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Three 2018 Game-Changers For Manufacturing

Trends for manufactures with shipments of export cargo and import cargo in international trade.

Three 2018 Game-Changers For Manufacturing

IoT being built into the product design, manufacturers adopting a more service-centric business model, and 3D printing reaching the tipping point of realizing business benefits on a large scale. These are the three game-changing predictions that Antony Bourne, Global Industry Director of Industrial and High-tech Manufacturing at IFS, outlines for 2018.

By the end of 2018, over 50 percent of manufacturers will be building IoT technology into the design phase of their products 

When you think IoT, is your first thought newly affordable, available sensors being added to products after they’ve been manufactured? If it is, well I believe 2018 will change that perception as IoT takes a decisive step forward in its evolution.

If we think of IoT as like a product’s nervous system, 2018 will see it grow from picking up signals at the periphery to being the brain of the product—constantly sending, receiving, growing and gathering information from the center of the product throughout its lifetime and, in the process, enabling new services and revenue streams.

Manufacturing is one of the markets most heavily impacted by IoT today. According to Global Market Insights, IoT in the manufacturing market was valued at over $20 billion in 2016 and will grow at more than 20 percent (CAGR estimate) from 2017 to 2024. Current IoT investments that are unique to the manufacturing environment are taking place in three major initiatives:

Smart manufacturing to increase production output, product quality, or operations and workforce safety as well as lower resource consumption

Connected products to impact product performance, including collecting detailed information on products in the field, remote diagnostics, and remote maintenance

Connected supply chains to increase visibility and coordination in the supply chain, tracking assets or inventory for more efficient supply chain execution

In 2018, we will see IoT being included as a part of the design process in all three of these IoT initiatives. Manufacturers are realizing that by engineering IoT technology into products and equipment already in the design process, you will be able monitor not only the equipment’s performance to predict when it needs repair, but also how and when it is being used—­providing game-changing competitive advantages!

By the end of 2018 more than 50 percent of manufacturers will be building IoT technology into their products from day one—already thinking forward in the design phase and asking themselves what services and revenue can this product generate throughout its lifetime?

In fact, where will our revenue be coming from in the next five years?’ It’s a good question. And it leads us to my next key prediction…

By 2020, most manufacturers will earn over half of their revenue from services

With the manufacturing industry becoming more and more commoditized, the need to differentiate yourself is key to survival and profitability. We now see that a large number of manufacturers are shifting to a more service-centric business model—the buzzword is “servitization.”

Servitization is a way for a manufacturer to add capabilities to enhance their overall offering in addition to the product itself. One famous example is Apple, which did this a few years ago when it had gained the majority of market share with the iPod and introduced iTunes to increase loyalty, differentiate itself, and generate more revenue. You may think that it will never apply to your business, but companies are now reaping the benefits of servitization across many different sub-segments. For example, Philips provides Schiphol airport outside Amsterdam with lighting as a service, which means that Schiphol pays for the light it uses, while Philips remains the owner of all fixtures and installations. Philips and its partner Cofely will be jointly responsible for the performance and durability of the system, and ultimately its re-use and recycling at end of life. This has resulted in a 50 percent reduction in electricity consumption without having to buy a lamp!

I see this development among IFS customers as well. For global furniture manufacturer Nowy Styl Group, servitization has been crucial to its growth. In 2007, it announced “for us, chairs are not enough”, starting a transformation from pure manufacturer to world-class office interior consulting company. Another example is a customer that manufactures cleaning products and started to offer delivery and service dosing systems. The company understood that choosing the right cleaning products was just part of its customers’ main objective, i.e. keeping its premises hygienic. Applying the products in the most effective way, choosing the right accessories, establishing the right routines— all these too were crucial to keeping premises clean.

Both these customers realized that with technology accelerating as fast as it is, no matter how beautifully designed a chair, or how effective a cleaning product, today’s luxury products turn into tomorrow’s commodities faster than ever, pulling prices down with them. With servitization, manufacturers escape the corrosion of commodification. Expert services built on years of experience provide a kind of value customers will always pay for, regardless of technology trends.

