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What Is a Smart Factory and Smart Manufacturing?

Amber Biela-Weyenberg | Content Strategist | Sep 15, 2023

Manufacturers are taking advantage of the latest digital innovations to rethink their operations. In a 2023 survey of 1,350 manufacturers in 13 countries by Sapio Research and Rockwell Automation, 97% of respondents said they plan to use smart manufacturing technologies—which can include everything from robotics to the Internet of Things (IoT)—over the next one to two years.

While these investments provide immediate benefits by augmenting conventional automation practices, they also lay the groundwork for manufacturers to reimagine how their facilities work through the creation of smart factories, which emphasize system interconnectivity and data sharing, helping manufacturers produce goods more quickly and with fewer defects while further cutting costs.

What Is a Smart Factory?

A smart factory uses interconnected systems and machinery to generate data, often in real time, to improve end-to-end production processes and help machine operators, line supervisors, engineers, company executives, and others make better decisions. Smart factory machines and devices also generate data about their own health so that maintenance can be applied before they break down.

It’s worth noting that factories have been using robotics and automation for many years. However, those facilities aren’t considered smart factories unless they use fully integrated systems and machines, bringing the physical and digital worlds together. Smart factories often deploy advanced robotics and sometimes 3D printing. Smart factories are the real-world manifestation of the broader concept of smart manufacturing.

What Is Smart Manufacturing?

Smart manufacturing is the concept of using technologies to coordinate physical and digital processes within factories and across the manufacturing supply chain. Those processes include material sourcing, logistics, production, and disposal. The main goals of smart manufacturing are to improve operational performance and quickly respond to supply and demand fluctuations.

Key Takeaways

  • Smart manufacturing is the concept of using fully integrated technologies to collect data and digitize processes within factories and throughout the manufacturing supply chain.
  • Smart factories are the real-world manifestation of the smart manufacturing concept.
  • Artificial intelligence, machine learning, the Internet of Things, and advanced robotics make most smart factories tick.
  • Smart factories appeal to manufacturers because they can reduce costs, enhance efficiency, allow production to scale quickly based on changing demand, reduce reliance on workers, and lower product defects.

Smart Factory and Smart Manufacturing Explained

While the terms smart manufacturing and smart factories are often used interchangeably, they’re different. Smart manufacturing is the concept of using advanced, connected technologies to coordinate physical and digital processes within factories and across the supply chain to improve performance. Smart factories put that idea into practice, using data collected from networked equipment embedded with sensors—known as the Industrial Internet of Things (IIoT)—paired with robots and automated assembly lines. For example, a smart factory can identify potential production errors early using sensors embedded in and attached to machines and tell a robot to intervene before there’s an issue. Technological advances such as these drive the Fourth Industrial Revolution, commonly called Industry 4.0.

The ultimate goal of a smart factory is to speed up processes and eliminate errors. Even with smart factory automation, people still play a vital role. Line operators, for instance, can track production data on a mobile device and decide to load a machine differently based on the data, helping to improve the performance of the machine or an entire production line.

How Do Smart Factories Work?

Smart factories rely on a network of sensors and software to collect and share data at every step of the manufacturing process, helping manufacturers speed production and improve product quality and system upkeep. For example, within a factory, a bin on a production line may be fitted with a sensor that triggers a refill request when it’s low on supplies, prompting a robot to deliver new supplies just in time to avoid delays. Additionally, machines continually generate data about their own health, predicting maintenance needs and reducing breakdowns. Connected machines in a smart factory also prevent defects by spotting problems with materials.

Smart Factory Structure and Levels

Smart factories generally evolve at the following four levels or stages. Most factories today are at Level 1.

