85% of Manufacturers Double Down on AI

Ed Ballina
Well, hello team, I’m Ed Ballina.

Alvaro Cuba
How are you guys? Alvaro Cuba here.

Ed Ballina
Well, welcome back to another Manufacturing Meet Up podcast. We’re going to start with our typical banter, which is following our routine. Now, we are wearing different hats, just like we did in the plants, Alvaro, right? That’s a Pepsi hat. Well, this is actually a Pepsi bottling group. Uh, it was our separate entity back when, and I was honored to have been the plant manager in the Denver facility at the time.

And we had just invested a ton of money in a bright new syrup room. And yes, we’re geeky about stuff like that. Shiny stainless steel tanks and valves to do what they’re supposed to do thrill people like us. So we’re simple to make happy. So this is a hat that commemorates that. You can see it’s been a while, right? So that’s a story of my hat and yours is very colorful.

Alvaro Cuba
Yeah, 2001, yes, Denver, Syrup, project.

Yeah, this is soccer hat. This is actually for my club in Peru. And I’m using it because today and tomorrow, the FIFA Club World Cup, it’s going on in the U.S, Canada, and Mexico, mirroring the World Cup that is going to be next year. But this is clubs.

So the best clubs in Europe, the best clubs in America, the best clubs in Latin America, the best clubs in Asia and in Africa, competing 32 teams, competing and this weekend, we’ll see the final. So this is the time where you can use your hat of your club and everyone is using it’s club’s hats. So, Sporting Cristal, go!

Ed Ballina
Okay, very good.  I’m partial to Real Madrid since I spent some time living in Madrid in the 70s. 

Alvaro Cuba
Well, it’s playing today and it’s playing the semi-final. So you may see Real Madrid on the final with Paris Saint-Germain. So, okay.

Ed Ballina
Wow, I may see something. Always so much fun.

All right. So, hey, back to the podcast. Alvaro and I can get a little carried away sometimes. Sports, yes, it does. And the passion. So, hey, welcome to Manufacturing Meet Up Podcast. This is a show where you know by now we kick back, we talk about the realities of the shop floor and try to come up with some hints and solutions and ideas to help make a little sense of it all. So welcome back.

Alvaro Cuba
Okay, guys. So today we are going to talk about the State of Production Health Survey. This is a survey published by Industry Week, sponsored by Augury, and  Endeavor Business Intelligence is the research partner. And it comes out every year. So we can compare, we have the last three or four years to compare what is the evolution.

And it talks to 500 manufacturing executives. And in this case, obviously things weighing in is 90% people worry about tariffs, but they are optimistic in the future.  They are mostly confident on AI,  but they are still struggling to…prove the impact and we’ll talk more about that. And even everyone is a little bit concerned on the short term and the economic impact in the short term, everyone is doubling down in AI. So very interesting results that we’ll be discussing in the next segments.

Ed Ballina
Great, yeah, a lot to unpack. I would encourage you, if you have the opportunity, download the report or read it. It’s 21 pages, it goes quick,  a lot of graphics, so you can really walk away with straightforward. And to be honest, I don’t think anything real surprising, Alvaro, from what we have been seeing so far.

So of course, we try to break things down into bite-sized segments. So we’re gonna break this down to three segments or three topics. I’m gonna cover the first one.  And that’s this question about the AI confidence gap. So the headline for me on this one is everybody is running towards AI, right? The investments, I was looking at some of the numbers.

Not only have they gone up significantly, but they’re going to continue to, right? I think like 85% of respondents say, yeah, we’re going to deep, you know, we’re going to get even deeper in AI. But there’s starting to be a little bit of a question of, okay, can I really quantify the payback? So they’re starting to a little bit of this confidence gap around AI. So while 83% claimed they have advanced AI adoption, right? The thing that surprised me was their number one concern was, in their immediate goals, was digital adoption. So, but it makes sense, right? You’re bringing on these new systems, these new ways of doing business, and they are submerged throughout your whole process, your whole supply chain. So it’s a little scary. You got to figure out how to do this.

