My friends over at the PwC industrial manufacturing practice have taken a look at 2017 industrial manufacturing trends. The report was composed by Marian Mueller, Bobby Bono, Steve Pillsbury, and Barry Misthal. I will summarize here. Check out the link for more in-depth discussion.
I think they have nailed most of the ideas coming up. Some of these will be difficult for suppliers to either swallow or develop. Likewise, customers may not always like increased connectivity back to the supplier. Pay for performance, so far, has not been a winner. Customers begin to think they are paying too much if performance really does increase. Then they want to go back to a fixed price <sigh>.
Six Industrial Manufacturing Trends
1. Leverage data and analytics in a new business model
By upgrading their technical capabilities, industrial manufacturers can bundle a variety of services enabled by connectivity and data, replacing the increasingly outmoded model of selling one big complex machine under warranty and a service agreement for maintenance and repair.
2. Innovate pricing
As technology begins to alter the relationship between industrial manufacturers and their customers, the traditional pricing model for the service contract must be changed as well, from pay-for-product to pay-for-performance. Condition-based maintenance, driven by predictive and interconnected industrial technology, will become commonplace. This should translate into fewer visits from repair technicians. As a result, customers will naturally expect more favorable terms, which can be facilitated by sharing risk.
3. Develop strategic partnerships — carefully
Industrial manufacturers must become more active players in the technology ecosystem, seeking expertise outside the industry in order to develop equipment connectivity, data analysis, and software development that are beyond their current abilities. For example, recognizing that it cannot grow the ecosystem alone, at least one major industrial company has aligned with a wide range of technology firms to create a dedicated cloud-based platform that can run industrial workplaces. Leaders have to balance the practice of close collaboration with strategic partners against the need to stay flexible in contracting and partner selection, all while maintaining their hold on their markets.
4. Mine operational data
If connected machines — the primary components of IoT — are to be the backbone of industry in the near future, industrial manufacturers will have to figure out how to manage the data coming from an avalanche of sensors, integrated equipment and platforms, and faster information processing systems. There is a critical need to hire people who can mine these bits and bytes of information and work more closely with customers to use the data to improve equipment performance and open new revenue streams. Indeed, the anticipated efficiency returns from digitization over the next five years across all major industrial sectors are substantial: nearly 3 percent in additional revenue and 3.6 percent in reduced costs per year, according to a recent PwC survey of companies.
5. Decide what intellectual property to share and what to develop
Many industrial manufacturers find it difficult to manage digitization and big data analytics because their internal IT systems are so unwieldy. As company operations have grown more complex, expanding into new global markets and product lines and integrating newly acquired firms over many years, the old enterprise resource planning (ERP) systems that were meant to drive efficiency and coordination have proliferated into a tangled mass of disparate networks.
Industrial manufacturers must begin the process of overhauling their IT systems, creating a completely new architecture that can serve as the backbone for internal and external technology initiatives. In this new approach, it is imperative that IT systems communicate throughout the organization with standardized protocols.
6. Create strategies for talent development and retention
In the digitization sweepstakes, industrial manufacturers often find themselves at a disadvantage when trying to attract and retain talent. For example, in the U.S. many of the best and brightest STEM (science, technology, engineering, and math) students would prefer to work in Silicon Valley, where innovation is on the menu for breakfast, lunch, and dinner, rather than in the stodgier old-world locales where many industrial manufacturers have their plants and headquarters.
Succeeding in challenging times
The next wave of leaders in industrial manufacturing will build an ecosystem that capitalizes on the promise of analytics and connectivity to maximize efficiency for themselves and their customers.