While manufacturers are at the forefront of digitizing not only how they produce, but what they produce, they are still just scratching the surface of how to monetize it. Below are a few key drivers to achieving double-digit changes in cost-cutting and revenue uplift from digitization.
Reduced variability across production and processes: Variability across the enterprise – chiefly in production, processes, supply chain and labor costs – decreases as digital connectivity is embedded horizontally and vertically throughout the company. Also, as demand for customized products and services rises, digital manufacturing (including real-time data collection and analytics, self-monitoring and remote control of equipment) enables faster and less costly tailoring of processes and operations that are less dependent on human labor, thus reducing the costs of conventional manufacturing. Other technologies streamlining conventional manufacturing and reducing variability include 3D printing and virtual and augmented reality that streamlines tasks such as assembly, repair and inventory management, safety training, simulation of plants, parts or even entire plants.
Of course, not all digital technologies will yield cost-cutting for all manufacturers to the same degree. They are incrementally digitalizing across operations and looking to grab the low-hanging fruit with the highest probability for return on their investments.
Moving from analog products to connected digital products and solutions: Once intelligence and connectivity are embedded into products, manufacturers unlock potential new revenue streams for once-disconnected products. Consumers’ appetites for digital products have already been whetted – from “smart” home systems to wearables monitoring health to connected cars. To compete, manufacturers will need to take a hard look at how to add digital connectivity to their product portfolios. Take, for example, IoT solutions being applied in the manufacture of jet engines. The use of cloud-based tools allows suppliers to collaborate more quickly and efficiently, reducing cost, risk and time to market.
Manufacturing data and new business models: Collecting data from sensor-embedded, Internet-enabled digital products opens paths to monetize that data, transforming revenue streams from simply producing a product to providing a digitally enabled solution. Thus, manufacturers will have new ways to deliver services: alerting their customers, for example, that a product requires preventive maintenance before it breaks down (also known as “remote asset management”). For instance, one manufacturer of farming equipment has moved to increase its offerings from simply supplying equipment to embedding real-time, remote analytics in its farming equipment, which allows them to help customers manage the entire farming eco-system from planting to harvesting.
Software opens the door: Smart, connected products can also be continually upgraded via software, often remotely. For manufacturers, after-sale services have existed chiefly in repair and maintenance and after-market parts. But now, manufacturers who produce digital products can update a product’s software, for example, and offer product enhancements – and charge fees tiered according to the robustness of the service offered, not unlike cable-TV packages.
Suddenly, software licensing and “entitlement management” software become as important as – or even more important than – the hardware functioning as the vessel. Meeting customer needs for variability through software, not hardware, will become the new norm. Operations and channel costs will fundamentally shift as companies tap into life-cycle models for engaging customers versus traditional sales models. On top of this, companies will have customer-use data available to help them market more effectively to existing and other customer groups.
Products can also be fine-tuned to meet new customer requirements or solve performance issues. The performance of some fleets of robots, for example, can be remotely monitored and adjusted by users during operation.
Pay-as-you-go could pay off handsomely: Providing solutions is squarely in manufacturers’ crosshairs and has been for some time – mostly pioneered by large multinationals with the clout to be first-movers. But this model looks to be on the cusp of being mainstreamed. According to our survey, 38 percent of U.S. manufacturers believed they will boost revenue by at least 10 percent in the next five years through selling big data analytical services to external customers, while 42 percent expected to boost revenue by at least 10 percent by selling “other digital services to external customers.” Additionally, once manufacturers have product data available, they can adopt a “pay-as-you-go” model, in which a customer is charged only for the time the product is used.
Manufacturers’ success in digital manufacturing will not only be reliant upon staying ahead of the revolution, but also upon taking the necessary steps to prevent the journey from negatively impacting the bottom line. By understanding the drivers, however, businesses can not only build the intelligence, but sell it, too.
By Robert McCutcheon, Partner and Industrial Products Leader, PwC