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Guest blog by Kai Goerlich. This post originally appeared here

While discrete manufacturing is used in a diverse range of industries, including automotive, aerospace, defense, construction, industrial machinery, and high tech, all of them face common and tough challenges such as higher resource volatility, more competition, increasing customer expectations, and shorter innovation cycles.

According to a study by a Roland Berger (see chart), product complexity has increased dramatically in the past 15 years. Manufacturers have to cope with two overlapping trends: the variety of products is constantly increasing and has more than doubled in the past 15 years, and, in parallel, product lifecycles have gotten about 25% shorter. These factors are putting an increasing pressure on margins, on supply and procurement systems, and on overall business models. According to Roland Berger, managing this complexity could reduce costs by roughly 3% – and certainly digitization can help improve this margin.

The threats and potentials of digitization

Adapting to the age of hyperconnectivity is a matter of life and death for the majority of companies, according to a study by the Economist Intelligence Unit. More than half of enterprises feel very strong competitive pressure from digital offerings by their traditional competition, established companies using digital to enter their market, and digital startups. Certainly, the competition is not waiting, and neither will today’s well-informed digital customers, who want more choice, better customization, and more information around the buying process. While digitization might add another disruptive dimension to an already rising complexity, discrete manufacturers are seeking the benefits of digitization. They are already proactively exploring the use of the IoT to better connect their supply chains, assets, and products, according to an IDC white paper, The Internet of Things and Digital Transformation: A Tale of Four Industries, sponsored by SAP.

Most manufacturers start with less complex projects, such as enhanced visibility or tracking, and progress to more sophisticated processes that require automated or predictive workflows, according to IDC. The findings of the study suggest that companies should start their IoT projects with the overarching goal of a live business operation already in mind. By combining three IoT use cases for manufacturing, i.e. connecting products, creating a connected shop floor with customization, and extending digital business models (see chart), companies will create a competitive business operation that fully exploits the digital opportunities.

Connecting products to improve innovation

Using IoT for innovation is a highly underestimated potential of digitization. A significant percentage of new products fail, and the associated R&D and marketing costs are lost. Customers already expect their products to come with a certain degree of interactivity and this demand will certainly grow in the future. According some estimates on the adoption of connected technology by consumers, the ratio of connected and interactive products will rise to approximately 20% on average by 2020, according to Forbes. This is a conservative estimate, and in some segments the ratio might increase much faster.

By digitizing current products and launching fully digitized ones, manufacturers can significantly reduce the risk of new product failures, as IoT-based products will enable them to monitor the actual use and performance of their products, get live feedback from their customers, and adopt future product innovation. IDC expects that by 2017, 60% of global manufacturers will use IoT to sense data from connected products and analyze that data to optimize the product portfolios, performance, and manufacturing processes. Similarly, the integration of IT assets and information with operational technology in the plant and the supply chain is also on the roadmap, if not already started.

Connecting the shop floor

Digitization offers the possibility to oversee every step in the manufacturing process, from customer demand, through production, and across the complete supply chain. The IDC study identified two IoT use cases – strategic asset management and customer experience – that seem to be very attractive for discrete manufacturing.

1. Strategic asset management

Manufacturers should start to digitize all of their assets in the production process and use IoT-based preventive and predictive maintenance scenarios in the plant and supply chain to reduce downtime and improve utilization. Using the information generated from digitization and IoT, businesses can evaluate use patterns and maintenance routines of their inventory and assets and optimize operations. Fixed assets can account for as much as one-third of all operating costs, so under today’s cost pressures a digital asset management surely matters. To fully use the potential of IoT and the real-time information gathered from assets, devices, and machines, companies need to ramp up their analytical and decision-making capabilities. Anecdotally, companies report that IoT use cases (such as remote maintenance) changed the way they thought about data and got them thinking significantly differently about information and insights.

2. Customization for customer experience

Demand for more choice, flexibility, and customized products is growing fast and estimated to be 15% of all products by 2020, according to MIT Smart Customization Group. Depending on size, material, and complexity, that percentage might be significantly higher. However complex the challenge for manufacturers might be, connected production in real-time is the basis, and it needs the right data from production capabilities, supply, equipment, and workforce, combined with all customer preferences. Getting the customer into the customization and production process is increasingly important for an improved customer experience, so IoT should be used to connect the products and, with it, the customer. This will not only give companies valuable data about user preferences and ideas for product innovation and improvements, but it will allow them to plan the customization of products much more efficiently.

Digitally enhanced business models

Digitization is by now a synonym for disruption. According to a study by the Economist Intelligence Unit, 60% of companies think that digitization is the biggest risk they face. More than half of companies feel competitive pressure from digital offerings by their traditional competition and digital startups. As IDC found, discrete manufacturers are already actively exploring the IoT opportunities, so the change is already underway.

As we pointed out previously, the customer experience of choosing and buying a product is increasingly important, but it does not stop there. IoT-connected products will get the customer into an ongoing interaction with the product vendor and/or retailer, enhancing the buying and use experience. Moreover, companies can use this connection to expand their business models. In its study, IDC mentions a wider range of ideas that manufacturers already explore, such as remote maintenance, refill and replenishment, contracting, product performance, training, and location-based services. While they may not be applicable for all companies, they show the wide range of possibilities and opportunities. Digitization may be a threat for some traditional business models and companies, but it offers huge potentials for those who focus on the customer experience.

Creating a live business operation

The huge potential that IoT offers is less the physical connection of things, machines, and devices, and more the opportunity to create a live business operation based on an advanced data strategy and analytics. While all aspects of IoT have large innovation opportunities on their own, the combination of connected products, customization, and digitally expanded business models promises the biggest benefits for discrete manufacturers. Thus any IoT strategy – wherever it starts – should be created with a larger digitization goal in mind.

