Out-Law Analysis | 05 Dec 2016 | 3:48 pm | 5 min. read
The discussion, held at the Financial Times' Future of Manufacturing summit in October and hosted by event sponsors Pinsent Masons, the law firm behind Out-Law.com, focused particularly on how the internet of things will lead to new business models and end-to-end solutions in the sector.
The advance of 3D printers, self-driving cars, smart watches, 3D goggles, robots, smart clothing, drones, and more is already affecting traditional manufacturers. They are facing threats from digital disruptors that are often quicker to adapt traditional products and exploit new opportunities through the latest technology.
Our roundtable discussion with senior figures from leading manufacturers in different sectors and markets revealed that businesses are aware of the opportunities and the challenges of digital disruption, but do not necessarily see a clear route through.
Inaction is not an option, however. Some businesses and business models in other industries have already fallen victim to technological change. Widespread disruption may stem from what can seem at the time to be an innocuous gimmick, so manufacturers must be prepared to change.
Make better use of data
Manufacturers and suppliers wondering how to meet the challenges of this fourth industrial revolution should first look at whether they can improve the way they use data they already collect.
Our discussion participants agreed that it is fundamental to have a clear understanding of data use and the sharing of data. There is little point in incurring significant capital expenditure fitting the latest sensors into your factory to collect data if you do not have a clear view as to how you wish to use that data and what value it will generate. Businesses are already collecting significant quantities of data but it has to be usable. They need to think about maximum return for minimum effort and cost. Manufacturers should therefore look at what they already have and whether they are maximising its use.
Manufacturers face a challenge in identifying where they can make money. There might be 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 their 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 manufacturer's core offering.
At the FT Future of Manufacturing summit we asked attendees about how their businesses use data. The most popular answer, from 39% of respondents, was that they use data to increase their knowledge of their customers.
Shift towards servitisation in manufacturing
Manufacturers that adopt a ‘product-as-a service’ approach to their operations can develop stronger, more direct relationships with customers.
A product-as-a-service approach allows manufacturers to provide goods directly to consumers and charge them on a perpetual per-outcome basis rather than via a single upfront payment. The business model opens the way for consumers to return products to manufacturers after they have used them, allowing the business to make the used assets available to other consumers. It has the benefit of allowing consumers to pay for product use rather than having to buy goods, often at great expense, where they might only use them infrequently.
According to our survey, 61% of businesses in the manufacturing sector are already shifting their business models away from the production of products to the delivery of services. This reflects the fact that there is already a push towards greater 'servitisation' in manufacturing. Manufacturers now offer services to complement the goods they produce. These will become increasingly sophisticated with new sensory technologies and data analytics software which allow manufacturers to understand and therefore charge appropriately for how their products are being used.
Added to this is the potential for a high level of customisation. For example, with 3D printing, manufacturers can provide customers with personalised designs to print themselves. Adopting such a model requires manufacturers to think about licensing and how they control and, if necessary, enforce their IP rights.
The risk of IP infringement was flagged as the greatest challenge to offering 3D printing services by 22% of our survey respondents. More than a third (36%) said avoiding being held responsible for a printed object being 'fit for purpose' was the greatest challenge they could see in offering such services.
Collaboration for manufacturing
Participants in our roundtable discussion recognised that there is a need for manufacturers to move towards more collaborative partnership models so as to remain at the forefront of their industry. New digital technologies, increasing connectivity, the drive for innovation, a greater focus on services and changes in customer demands are all factors which are behind a push towards more collaborative models.
The benefits are clear. Where demand levels can be more confidently predicted through data, manufacturers could work together to share resources. For example, if production lines have capacity, manufacturers could consider leasing them out to others. Similarly, businesses could share workers so as to manage labour costs, tapping into that resource when demand surges and allowing collaboration partners to deploy the workers when demand falls and productivity levels are reduced. Again, manufacturers should learn from fast moving consumer businesses who are already sharing.
Businesses should avoid retrofitting new situations into old contract structures and should, instead, embrace the new contracting models that are emerging to underpin collaborative partnerships in manufacturing. Our participants also believed that, to be successful, collaborators need to understand and be open as to what they are all trying to get out of the relationship. Everyone needs to get a return and so all need to understand where the value add is for each participant.
Retrofit or look outwards and do 'new'
A recurring theme throughout our discussion was whether a business should retrofit its current facilities, business models and products, or start with a clean sheet. The answer is simple for new entrants, such as the likes of Tesla, who do not have years of invested capital and historic plants and so are able to embrace the 'new order' immediately.
However, for many manufacturers, it is not so easy, both from a costs and cultural perspective.
Significant capital expenditure may be required to make the necessary changes that allow businesses to reap the full benefits offered by the internet of things.
It also requires a cultural change from the top. Board executives must be willing to open themselves up to new ways of doing things and to making investments in areas where the return is not yet clear. The results of our survey demonstrate that this change is occurring. More than three-quarters of respondents said they have either partially planned or already implemented a strategy for preparing their organisation to be ready for the application of internet of things technologies in their processes or products.
Those that pursue retrofitting option need not necessarily engage in an entire overhaul of their operations.
For example, manufacturers could let legacy facilities serve their current purpose, and continue delivering current projects. Instead, improvements could be made in how the business assesses and responds to customer demand, and to the way it analyses the production cycle and signals from the supply chain. On the whole, the steps can drive greater efficiency. The approach involves effectively sticking within one's comfort zone, but doing things better.
Nicole Livesey is a manufacturing industry contract expert at Pinsent Masons, the law firm behind Out-Law.com.