory
or network of smart factories across the enterprise

Production line

Improving the
performance of a

series of dependent
assets (i.e., produc-

tion line or
manufacturing cell)

Factory

Optimizing the
performance of an
individual plant by
better connecting

and utilizing assets

Factory network

Maximizing network
performance by
sharing capacity

across sites in real
time and connecting
to the entire supply
chain and product
development cycle

O
p

p
o

rt
u

n
it

y
va

lu
e

Responsive, adaptive, connected manufacturing
15

. . . but stay grounded in the
specific needs of the factory
A company’s manufacturing strategy and environ-
ment will determine which specific issues to address
and the way to unlock value through smart factory
solutions. Customizing the approach to each sce-
nario and situation can help ensure the resulting
smart factory meets the needs of the manufacturer.

Don’t just begin and end
with the technologies
The smart factory journey requires more than just a
set of connected assets. Manufacturers would need
a way to store, manage, make sense of, and act upon
the data gathered. Moreover, companies would
need the right talent to drive the journey and the
right processes in place. Each smart factory journey
would require transformation support across solu-
tion design, technology, and change management
dimensions.

Think outside the four walls
As mentioned earlier, the smart factory solution is
a holistic solution, joining what happens within the
four walls with what happens across the entire digi-
tal supply network. Therefore, in order to achieve a

truly successful outcome, any organization embark-
ing on the smart factory journey should consider the
full array of supply chain partners and customers
from the start. Actions in one node, or for one stake-
holder, can impact the others.

Far from being an “end state,” the smart factory is
an evolving solution—one that taps into multiple
features such as agility, connectedness, and trans-
parency. At a high level, the dynamic nature of the
smart factory speaks to an unending call for creative
thinking: imagining the possibilities of the nearly
endless configurations that a smart factory solu-
tion makes plausible. Investing in a smart factory
capability can enable manufacturers to differentiate
themselves and function more effectively and effi-
ciently in an ever-more complex and rapidly shift-
ing ecosystem.

Far from being an “end
state,” the smart factory
is an evolving solution—
one that taps into
multiple features such as
agility, connectedness,
and transparency.

The smart factory
16

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ENDNOTES

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17

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The smart factory
18

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Responsive, adaptive, connected manufacturing
19

RICK BURKE

Rick Burke is a specialist leader in Deloitte Consulting’s Digital Supply Networks practice helping to
guide clients through their supply chain digitalization journeys. He has over 20 years of experience in
supply chain management, primarily at the intersection of business, technology, and people

ADAM MUSSOMELI

Adam Mussomeli has more than 20 years of experience delivering global, end-to-end supply chain
transformations for consumer and industrial products companies, both in a consulting environment
and while in industry positions. He is known for employing pioneering edge technologies to deliver mea-
surable financial results. His work has been featured in publications such as Supply Chain Management
Review.

STEPHEN LAAPER

Stephen Laaper is a Digital Supply Networks leader in Deloitte Consulting LLP’s Strategy & Operations
practice. He brings a unique mix of industry, consulting, and technology experience with a broad range
of clients across the life sciences, automotive, and consumer products industries.

MARTY HARTIGAN

Marty Hartigan is a principal with the Strategy & Operations practice at Deloitte & Touche LLP and
coleads the Deloitte Manufacturing Digital practice. He brings extensive experience in leading complex
strategy projects across industrial products and services, high-tech equipment, packaging, commercial
aviation, defense electronics and communications, automotive OEMs/suppliers, and IT and technical
services companies.

BRENNA SNIDERMAN

Brenna Sniderman is a senior manager in Deloitte Services LP’s Center for Integrated Research, where
she leads digital research. Her research focuses on connected technologies, advanced manufacturing,
and the intersection of digital and physical technologies in production, the supply network, and the
broader organization. She works with other thought leaders to deliver insights into the strategic, organi-
zational, and human implications of these technological changes.

ABOUT THE AUTHORS

ACKNOWLEDGEMENTS

The authors would like to thank Jonathan Holdowsky of Deloitte Services LP for his invaluable contribu-
tions to the preparation of this article.

The smart factory
20

CONTACTS

Marty Hartigan
Principal
Strategy and Operations
Deloitte Consulting LLP
Tel: +1 213 688 5578
E-mail: mhartigan@deloitte.com

Stephen Laaper
Principal
Supply Chain and Manufacturing Operations
Deloitte Consulting LLP
Tel: +1 617 437 2377
E-mail: slaaper@deloitte.com

Adam Mussomeli
Principal
Supply Chain and Manufacturing Operations
Deloitte Consulting LLP
Tel: +1 203 253 5101
E-mail: amussomeli@deloitte.com

Doug Gish
Principal
Supply Chain and Manufacturing Operations
Deloitte Consulting LLP
Tel: +1 816 802 7270
E-mail: dgish@deloitte.com

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