Conclusion

  • Connecting products and strategic asset management has big potentials for discrete industries.
  • The combination of connected products, customization, and digitally expanded business models promises the biggest benefits.
  • Companies should create a live business operation with advanced data and analytical skills to use the full potential of IoT.

For more details and information, please read IDC’s IoT whitepaper IoT and Digital Transformation: A Tale of Four Industries and look for future IoT papers that delve deeper into the IDC study’s findings.

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Guest blog post by Greg Conary. This blog was originally published here

IIoT business

It’s become quite clear that the Industrial Internet of Things (IIoT) is the future of Industry. By now we’ve well and truly covered the point that IIoT is, in fact, not hype. For end users and OEMs IIoT, cloud and big data analytics are creating very real business opportunities.

IIoT not only enhances the communication between machines and people – it is facilitating the next wave of value-added customized business services. In fact, Gartner is forecasting that by 2020 more than 80% of the IoT supplier revenue will be derived from services. IIoT represents a significant market opportunity for industrial manufacturers to improve their operational productivity and the performance of machines they sell to customers.

Human productivity is also an area that has huge potential for improvement thanks to IIoT-related services. I recently attended an event hosted by theInternational Business Congress (IBC) and heard a figure quoted on “wrench time” for field operators. It said that in a 10 hour shift a worker spends only 2.5 hours of that shift on productive work – work that adds value to the business – the rest of the time is taken by looking for information – probably travelling back and forth to a central maintenance office presumably searching filing cabinets looking for service manuals, along with admin work and various other non-value add tasks. This is a very interesting figure because it means that the worker is only actively productive for 25% of his time!

IIoT from a services standpoint will have several key benefits for our field worker, his boss, the business and its suppliers.

Firstly, technology vendors and suppliers will increasingly be called on to deliver their knowledge and expertise to their customers as a service. This means sites can outsource some of their maintenance. For example a facility that is trying to downsize its staff can rely on its suppliers to monitor critical equipment health via secondary sensors and upload data to the cloud. This can be very useful for complicated high performance machinery because the vendor is, in fact, likely to be the expert in the operation of the equipment. It also means that the business does not need to directly employ a specialised, and highly paid, member of staff to wait around and fix an issue when it arises. Alternatively, if a company does want in house specialists and has multiple sites, they can hire one expert who, through the use of IIoT can, monitor critical equipment at multiple sites.

Secondly, IIoT and related services will improve the efficiency of staff in the field no matter their age or experience level. We refer to this as the augmented operator and it can be illustrated through this simple analogy: if a 55 year old operator walks by a machine that is making a funny noise he may well know from experience exactly what the issue is and how to solve the problem. Contrast that with the new 25 year old operator who, without the aid of mobility devices, has to go back to the maintenance office to look for the manual of the equipment and, when he can’t find it, start ringing around to find someone who is experienced with the equipment. Going forward, the 25 year old will be able to pull the manual and troubleshooting charts up on his mobile device. Some newer equipment even has the capability to flash a dynamic QR code directly on the device allowing the operator to access real time information on the problem the equipment is experiencing, which helps the operator diagnose and solve the issue much more quickly.

Thirdly, on the customer side, IIoT will assist in the management of the maintenance supply chain by making it easier to track spare parts and inventory levels, and simplifying the ordering process. From the vendor side this represents an opportunity to build new service revenue streams by creating such digitized services – including digitized options for ordering manuals and spare parts and putting in place models to monetise the knowledge, advice and best practice of its own employees for greater customer service.

Finally, IIoT services will make the “great crew change” a less scary transition. Similar to my points above on worker efficiency and productivity, as we move from experienced operators to the next generation there are two telling statistics about aging workforce:

  1. 50% of all refinery staff will retire in the next 5 to 7 years[1]
  2. The millennial generation will be the largest generation in the workforce by 2025[2]

So in a short period of time digital natives will make up the majority of the workforce. This means moving from an average workforce age of 50+ to a new guard of 20 somethings who have vastly less experience and very different working practices. Bridging this gap will require digital tools to not only capture the knowledge of older workers before they retire, but also make it available to the new generation in a way that supports their preference for digital work practices – tools such as augmented reality applications, dynamic QR codes and access to easy online support.

What unique services have you developed or experienced with the advent of IIoT?

[1] http://articles.economictimes.indiatimes.com/2013-04-02/news/38218078_1_oil-gas-aging-workforce-hr-manager

[2] http://www.pewresearch.org/fact-tank/2015/05/11/millennials-surpass-gen-xers-as-the-largest-generation-in-u-s-labor-force/

About the Author

Greg Conary is Schneider Electric’s Senior Vice President of Strategy. In this role he is responsible for the strategic planning activities for the company’s Industry Business. Greg joined Schneider Electric in 2014 through the acquisition of Invensys. Prior to the acquisition he was the head of global business development for the Invensys systems business and was a leader on the integration of the company with Schneider Electric. In his capacity as head of Business Development, Greg was responsible for developing and executing growth strategies related to licensing, partnerships and distribution agreements around the globe. Throughout his career with Invensys Greg held various positions across the automation business in key account management, strategy, planning, M&A and in the CEO’s office. Prior to joining Invensys, Greg worked for the Ethyl Corporation where he held a series of senior positions in R&D, technical support and global accounts. Greg is a chemist by training and holds a Bachelor of Science from the University of Southern Illinois and a Ph.D. from the University of New Mexico. He is a resident of the UK and a dual US and UK national.

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