We are in the midst of the Fourth Industrial Revolution that’s blazing a digital trail across the manufacturing industry. With the need for Servitization growing and value chains becoming more circular, and armed with digital technologies, manufacturers are getting better visibility across their operations, making better decisions based on data, saving costs while improving quality, increasing revenues, and transforming customer and employee experience. What will be some of the key transformation areas in the coming years? Let’s take a look.
1. Dawn of the Intelligent Factory
Intelligent Factories of today are transforming the plant value chain and connecting everything – people, processes, assets, and technologies – in a bid to enhance productivity, reduce workforce challenges, and drive operational efficiencies. From manufacturing operations to field service, worker safety to air quality management, and security to logistics, the intelligent factory weaves a connected web across the manufacturing spectrum.
For instance, real-time visibility of the supply chain from suppliers to end customers is transforming demand planning/forecast, inventory optimization, risk mitigation, and fulfillment, leading to significant reduction in opex and improved revenue. Similarly, application of technologies such as AR/VR and AI/NLP is bridging the experience gap between workers and improving productivity.
As use cases emerge, the adoption of IOT in manufacturing is accelerating. According to MarketsandMarkets, this market is expected to reach USD 45.30 Billion by 2022i . While still in its infancy, manufacturers who take pioneering strides toward the intelligent factory are setting themselves up to win.
2. The end of ‘Product’ as we know it
Customers and manufacturers today seek an extended engagement with each other beyond a one-time product sale. They want remote upgrades and maintenance, intelligent support, self-service options, and as-a-service options. Manufacturers are rethinking their product portfolio to offer a mix of Hardware and Codeware that better suits their customers’ needs. In an IDC survey, 18% of respondents said that over 25 percent of the products they manufacture are connectedii.
The stream of data from connected products is helping manufacturers gauge product performance and usage patterns. This in turn helps them design products that their customers really want. For example, John Deere’s connected farm machinery captures data that enables the company to offer farmers user-sourced insights on planting, soil health etc.
There’s a perfect storm brewing in the smart products space that’s making manufacturers focus their energies on design thinking, product innovation, and agile and digital product delivery. Those that are able to crack the code will unlock new revenue opportunities and another level of customer satisfaction.
3. Operations transformation drives efficiencies
Even as the plant and product transformation takes place, manufacturers cannot afford to ignore the operational processes – across front and back office. Creating visibility in the backend processes such as HR, Procurement, Order Management etc. and driving efficiencies with automation, RPA, and AI is definitely on everyone’s priority list. Not surprisingly, the global industrial automation market is expected to grow to USD 149 Billion by 2022iii.
We have worked with a range of clients across industries leveraging RPA to hyper-automate sales, order management and other supply chain and customer service processes. We have leveraged Cognitive algorithms and Bots to significantly reduce cycle times, handle sales volume fluctuations, and monitor operations in real time, increasing accuracy and compliance in all transactions. We recently leveraged RPA to hyper-automate Nokia’s sales order management operations . Cognitive algorithms and bots have helped Nokia reduce cycle time, handle sales volume fluctuations, and monitor operations in real time, increasing accuracy and compliance in all transactions.
4. Intelligent customer service
As products go digital, post-sales service is gaining prominence in ensuring customer satisfaction. According to Salesforce, 80% of top-performing manufacturers plan to increase their service budgets over the next two yearsiv .
Customer service is being reimagined at every stage of the customer journey via design-led thinking, process re-imagination, and digital disruptive technologies. The goal is to reduce cost and improve customer satisfaction and loyalty by increasing the probability of "closed over phone" and improving the rate of "first call resolution".
From anticipating customer needs to remote diagnosis and support, to helping customer service agents perform better, Manufacturers are depending on Cloud, AI, Chatbots, IoT, and Analytics to improve service management, reduce cost to serve, and improve time to serve in the end-to-end request-to-resolve process.
