Leap of faith: why small job shops must embrace new technology

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There’s a heady feeling of optimism about the future of Canadian manufacturing these days. It’s led in large part by a renaissance of Canada’s automotive sector and the push to reshore all types of manufacturing production to Canada after the COVID-19 pandemic laid bare the pitfalls of relying on globally stretched supply chains.

The federal government along with the provincial governments in Ontario and Quebec have been particularly aggressive in courting anchor investments to turn the nation into a hub for electric vehicle manufacturing. Automakers have responded by pouring tens of billions of dollars into the assembly plants that will build these new vehicles and the battery systems that will propel them. After two decades of stagnation, which included plant closures and severe cuts to production capacity, the investments are transforming Canada’s auto industry from a global manufacturing “has-been” to a “has-it-all”, to borrow from the euphoric description of the turnaround penned recently by Lana Payne, national president of Unifor, Canada’s largest private sector union.

The strategic investments and the buoyed outlook are welcomed, but they may also be inadvertently masking an ugly truth: Canadian manufacturing is a global laggard when it comes to technology adoption,  an essential element in securing that bright future.

Relentless global competitive pressures require manufacturers large and small to take the leap of faith required in adopting new technology. By doing so they open the door to boosting innovation, lowering operating costs, increasing flexibility and responsiveness, reducing waste, and improving product quality. Slow adopters get left behind.

Data from the OECD shows that Canada ranks near the bottom of advanced economies when it comes to capital investment growth. During the 2016-2020 period, Canada recorded the second weakest business investment performance among 31 OECD countries. Canadian GDP may have continued to rise through this but don’t mistake that for actual progress, cautions Dennis Darby, president and CEO of Canadian Manufacturers & Exporters (CME).

“Our GDP has gone up because of our rising population, not because we are becoming more efficient, whereas some of our competitors, countries such as South Korea, have productivity curves rising faster than their populations because they have adopted technology,” Darby says, adding: “This is a warning call for Canadians and our governments.”

Canada’s poor technology adoption record directly limits our ability to compete for and win investment and jobs in the intensely competitive manufacturing sector, says Alan Arcand, CME’s chief economist. “If we want to get serious about rebuilding Canada’s industrial capacity, the first thing we need to do is dramatically improve our business investment performance, especially when it comes to technology.”

CME’s own Technology Adoption Survey, released a few months ago, reveals just how much of an uphill climb lies ahead in getting Canadian manufacturers to adopt new technologies. The survey is particularly instructive for metalworking job shops as by far the largest representation (22% of the total sample) was from manufacturers of fabricated metal products.

Several hard truths emerge from the survey data. First, while some Canadian manufacturers are making progress in taking on thedigital transformation of their businesses, too many have placed such commitment on the backburner. Manufacturers that are undertaking digital transformation are turning to software solutions that cover all aspects of business operations, from the factory floor to the supply chain. The survey asked participating manufacturers to self-assess their progress on digital transformation. Only 13% of survey participants reported their company’s digital transformation was at an advanced stage with the majority (47%) assessing their company’s progress as being at an intermediate stage. More worrying is that 28% were just beginning their digital transformation while 12% admitted they hadn’t even started yet. In other words, 40% of Canadian manufacturers are clearly lagging behind where they need to be in terms of digital transformation. A similar percentage either don’t have any employees or consultants directly involved in working on digital transformation within their company or are unsure (7%) if they do. 

A number of software solutions are available to facilitate digital transformation in manufacturing. To measure the current rate of software adoption, CME asked survey respondents if they are currently using nine software solutions that may be used in manufacturing today. The survey found that 76% of manufacturers are currently using at least one of these software solutions in the running of their business, while 63% are employing at least two of these platforms. The most prevalent use of a platform across the manufacturing sector was Enterprise Resource Planning (ERP) software, used by 58% of firms. This was followed by use of Electronic Data Interchange (EDI) tools that are employed by 38% of manufacturers, Manufacturing Execution used by 35%, Business Intelligence used by 34% and Quality Management Systems employed by 32%. 

Although 12% of survey respondents would be considered power users of these software solutions having implemented seven or more of the platforms, and 23% could be considered high adopters with use of four to six platforms, the typical Canadian manufacturer is an average adopter. The average adopters (42% of respondents) are just using one to three software tools, a fairly low bar.  Unfortunately, complete non-adopters made up the second-largest group, with a quarter of manufacturers having yet to adopt even one of the nine software solutions outlined in the survey. 

The results were no better when CME surveyed manufacturers about their use of nine different advanced technologies changing the face of manufacturing, such as automation, big data and data analytics, industrial internet of things, additive manufacturing, simulation/digital twin, augmented and virtual reality and even more basic technologies such as cybersecurity and cloud computing. The survey found that two thirds were using at least one of these technologies a lot, while 80% were using at least one a little. Again, these are not particularly high bars. On a negative note, the survey found that 10% of Canadian manufacturers have yet to adopt any of the nine technologies.

Another hard truth drawn from the survey data is that firm size is a key driver of technology adoption, a finding that is consistent with the results of previous surveys and research studies. Compared to their larger corporate counterparts, small businesses reported lower confidence in their knowledge of the technology solutions available to them, greater difficulty in obtaining financing for their digital transformation projects, lower rates of software and advanced technology adoption, and more muted near-term investment plans.