I’ve been involved in some conversions to a very large three-letter  company software that resulted in us not even being able to ship a case for like two days. Okay, imagine a whole plant shut down because you can’t. Yes, yes, yes. The words S and A and P maybe somewhere in there,  great system, but getting to it is a challenge.  Usage versus impact. This one I had to read twice because what they tell you is that, you know, most respondents are very much of the opinion that machine health is the first use case for this technology.  But when you ask them to find the financial impact, what they rate as number one isn’t machines itself, but it’s the combination of machine health and process health. If you pluck machine and process health away from each other, they rate lower. But together, it’s like the killer app. 

Alvaro Cuba
which is the right way to see it because then you see the end to end and the total result.

Ed Ballina
So it’s great to see that. my God. Yes. Right. Absolutely. That’s how you really, really maximize the impact of this technology.  Missed opportunities, right? Capacity constraints are still number one challenge, but we’re really not using AI enough to understand our sourcing networks, to start taking inventories down. You and I have talked about this, and my little pet peeve that I have, because it goes and mentioned many times, is spare parts inventory, folks.

If your machines are running more reliably, you don’t need $10 million worth of stuff sitting in your warehouse. That probably won’t work anyway because the grease dried up. Anyway, there’s big opportunities there. The other takeaway for me was Europe is ahead of us. When they did the analysis on machine health, Europe is 20, 30  percentage points ahead of the U.S. But when you think about process health, we’re almost neck and neck, which is pretty interesting.

Alvaro Cuba
Yeah, I think a couple of things on that confidence gap. Yeah, people is in some areas thinking, ⁓ how I prove the impact. But I think what is behind is artificial intelligence is starting to be in everyone’s life. So, ChatGPT and now, any in Google search, whatever tool that you use, your cell phones, you get immediate proof of the value. Things that you were taking three, four hours, now you can do in 10 minutes. The writing of essays, many, many things that, and people feel it.

The same is happening in the shop floor. People intuitively understand that. I was researching all that and now I have all the research in one minute and I can use the time to think about it. Probably difficult in the short term to translate that into real money.

But then when you put all these people, you free them up out of the day to day and the nitty gritty thing and allow them to focus on the big things, then it will start adding up. And if you put this on top of automation and on top of process health that you are talking, then you have that trifecta. People, process and technology all together. And I think that’s why even there is this gap on how I prove it. No? The number part of what the survey was saying, companies triple what they are investing in AI as a wide enterprise. So even companies are start moving out of the purgatory pilot and moving into no, trust it, just go for it. And that’s why three times more companies are just moving into enterprise worldwide expansion or rollout.

Ed Ballina
They’re making the giant leap because it makes sense. And it makes perfect sense that when you make, think about how invasive AI has become to your point, even in our daily lives. When I ask Siri a question, I don’t just get a Google list, I get a paragraph and directs me. I am loving that because it’s very efficient. 

Alvaro Cuba
And, and, and whatever small thing, see anything you are feeling or any pharma or anything, just put it there. Now it gives you, this is it. This is three bullet points and you got it all.

Ed Ballina
You’re done. I wonder if that’s what my suppliers are doing with my PowerPoint decks. They’re to give me three bullet points. Hey, this stuff is good. Call him. I’m OK with that. But to your point, the difference in the use of AI year over year is astounding. If we’ve gone from 71% prior year to what is it, 82%, right?

Alvaro Cuba
Yes.

Ed Ballina
And it only makes sense that when you are making such an enterprise-wide change that you have got the cultural side of it, the people side of it is what’s going to lag because you’re touching everything. Maybe you advertised a lot of savings because you were optimistic. You were going to 100% roll out and you know it’s not going to work that way. But trust me folks, they’re coming. Invest in AI. You really don’t have a choice.

Alvaro Cuba
And the light is at the end of the tunnel. The other thing that it’s important just to finish with this segment is now the companies, especially in manufacturing, are starting to focus in the right things. Capacity, yield, which deals with waste, and quality. If you just focus on those three and put all your AI in those, the results come very fast.