5. Cloud first, Cloud only
Moving to the Cloud is not really a choice anymore. IDC research indicates that mature cloud adopters gain an average of $3 million in additional revenue per cloud-based application. In addition, cloud-based manufacturing solutions can reduce up to 54 percent of the IT infrastructure, maintenance, and lifecycle costsv.
Cloud gives manufacturers easy and low cost access to new tech, improves accessibility and collaboration while augmenting security, and provides opportunities to offer new services to their customers. The plethora of benefits that Cloud enables – agility, flexibility, scalability, customization, cost advantages etc., cannot be ignored if manufacturers intend to stay competitive and keep up with new developments.
Manufacturers are moving applications and data to multi-provider multi-cloud environments with the ability of orchestrating workloads across them. This helps them leverage the best of the breed from performance, security, and flexibility perspective, and also prevents vendor lock-in. Manufacturers are also passing over generic cloud solutions in favor of industry-specific offerings.
6. Insights fueled performance boost
Data is critical to the success of modern manufacturing. Collected from connected systems, data-driven insights can help manufacturers monitor assets in real time, prevent downtime, optimize processes, streamline supply chains, and overall improve performance across Business and IT.
A single hour of downtime can cost organizations over $100,000vi. It’s imperative that manufacturers know the health of their systems to ensure they continue to run uninterrupted. Predictive maintenance could reduce companies’ maintenance costs by 20%, reduce unplanned outages by 50% and extend machinery life by yearsvii.
7. Modernizing the applications landscape
Legacy applications are a roadblock to new-age manufacturing. Their lack of adaptability, scalability, high maintenance costs, and inability to support new technologies makes the overall system sluggish.
Digitizing the applications landscape as well as end-to-end seamless operations automates migration of data and business rules to modern, standardized environments, reducing or eliminating mainframe dependencies. Re-hosting, batch optimization, and application simplification can result in 30% faster time-to-market and a 35% performance gainviii.
The rise of digital technology and automation has made SAP essential for manufactures to standardize information systems within the organizations, modernize legacy systems to enable data gathering from intelligent systems, and capitalize on capabilities such as remote field service or asset traceability. SAP is helping manufacturers ride the new wave of servitization, enabling them to build new revenue streams by offering products-as-a-service.
Considering SAP is one of the dominant platforms, SAP will continue to be a focus of large spending plans of manufacturers in the foreseeable future. According to SAP, of the several hundred SAP S/4HANA projects initiated in the manufacturing industry, nearly half have already gone live. Move to S/4HANA is a huge opportunity for Manufacturers along with SAP ECC and SAP transformation programs.
9. Business of IT
When it comes to enabling a digital roadmap for the business, CIOs are in the driving seat. Dealing with cost and margin pressures in the face of increasing competition, manufacturers are turning to their IT organizations for better, faster, and cheaper solutions. The manufacturing CIOs’ agenda is to deploy new capabilities at scale and become a strategic enabler of digital business. These include transforming their ways of working to include Agile and DevOps based applications delivery and management, as well as creating the structure and skills for the future.
10. Integrated Threat Management
As connectivity increases in the manufacturing domain, so does vulnerability – 48% of manufacturers have been subject to some sort of a cybersecurity incident. With WannaCry and NotPetya in 2017, manufacturing has woken up to the need for cybersecurity with a jolt.
The unique security challenge in manufacturing lies in its dependence on operational technology. Add to this the vast geographic presence, multitude of IoT devices, and legacy systems, and you have an almost impossible task of predicting an attack. Now more than ever, manufacturers need to invest in integrated threat management and build a culture of security.
As the manufacturing charter moves beyond traditional production activities, there is a need for manufacturers to find new value streams. Building new product capabilities, exceptional customer service, and flawless delivery channels will be the differentiators in the digital era. How manufacturers capitalize on these 10 transformation areas to succeed remains to be seen.
[vii] https://www.mckinsey.com/~/media/McKinsey/Business Functions/McKinsey Digital/Our Insights/The Internet of Things The value of digitizing the physical world/The-Internet-of-things-Mapping-the-value-beyond-the-hype.ashx