“This is a major problem because Canada’s manufacturing sector is predominantly composed of small businesses. In fact, of the roughly 52,000 manufacturing enterprises with employees, 47,750 or 93% have fewer than 100 workers. Their tendency to be slow to adopt technology affects the wider industry as well because many small companies supply products and services to larger corporations,” Arcand says.

DGM Enterprises is a fabricator of customized vents that sit flush with the customized flooring it also produces made of stone, ceramics and metal for higher-end homes. With five waterjets and 14 people working in its two plants in Oakville and St. Catharines, Ont., it’s a good example of a small Canadian manufacturer in all but one regard: its approach to new technology. About four years ago, to boost efficiency and flexibility in his operations, owner Dave Milum invested in a Yaskawa Motoman robot and the Robotmaster software to program it. 

Milum explains there is a fair bit of complexity with the customized vents DGM Enterprises manufactures. While the angle of the slot is consistent at 22 degrees, vent sizes are all over the map. Some are 3”x10”, some are 30”x60” and might have 250 slots in them. 

“The robot now does all of the custom vents we make. It lends itself nicely to making all different sizes of vents. It’s easy to program and it’s fast on that type of work,” Milum says. “…It’s probably 25% faster if not more.”

Milum faces the same issues many small manufacturers do, such as finding skilled labour, incurring training time and costs when he has to hire mechanically inclined but still green employees to work with his company’s waterjet technology, and the cash flow issues that are part of a growing company. Yet he still worked with integrator iCubed, a business relationship three decades long, to invest in automation. 

“I looked at what it would cost me to finance it and at the end of the day financing a robot can be more cost effective than hiring an employee. To finance even a quarter million over five years is only a few thousand a month. The finance part of it didn’t really bother me,” Milum reasons. “And after you’ve paid it off, you’ve still got a pretty good piece of equipment. I just retired a three-axis waterjet that was 32 years old.”

So why aren’t there more Milum type examples out there? Why are so many Canadian manufacturers, particularly smaller ones, underinvesting in new technologies? CME’s Technology Adoption Survey respondents flagged four main barriers to technology adoption: difficulty in integrating advanced technologies with existing systems, standards and processes; high purchase costs and uncertain economic return; a lack of skilled workers needed to make the most of advanced technologies; and a lack of sufficient government financial and/or tax incentives. The fact that just 3% of manufacturers felt their company did not face any obstacles to technology adoption, illustrates how much of a factor these barriers can be.

The main barriers identified by respondents highlights another key conclusion from the survey, says Arcand: the strong relationship between labour and skill shortages and slow technology adoption.

“While labour shortages usually push companies to invest in automation technologies, skills shortages often work in the other direction by discouraging manufacturers from taking this critical step. The reason for this is simple: as advanced manufacturing technologies become more commonplace and as production processes grow ever more sophisticated, the skillsets that businesses need are changing rapidly. Not only do new entrants need up-to-date specialized training, but also the ability to adapt and evolve in time with future technological advancements.” Arcand explains. “But without educational reform and increased government support for employer-led training, skills gaps will remain high and thus will reduce the propensity to invest.”

The data from CME’s latest Technology Adoption Survey is insightful in pointing out Canadian manufacturing’s weakness in technology adoption and the reasons behind it. What’s the better way forward? 

To encourage investment in technology, CME has long pushed for a national 10% investment tax credit that is matched by all provinces. That’s something that resonates with Canadian manufacturers as well. The survey found that 61% want governments to provide more direct funding and/or tax credits to help lower their technology investment costs. Another support favoured by about a third of survey respondents is government funding for technology assessment programs.

Manufacturers, the smaller ones in particular, often experience difficulties integrating new technologies into their processes and may have ended up with technology investments that didn’t provide the required outcomes, points out the CME’s Darby. As a result, they grow less confident to risk investing in new technology because they fear it won’t work for them. Government support through investment tax credits and funding of technology assessment programs are ways to “de-risk” that leap of faith into new technologies, Darby says. CME ran a technology assessment program in Ontario last year and has done so in other provinces as well. Under such programs manufacturers can apply for a grant to have a technology assessment conducted of their operations by a manufacturing productivity expert. 

“What’s really important to understand is that if you apply a new advanced technology to an inefficient process, you’re just going to make it worse. If you haven’t figured out where your key process flows are or your key bottlenecks or where the energy consumption parts of your business are, putting in a high-tech system doesn’t fix things,” Darby explains. “Having someone from outside the company who is an expert come in and show you where you can benefit most from your process flow adds another element that de-risks the investment because you have someone independent from the company and the technology vendors showing how you can make the biggest impact with the investment.”

Technology vendors also have a role to play in simplifying the technology selection process for manufacturers, says Magalie Jackson, general manager of Sandvik Coromant Canada.

“It is the responsibility of the vendor or service provider to share its expertise and to educate them so they can embrace those digital solutions,” says Jackson. “We encourage them to approach digital solutions one step at a time. We have multiple digital solutions based on customer profile, competency, goals, and strategies and will recommend the optimal digital solution to start with. It’s about taking one step at a time and trusting your vendor to guide you.”

Darby sees a clear threat to the future of Canadian manufacturing if the steps necessary to push industry towards faster adoption of technology aren’t taken.

“Canada has fallen behind its peers in terms of productivity. It’s pretty clear right now that unless we intervene Canadian manufacturers are not going to have adopted the technologies they are going to need to compete,” he says. “The bigger companies are making the investments because they know they will be required in order for them to compete. We have to close that gap. When we do this survey again two years from now, I don’t want to see the power users of new technologies all being large companies. I want to see that spread out.” SMT

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