Manufacturers face race to adapt products in wake of digital disruptors, says expert

Out-Law Analysis | 15 Aug 2016 | 12:18 pm | 4 min. read

FOCUS: Manufacturers must act quickly to embrace new technologies or risk losing out on new opportunities to digital disruptors.

The new era of 'smart' manufacturing offers manufacturers the chance to improve productivity, personalise products and explore new business models, including service-led revenue streams.

However, manufacturers that do not invest in connecting their factories, workers and products and integrating their systems with those of suppliers risk missing out on those benefits to nimble new entrants to the market.

Increased connectivity in manufacturing raises a number of legal challenges that manufacturers must also address to realise the opportunities in the market.

Experts from Pinsent Masons, the law firm behind, will be discussing the opportunities and challenges of smart manufacturing at the Financial Times Future of Manufacturing 2016 event in October.

The opportunities of 'smart' manufacturing

A fully connected manufacturing environment includes the creation of smart products embedded with technology that could, for example, track where the products are and record and transmit details of the way they are used.

This data could help manufacturers better monitor distribution, and obtain valuable insights into consumers' usage so as to identify areas to improve in the next iteration of the product.

Direct feedback on usage can also help manufacturers develop more personalised products. Improvements in information and communications technology, consumer responsiveness, automation and additive manufacturing are all increasing the opportunity for manufacturers to develop low cost mass personalisation and customisation of products.

Where manufacturers have a responsive manufacturing process it will allow them chance to sell directly to consumers. For example, 3D printing technology might allow manufacturers to licence their products for printing and use by consumers directly, opening up new sales channels that avoid costs in making and distributing physical products for sale via retailers.

Creating a network of factory systems, equipment and machines, supporting machine-to-machine communications, can also help manufacturers optimise their production processes. Those smart factories would capture and utilise data to inform changes to processes and logistics to make them more efficient, as well as new orders from suppliers. According to Siemens, smart factories could boost UK productivity by up to 30%.

Advances in technology might also present opportunities to create new uses for products or develop new revenue streams. For example, earlier this year car manufacturer Nissan entered the energy market after identifying a potential use for its LEAF batteries in a new energy storage system. Similarly, Worcester Bosch's internet-connected boiler is able to predict faults and service requirements.

The challenges that smart manufacturing raises

Faster communications, improvements in computer processing power, advanced data analytics software and other technological changes have, often combined with other factors, spurred great changes in a range of industries.

In financial services, for example, consumers' increasing use of mobile devices, together with advances in technology, have helped new digital disruptors compete with major financial institutions for a share of the market in areas such as payments and lending.

Manufacturers face a similar threat from digital disruptors, since those companies are often quicker to adapt traditional products and exploit new opportunities through the latest technology.

Manufacturers also face a challenge in identifying where they can make money. There might be 'smart services', such as maintenance or repair work, product enhancement or customisation that manufacturers can offer customers as a result of the insights they can glean from data from smart products. They must work out what customers are willing to pay extra for and determine what they expect to be provided as part of the manufacturers' core offering.

Delivering truly smart manufacturing will also be dependent on manufacturers responding more quickly to update their technology. In the smartphone market, for example, iPhone customers receive updates at least monthly. In contrast, traditional manufactured products may only go through yearly or longer update cycles.

Connecting different systems together to get an end-to-end picture of the manufacturing process, supply chain and way products are used is a further challenge. The systems and networks used must be interoperable. Technical standards are required to be driven at national and international level to help achieve this.

The proliferation of data, particularly personal data, also presents a challenge. Manufacturers must operate within the tight constraints of data protection legislation or risk financial penalties and reputational damage commonly associated with failings in data privacy.

It is important that manufacturers communicate clearly the value to customers in agreeing to share their data so that they can obtain the necessary consents in advance to use the data and improve their products and services.

Increased connectivity could also expose manufacturers to different laws and regulation than they would traditionally expect to be subject to.

For example, in the context of connected and driverless vehicles, where cars themselves are becoming devices capable of transmitting and receiving data over communications networks, original equipment manufacturers might find themselves coming within the scope of telecoms laws. There is a role for telecoms companies to partner with manufacturers to help them deliver connectivity whilst taking on the regulatory burdens specific to their industry.

Smart manufacturing systems and the data they generate might also be targets for cyber attacks. It is a challenge for manufacturers to ensure that each component part of their connected network of machines, products and systems is secure. Putting in place and testing a cyber incident response plan is becoming increasingly important for all businesses.

A move away from traditional manufacturing processes towards the creation of smart products and the introduction of greater robotics and artificial intelligence will also pose a skills challenge for manufacturers. There is already a widely accepted shortage of engineering, data science and other digital skills in the UK.

Clare Francis is an expert in commercial contracts in the manufacturing sector at Pinsent Masons, the law firm behind Experts from Pinsent Masons will be discussing how Brexit will impact manufacturers at the Financial Times Future of Manufacturing 2016 event in October.