Ed Ballina
Trust us on this one.

Alvaro Cuba
Okay, moving into the second segment, this moves a little bit out of the manufacturing per se, and it’s more about the overall view, is the economic uncertainty on one hand and the strategic confidence in the other. So 96% is worried about the recession, 95% is worried about tariffs, 73%…is certain that the supply chain disruption will come in the short term. But on the other side, 96% is confident in the manufacturing future, especially enabled by AI. So there is this balancing the hat between a short-term survive and a long-term built resilience or build quality in. So that’s one. And the other two, one is surprising to me and I’m  curious to  hear your thoughts Ed, is the…AI goal was mainly capacity, capacity, capacity, maybe because of the times in the last couple of years, but now is moving into sustainability, which is one thing. It’s a question mark for me. We can discuss more. And the second, you mentioned in the first paragraph, but it’s also true on the overall adoption of AI. Europe is ahead of the U.S.

They are trusting more and just jump into it. So I’m curious about these couple of things, what your take, Ed?

Ed Ballina
Yeah, I was surprised by the sustainability one, frankly, because I think capacity is still an issue. But I think here in the U.S. I think we’ve kind of mainly recovered from what happened during the pandemic. Our productive capacity is up. I don’t see this, the number of out of stocks on shelf or anything like that, before. So I think the gas is off the pedal. But what’s happened is a lot of these manufacturers took pricing that they could not sustain.

And the consumer spoke loudly and said, Hey, you keep that up. We’re going generic and private label. And now, so now you see some of the bigger players scaling back on their output because they’re, they, you know, because of the whole price volume equation. I think what’s prices are going to have to meet some base.

Alvaro Cuba
And in the other hand, AI is helping capacity as well. So probably demand is going a little bit down. Capacity has already gone up in the last couple of years. So now start probably balancing.

Ed Ballina
Right, yep.

Now they’re balancing and I’m sure some organizations found suppliers internally that didn’t have the supply chain issues that enabled them not to have as much safety stock. We’re not bringing product, raw materials for some of these places from overseas as much anymore, like we did during COVID.  So that’s a piece around sustainability. I was surprised that that popped up, but I think it’s a recognition that sustainability and the push for that is here to stay.

Right? To the degree that you think it’s been maybe not well invested in or not invested in properly. I think almost everybody can agree that long-term we’re all going to be driving electric vehicles. Right? Maybe we’re not a hundred percent there yet, but that’s, if I was a betting man, 30 years from now, that’s probably going to be the case. So with that in mind and some of the uncertainty around, you know, energy supplies, Middle East, Ukraine, et cetera. I think people have the whole sustainability thing kind of kicked up to high gear. And I think it shows up a little more in Europe too, I think. 

Alvaro Cuba
Probably, Yeah, well, actually Europe is far more conscious. Even the laws, the consumer laws are more strict. The other that could be driving this is the new generations are also much more focused on sustainability. So demand is there. The only caveat on that, and we discussed that in a couple cases, sustainability per se is not the idea. It’s a vague concept. Sustainability has to pay for itself. And reducing waste or using better energy or using AI and saving time and effort and all that, it’s true sustainability. That it really goes to the bottom line in the company.

And it also goes to the bottom line in the environment and in the world. But they have to go hand-in-hand.

Ed Ballina
They do. It’s got to pay its own way. And look, it doesn’t mean that companies won’t accept a lower rate of return for sustainability projects. Just like we’ve done that with safety projects, right? Because some of it is almost a business necessity. So you hardly ever get a good return on a warehouse, right? They’re like, people look at you like, you’re going to spend money on a warehouse? Yeah. Because if I don’t have a warehouse, the product doesn’t get to your truck, right? But the rates of return on them are horrendous, no matter what we try. So, with sustainability, sometimes you put your thumb on the scale and you accept, you know, 5% lower ROR because, you know, it’s really the right thing to do. So. 

Alvaro Cuba
Well, and if you go after waste or after those big ticket items, it pays for itself.

