Japanese manufacturers face hurdles in shift to digital operations and smart factories

Many Japanese manufacturers are encountering significant obstacles as they attempt to modernize their operations. That is according to a study by ABeam Consulting, which analyzed data from over 500 companies to determine why many firms are struggling.

Many Japaneses firms have not been successful in moving beyond basic automation despite years of investment in digital technology. The ABeam Consulting study indicates that while simple digitalization has progressed, the evolving business landscape requires more sophisticated solutions.

“As the sector also addresses changes in the business environment, such as diversification of products and moves toward to variable-mix variable-volume production, it faces complex issues on the ground that cannot be addressed through simple digitalization or automation efforts,” said Satoshi Tachibana, principal at ABeam Consulting.

The impact of company size on automation

The findings indicate a surprising relationship between company size and the success of automation. Small companies with annual sales under 10 billion yen have made steady progress because they typically manage limited product lines.

However, as companies grow and their sales reach between 10 billion and 100 billion yen, the complexity of their product offerings increases, making it much harder to implement standardized automated systems.

Even the largest corporations, with sales exceeding 1 trillion yen, are finding it difficult to automate because they must now produce a wide variety of items in small batches to remain competitive in a shrinking domestic market.

Technical barriers

The report identifies several technical bottlenecks that current technology has yet to solve. Many factories struggle to automate visual and auditory inspections that require human judgment.

While cameras and artificial intelligence have improved, they still struggle to evaluate multiple types of products simultaneously or in sequence. Additionally, the process of switching tools and settings for different product versions remains a major hurdle. Because manufacturers are moving away from mass production toward more diverse and customizable products, they cannot rely on specialized machines designed for a single task.

The challenge of retaining skilled workers

One of the most pressing issues identified in the survey is the looming crisis in skill transfer. For decades, Japanese manufacturing excellence has relied on the intuition and physical senses of veteran technicians. This unwritten knowledge, often referred to as implicit knowledge, is difficult to formalize or program into a computer.

As these experienced workers retire and the working-age population declines, companies are struggling to pass these essential skills to a younger generation. The study found that digitalization efforts aimed at capturing this expertise have made the least amount of progress.

Navigating global supply chain complexity

Supply chain management has also become increasingly complex. Global instability and labor shortages have made it difficult for a single company to manage its logistics and procurement effectively.

The report suggests that firms may need to move toward regional clusters or hire specialized outside contractors to manage these networks. This shift would allow companies to share resources and intelligence rather than trying to solve global supply chain problems in isolation.

Many companies expressed concerns over a lack of internal personnel capable of managing these high-level logistical demands. With geopolitical tension relatively high and the looming threat of tariffs, these issues are not likely to go away any time soon.

Integrating technology with traditional methods

To address these challenges, ABeam Consulting suggests that manufacturers must go beyond simply adding sensors or basic software to their existing lines. The authors recommend adopting reconfigurable manufacturing systems that can be easily adjusted as product demands change.

The researchers also propose the use of ‘knowledge digital twins’. This involves recording the eye movements, voices, and specific actions of master craftsmen to create a digital map of their decision-making processes.

The survey concludes that technology alone is not a universal solution. True progress will require a combination of modern digital tools and the traditional Japanese philosophy of continuous improvement, or ‘kaizen’. Success in the next era of manufacturing will depend on the ability of a company to redesign its entire production process rather than just automating individual tasks.