With robotics and automation, manufacturers have advanced our industry over the last few decades, driving innovations and improvements in productivity and efficiency that were once only the imagination of science fiction writers and TV/movie producers. Today, however, the next wave of transformation is required—in order to take companies and the industry to even grander levels—with a digital revolution in manufacturing.
Pressures on manufacturers from global market upheavals, changing customer expectations, and digital disruption require companies to take every competitive advantage—at every step in the supply chain and beyond. To meet these demands and market transition, manufacturers must have deep organizational and technological progress, what we refer as digital business transformation.
To explore some of the mounting pressures on manufacturers—and the exciting opportunities to capture new value with digitization—Cisco recently undertook and released a comprehensive research study. This research includes a survey of 625 senior manufacturing leaders from 13 countries, representing both industrial machinery and equipment and all types of end-user manufacturers.
Cisco’s survey found that 79 percent of manufacturing industry leaders are bracing for digital disruption to impact their company in the next three years. Most (86 percent) are looking to build new business models around their service offerings as a source of recurring revenue. However, despite their stated interest in growing services, only 29 percent expect service revenue to grow faster than product revenue. See additional highlights in this presentation:
These manufacturing executives understand the resolution to this service dilemma lies in digitization. When we asked them which technologies would have the greatest impact on production over the next three years, they cited core digital technologies such as cloud (37 percent), Internet of Things-related machine-to-machine (M2M) communications (33 percent), and analytics (32 percent).
This is notable in part because of what respondents did not emphasize: “manufacturing” technologies such as robotics, 3D printing, and so forth. It underscores the pivotal role of digitization in manufacturing’s evolution. Increasingly, overall performance and product quality depend on sharing data and insights across the supply chain — and an expanded ecosystem — to increase overall productivity and agility. Moreover, many manufacturers lack the platform with digital capabilities to make this possible.
To compete on a rapidly evolving playing field will demand a more complete digital transformation. The goal is to enable a hyper-aware organization capable of informed decision-making and rapid execution. What’s more, even just initial investments to add such agility will lead to a substantial payoff. Cisco’s research study included economic opportunity analysis, which identified a 12.8 percent profit upside over three years for manufacturers that digitize.
Among the value drivers that contributed to this potential profit opportunity were asset utilization, improved supply chain and logistics, innovation, sustainability, and customer engagement — all of which will depend upon organization-wide digital transformation. Asset utilization, for example, can be greatly improved by expanding the capabilities of connected industrial machines by incorporating fundamental digital technologies such as analytics and cloud. This enables new applications such as remote monitoring and predictive maintenance, driving business outcomes such as longer equipment lifespan, reduced maintenance costs, less downtime, and shorter time to process orders.
As in so many other industries, the stakes in manufacturing are high. Competitors that innovate and digitize faster will capture more of the available “Value at Stake” (defined as new value creation, or value that migrates among firms, based on the ability — or inability — to harness digital technologies). Digital transformation will create the foundation for a dynamic, integrated supply chain, operating with much greater efficiency as it links customer needs to the delivery of high-value goods and services.
The stakes are high, but the opportunity for manufacturers that digitize will reach even higher. What challenges do you face as you transform your manufacturing business models? Please leave me a comment below, and thanks for reading!