  1. Data availability. The first step is for manufacturers to collect massive amounts of data generated from sensors attached to the assets moving through their supply chains and to machinery on their factory floors. Level 1 also involves pulling in data from legacy systems, which can often be a manual process involving custom integrations, importing spreadsheets, or even data re-entry.
  2. Data contextualization. In Level 2, data is organized and combined from different areas to tell a bigger story. For instance, a manufacturer’s leaders may want to know how different staffing levels affect output, requiring a basic analysis correlating HR and operational data. At this stage, data is organized into dashboards and other visual displays to make it easier to digest.
  3. Data activation. Advanced analytics methods involving artificial intelligence and machine learning are applied at this level, helping manufacturers predict future outcomes with little human input. For example, AI algorithms can diagnose when a machine is likely to fail, alerting operators to apply fixes to avoid permanent damage and long periods of costly production downtime.
  4. Data in action. By the time a smart factory reaches this fourth level, it’s time to trust the robots and other machines to act on their own based on their continuous analyses of data streams. For example, a smart factory could scale production based on predicted consumer demand or use a vision sensor to identify a bad weld and command a robot to redo it before a piece of metal moves further down the production line. Outcomes are then fed back into the closed-loop system, so that it can improve its decision-making process over time. At this level, manufacturers realize the full, autonomous vision of Industry 4.0
A Typical Smart Factory Structure
Improvements in factory operations are made over the course of four phases: data availability, contextualization, activation, and analysis.

Benefits of a Smart Factory

The global smart manufacturing technology market, which encompasses sales of sensors, robots, advanced software, and other tech assets, will grow from US$254.24 billion in 2022 to US$787.54 billion by 2030, estimates Grand View Research. Manufacturers are investing in this technology because they are looking for the following benefits:

  • Lower costs. Smart factories reduce costs mainly by reducing headcount, human errors, product defects, and waste and by extending the life of machines through predictive maintenance.
  • Make better decisions, faster. Data collected from sensors and then analyzed at every stage of the manufacturing process, including throughout the supply chain, helps executives, managers, and workers at each stage make more-informed, faster decisions. Supply chain professionals, for instance, could review a smart factory’s recommendation to order more materials and, if they agree, decide when a shipment should arrive. Or they could review the available data and decide to change the algorithm that makes recommendations so future recommendations are more in line with what the manufacturer needs.
  • Boost efficiency. Manufacturing efficiency generally refers to the quality and effectiveness of the work being completed, not so much the amount of output being produced (productivity). As such, smart factory technologies boost efficiency mainly by minimizing process redundancies, automating repetitive tasks, reducing wasted time and material, minimizing downtime, and replenishing inventories based on predicted shortfalls.
  • Do more with fewer people. While people still play an important role in smart factories, automated processes allow manufacturers to get more work done with fewer employees. It’s an important consideration given that about 2.1 million United States manufacturing jobs will go unfilled by 2030 for a variety of demographic, economic, and other reasons, predicts the National Association of Manufacturers.
  • Diminish environmental impact. By using materials more efficiently with the help of intelligent, connected technologies, smart factories help manufacturers decrease the waste that ends up in landfills, reducing their carbon footprint. Manufacturers can also prioritize the use of sustainable materials and components, tracking the origins and transport of those goods using blockchain and radio frequency identification (RFID) technologies.

Smart Factory Technologies

In a 2023 survey by EY, 97% of industrial manufacturing CEOs said that continuing digital and technology transformation projects is a near-term priority. These projects often involve the following technologies.