According to the IFS Digital Change Survey, conducted by the research and publishing company Raconteur, 68 percent of manufacturing companies claim that servitization is either “well-established and is already paying dividends” or “in progress and is receiving appropriate executive attention and support”. However, almost one in three manufacturing companies are still to derive value from servitization. These are missing out on revenue streams and new ways to develop their offerings. To be successful in their response to customer needs and increasing demands, manufacturers must look to new business models to compress time to market, taking an idea through from design to a saleable item as quickly as possible.

New technology like IoT adds an additional layer to servitization. With sensors detecting when your product or equipment needs service, this data can trigger an automated service action that will realize significant benefits to make your service organization more effective. This type of automated predictive maintenance will become more and more common as it is a natural next step after implementing IoT to optimize service efforts.

By 2019, the hype around 3D printing will be over, and real benefits blooming

My third prediction is that 3D printing, just like IoT, will enter a new, more mature phase. No matter how big the ‘wow’ factor is when we first see it, apart from smaller-scale manufacturing production like hearing aids and jewelry, 3D printing has so far failed to live up to its full potential. All this could change in 2018.

We are seeing a couple of developments that point in that direction. The first one is the improved scalability of 3D printing solutions. A new generation of 3D printing companies is moving into manufacturing with new, faster, better connected automated systems that reduce some of the time-consuming pre- and post-processing that has been such an obstacle to wide-scale uptake. Stratasys has collaborated on a new printer, the Demonstrator, that combines three printers into a stack system—each printer able to communicate to its neighbors in real time. The new printer is highly scalable, meaning it can significantly increase production capacity, printing from 1,500–2,000 components a day. This means that you can achieve an economy of scale to bring costs down, which will be an important catalyst for the success of the 3D printing technology.

The aviation industry is pioneering 3D printing technology today, and the manufacturing industry can learn from that. One successful example is the new GE turboprop ATP Engine, which was 35 percent 3D printed, taking it down from 855 components to 12. This contributed toward the engine being lighter, more compact, and delivering a 15 percent lower fuel burn and 10 percent higher cruise power compared with competitor’s offerings.

The expanded capacity and reduction in pre- and post-processing that new, highly innovative mid-size 3D printing companies are bringing to the field mean that, in 2018, I think we will see manufacturing companies joining in with A&D, and flying high too with new 3D printing capabilities.

Antony Bourne is global industry director of high-tech and industrial manufacturing at IFS.

Digital transformation can help companies with shipments of export cargo and import cargo in international trade.

Realizing the Digital Potential

Digital Transformation (DT) is coming of age. In the recent Digital Change Survey commissioned by IFS covering 750 professionals across a range of industries, 80 percent saw themselves as “enabled,” “enhanced,” or “optimized” to leverage DT.

Even more impressively, 89 percent said they had “advantageous” or “adequate” funding in place for digital projects—a clear acknowledgment that the time of disruptive technologies is here, and that the vast majority of firms are realizing that they need to invest.

Why are businesses investing? Where do they see the big profits? And how successfully are they selling digital change throughout their organizations?

Companies need to look beyond quick efficiency gains
The survey found that over a quarter (27 percent) of companies say digital transformation “makes them more competitive,” giving them a vital differentiating edge. Twenty-nine percent see the main benefit as “accelerating innovation” and 28 percent “growth opportunities in new markets.” All these are inspiring.

Companies using digital transformation to ask far-reaching strategic questions—like “can I use DT to get myself a bigger share on the market, or increase my product portfolio?”—are making the most of the long-term, strategic opportunities of the technology. They’re sensing how it can transform even seemingly small tactical decisions—“how often do I service my equipment and how does this impact my competitiveness?”—into key strategic differentiators.