Ed Ballina
Yes. It pays for itself, many times over. That’s why I’m such a, you know, advocate, if you will, of getting your lines running more efficiently, right, will result in bigger sustainability performance than a lot of these single point opportunities. I’m not saying  don’t use the little dog to check for air leaks in your plant. Trust me.

It works, right? The Boston Dynamics dog that walks around, I mentioned in the previous podcast. If my line is running at 40%, I would rather have that person’s time spent on how to improve that line efficiency, right? Because that’s going to throw off so many more dollars, less stuff to landfill. It’s just the right thing to do all around.

Alvaro Cuba
Yeah, imagine what it takes to bring your line for 60 GE to 80 GE is less waste, less energy, less scrap, less re-production, yeah, rework,  better quality. All of that is clean, clean, clean, clean, clean, clean, money.

Ed Ballina
Right. rework Bring it, bring it down. You’re printing it, you’re printing it. And that’s why sometimes when I look at some of the way the plants are set up and there’ll be a sustainability manager, there’ll be a safety manager, there’ll be another kind of manager. Yes, I love them, they need to help us drive the business, but I always like to give them a piece of the pie and said, not only are you the sustainability manager, but you’re also the Canline One owner. I want…because they have a lot of skills that they could provide coaching and it’s an extra set of arms.  So, let’s talk about number three, workforce transformation. So we’ve talked a lot about this topic, given all the discussions about the labor situation in the United States. So,

Alvaro Cuba
It also helps align people. But okay, let’s go.

Ed Ballina
Folks here, we’re facing a challenge. The challenge is half a million jobs a year, manufacturing jobs, go unfilled. That’s roughly half of them.  We are looking at a gap of three to four million in the next five years, if you just follow the numbers, right? You can’t bring manufacturing back to America if there aren’t people to run these plants. So we have to figure out how we make that work.  No surprise, almost three million employees are reaching retirement age, right? The knowledge gaps that are on the floor, there’s no longer people fear them. They’re there and they’re evidence. So we have to find a way to harness some of that information and to  de-complex our operations to some degree.  Let’s get out of tribal knowledge and use AI to really make our operators or our mechanics lives more fruitful, more focused and a lot easier.

So what’s the opportunity? Almost 100% of people will tell you that AI helps to upskill their workforce. And also because you don’t necessarily have to be a techie to do, to benefit from AI. Alvaro had the perfect example, a couple of minutes ago. Ask your, ask your cell phone, hey, you know what, where can I find the best price on blah, blah. And it’s going to give you not just a Google search, it’s going to give you a list, right?

Or, you know, what are the best outdoor camping lights, you know, that are for sale? I used that earlier. I do have one of them on the way for the weekend, hopefully. But,  so,  lots of opportunity.  For the podcast. It’s like that’s a camping.  Also journey of AI for work instructions jumped. This is a big deal because in many facilities,  our manuals and our work instructions are pitifully old if you find them at all, pages are missing, AI can really help you solve some of those issues. And one other one that I really, I definitely want to make sure you give me some feedback on is this whole OEM integration. Because as these systems grow, right, you start looking at your machinery and this machine does this and I see these issues. If you can backwards integrate that to the OEM, you now start providing them with information that will make their equipment,  break down less often, become more efficient and more capable. The problem is a lot of these OEMs believe that they can do this thing in house themselves. I’ve had the conversations in many, many C-suites where they’re like, we have really smart people. We can develop this AI ourselves. And I’m like, no, you really can’t. And by the way, that’s not your core competency, right? So, I know that’s a little bit of a thorny topic, but.

Alvaro Cuba
Yeah, a couple of things that the survey called my attention in this part is one on the positive. I think the numbers start showing that there is less concern about job replacement by AI and tech and moving more as an enabler. AI is an enabler. It helps me. It gives me better quality of work, better balance in my day-to-day. So I think the needle is starting to move. On the other side, and I think it’s the place that we all need to work together individually with the different people in the groups is the two biggest concerns are one is change management. So how to talk to the people in the sense that they understand the possibilities. They open their mind. Change management is they open their minds to new things so they can truly get the full opportunity about it. And the other one is  skill shortage. Ed was talking about the upskilling, but also IT skills.