  • Sensors. Sensors are devices manufacturers place on or in machines on the smart factory floor to gather data on a variety of factors, including temperature, vibrations, pressure, torque, proximity, and motion. Sensors are core to the Industrial Internet of Things.
  • Industrial Internet of Things (IIoT). Manufacturing supervisors and operators use data collected from machines and other internet-connected objects on the factory floor to analyze those assets’ physical condition, performance, and output as well as the production processes they support. They can then apply machine fixes and process adjustments as needed. For example, sensors connected to the IIoT can alert workers to future maintenance issues by detecting unusual vibrations or temperature changes on a machine. With predictive maintenance, manufacturers can prevent costly downtime and damage to machines by intervening before there’s an issue. A 2022 survey by IIoT World found that 67% of manufacturers have deployed or are developing an IIoT strategy.
  • Cloud computing. Cloud computing is the technology foundation of most smart factories, where the data, applications, and underlying infrastructure live. Cloud services offer several key benefits. They can be scaled easily according to manufacturer needs. New application features, as well as performance and other improvements, are automatically delivered over the internet, without taxing manufacturer IT teams with expensive, time-consuming upgrades. Cloud services can be accessed from anywhere, and they generally feature robust security and backup. And manufacturers pay only for the application and infrastructure capacity they need and use.
  • Big data. Manufacturers collect and analyze massive amounts of data—so-called big data—in their smart factories. Applications supported by robust ERP systems include predictive maintenance, anomaly detection, quality checks, waste reduction, process improvements, and market forecasting. For example, in anticipation of a forecasted spike in demand for a particular product, a manufacturer could devote more of its assembly lines to that product and/or build up a larger inventory of it than it might have otherwise.

Smart Factory Examples

Smart factories are still aspirational for most manufacturers, but early adopters are showing the way forward.

Take LG Electronics, whose Smart Park in Changwon, South Korea, has been designated a “Lighthouse” factory by the World Economic Forum for its production efficiency, safety, and low environmental impact. Inside the factory, which manufactures home appliances, parts for refrigerators and other appliances are delivered to production lines by an overhead conveyor system or by automated guided vehicles (AGVs) managed over the facility’s 5G network. Attached to each line is an “intelligent warehouse” that monitors inventory in real time and requests additional parts and supplies as needed. A 3D logistics automation system minimizes the amount of warehouse space needed by 30% compared with conventional systems, the company says, while shortening the time it takes to transport materials by 25%. Sensors attached to and inside of machines identify potential manufacturing issues and command robots to fix them before there’s a problem. Robots also perform dangerous jobs, such as welding and lifting heavy equipment, making the factory safer for workers. In 2022, LG said that it plans to apply these and other smart production technologies pioneered at its Changwon smart park to a total of 26 production facilities in 13 countries.

By purchasing the rights to 50 MHz of bandwidth, farm equipment manufacturer John Deere built its own 5G network for its factories in the Midwest to help it analyze data from production lines to improve assembly. It plans to equip those factories with robots that can work side by side with workers. The company is also creating 3D models or digital twins of its production machines to monitor their performance, train technicians, and help them service equipment. Those models are accessible at any time on tablets and smartphones.

At Ford’s Dearborn, Michigan, factory, where it manufactures the electric F-150 Lightning pickup truck, production line workers use tablets connected to the plant’s 5G network to access data about material supplies and equipment status. Individual vehicles placed on AGVs move from one group of workers to another. Meanwhile, at the automaker’s UK electric vehicle factory, sensors allow Ford to capture photos of the welding process (EV motors and batteries require thousands of welds), and an AI-based analysis then determines whether a particular weld meets standards. If it doesn’t, the weld is redone before the part moves to the next stage of production. This capability saves time and reduces waste because parts that may otherwise be unusable are routinely fixed.

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Manufacturers use Oracle's smart manufacturing solutions to maximize their productivity and efficiency, improve product quality, adjust production schedules, avoid costly downtime by predicting machine failures, and track goods and processes across their supply chains.

Smart Factory and Smart Manufacturing FAQs

What’s the difference between smart manufacturing and a smart factory?
Smart manufacturing is the broad concept of using fully integrated technologies to coordinate and improve physical and digital processes within factories and across the supply chain. Smart factories put that idea into practice.

What technologies are part of a smart factory?
Smart factories rely on the Industrial Internet of Things, whereby manufacturers collect and analyze data generated by myriad supply chain assets, factory machines, and other “things” to make better decisions. Smart factories also make use of AI, machine learning, advanced robotics, 3D printing, digital twins, and other technologies.

What kind of data should be tracked in a smart factory?
Smart factories track data on assets moving through a supply chain, factory machines, production processes, and more.

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