But these companies are in the minority. The largest group in the survey, 47 percent, still see the main benefits of DT as “improving internal process efficiencies”, which makes me wonder: Do companies really see the full potential of what disruptive technologies can achieve? Innovation can make or break a company and study after study foregrounds it as a C-level priority. So why doesn’t it appear to be a driver for digital transformation?

Considering technology investments, this could mean that the majority of funds are invested in making internal processes more effective and thereby failing to enable innovation. Seeing “improved internal efficiency” as the key reason to explore DT is, in my view, too short sighted. It fails to exploit the strategic benefits and makes it more difficult to win the understanding and commitment of the staff.

Winning hearts and minds—overcoming fear of change
Despite plenty of good news, the survey still reveals that 42 percent of respondents view “aversion to change” as the main barrier to digital transformation. Companies need to think carefully about how they position iot and other disruptive technologies, how they tell the story of why they are using them, and how they communicate the benefits to their entire workforce—transforming staff from “data-phobes” to data fans.

The most successful technology shifts are embraced from the bottom up, as well as the top down—they’re driven by people. The buy-in from staff is mission-critical. The opportunities for growth and improvement for all need to be communicated clearly and openly.

Imagine a service engineer hearing predictive maintenance is to be deployed. “That’s going to put me out of a job” would be a common reaction—even if closer questioning found them in need of new inspiration and working methods and open to new opportunities! In this scenario, stressing the big-picture, long-term strategy (“We’re going to be more competitive / accelerate innovation / win growth opportunities in new markets”) would be more inspiring than the short-term tactical benefits (“We’re improving internal efficiencies”).

Digital transformation is like many other big change projects all about winning the hearts and minds of the people who are actually going to enter the data or use the system hands on. It needs to be managed on a human scale. We all understand that no amount of short-term savings will make our jobs, or businesses, more secure if the firm isn’t staying competitive in the long-term. Painting the big picture, positioning digital change as strategic not tactical, as inspiring not invasive, is vital.

Upskilling and reskilling key to leverage new technology
One in three companies in the survey are “unprepared to deal with the digital skills gap.” Smart businesses are already spotting potential data candidates like our service engineer above, who have the appetite and skills to expand their role. How can companies bridge the skills gap affordably, sustainably and creatively?

Consider how your organizational structure needs to be developed to foster digital development. For large companies, there is the option of creating new departments dedicated to digital initiatives—hothousing analytic skills and nurturing them in-house.

Conduct digital competence inventory. There is a huge need for training staff in managing and analyzing data, this must be met for companies to succeed with digital initiatives. Establish what technology in your company is key for development. As part of this digital inventory start earmarking individual staff members who have the drive to upskill.

Developing skills properly is paramount. HR teams need to decide what current roles need to be developed and where new talent is needed. Bring in external trainers to provide new perspectives.

Work together with local universities, both to attract talent and to influence the schools to focus their education programs in the right areas. Placement schemes offer undergraduates real-life programming experience, growing the firm and the student. Apprenticeship schemes discover local talent and give them support and a place to grow

Three pillars for success—where do you need to focus?
There are three pillars to succeed with digital transformation—technology, investment, and people. The technology aspect is often mastered most successfully, as it is driven by technology experts with clearly dedicated areas of responsibility. The main question is whether you are focusing on the right technology to drive transformation at the right time. Do you want to be the pioneer taking risks or jump on the bandwagon when the technology is more mature?

Regarding investments, as we saw in this survey, companies think that they are investing enough in digital transformation; but are they focusing on the right areas? The results indicate that there is a heavy focus on process efficiencies, so there could be a need to steer the focus towards more innovation-focused investments.

Finally, the people factor is most often forgotten in the digital transformation process. This is important from both a talent and communications perspective. If over 40 percent view “aversion to change” as the main barrier, employee communications is of utmost importance to make sure that your staff knows the purpose of change and how they are affected.

So it’s high time to ask: Where do you need to focus to build these pillars and be successful in your digital transformation?

Antony Bourne is vice president for global industry solutions at IFS.