AI is creating new roles and those new roles will require new skills. So some of the universities, some of the colleges are starting to bring that, but in between, in the company, we can help each other. We can create these small training courses to train in these new skills. So everything, people is the one who makes things happen. And if we do not convince them that it’s good for them and it’s good for what they are doing, it’s difficult to move. So that, according to the survey, is still something we need all to continue to work.

Ed Ballina
Still a big opportunity, but it’s exciting. It really is an exciting time to be involved in this field because  I believe this is nothing short of an industrial revolution. This is gonna be as impactful as even more than the assembly line concepts and all that, that gave birth to what we have today.  So, kind of wrapping up. 

AI is here, it’s coming, it’s a huge enabler. It can help you across a number of parts of your business.  But folks, it has to pay its own way. Just like we talked about sustainability. You don’t do AI just because that’s the buzzword of the day. You do it because you have a use case  and you have an issue that you need a solution for.

Once in awhile I see folks go down the path of we have a great tool and now they got to go figure out what to apply it to. Yeah, you can do that, but it’s a lot easier if you start with the problem and develop the tool to fix the problem. Then you’re guaranteed, you know, impact. So and Alvaro, what do you think are the biggest challenges?

Alvaro Cuba
The three takeaways for me out of the survey as a wrap up are one is to focus on impact, not only in adoption. It’s great that you’re running on adoption, just focus impact. The second is AI is a big enabler for people and that helps the change management. And number three is connect AI to the biggest areas of opportunity. And for me, the biggest areas of opportunity is throughput or capacity is one, yield, and waste, which is tied to sustainability, and quality, which is tied to competitive advantage.

Ed Ballina
They all resonate.  And one thing  that we would ask our listeners to do is share with us what your experiences are in AI, right? Let us know what’s working for you and what’s not working, because we would love to engage in that conversation and bring that back.  I’ll also kind of leave you here with one last thought. And I saw a post on LinkedIn.

They talked about, you know, technology is great, but it’s about people. And that is all of this great stuff means absolutely nothing if you do not close the last yard. Okay. Until somebody grabs a wrench and puts it on that piece of equipment by wrench, you know, whatever tool you need and makes a physical change in the real world. All this stuff floating around in the electron world doesn’t mean anything. So remember, it’s about the wrench, folks. Okay? I’m gonna show you that. We used to, I wear this proudly. I didn’t earn it. ⁓

Alvaro Cuba
And if you need any help with that, call Ed and his company. ⁓

Ed Ballina
No, no, we used to, that was a program for our mechanics. When we had mechanics that went above and beyond, they qualify for the golden wrench award and they got swag and they got gift certificates. Yeah, pretty cool. So I didn’t earn it. I just had the program. So I got the free shirt.

Alvaro Cuba
Nice. It’s pretty cool.

And guys, you will see  in the podcast, the survey,  the way for you to download the survey.  If you read it and you have thoughts, doubts, comments on the survey, please send it to us and we can do another episode on the survey, but based on your comments and your inputs. And we can continue the discussion.

So thank you again for being with us. It’s always great to be with you and your friends, your pals, to have your inputs.  Please like us or give us a review, depending on where you are listening or watching us. And we are here. This program is designed for you and whatever interests you is what we are open to bring in. So just let us know.

Ed Ballina
Fantastic. So if you want to keep the conversation going right you can email us at mmu@augury.com. We’ll also have that in the show notes for this  episode and in case you have never seen us right and you just listen to this this podcast, you know through headphones, Alvaro and I kind of look like Fabio. Okay, we have long black hair and we’re built like Arnold Schwarzenegger.

So in case you haven’t seen us, that’s who we look like. If you find two other guys on an MMU podcast, they’re imposters. That’s not who we are. Anyway, I had to close with something a little strange. Okay. So that was my attempt. So see you next time folks.

Alvaro Cuba
See you guys, bye.