Key success factors for manufacturers in 2017 – skills and new services

Filling the skills gap and boosting services will be among top priorities in 2017.

Prediction 1: Over 80 per cent of manufacturers will realize they already have IoT solutions – the question is: How easily integrated are they?

After years of hype we tend to forget that many manufacturers already have IoT capabilities. And have had for years. They just might not identify them as such. But systems like Supervisory Control and Data Acquisition (SCADA) and Programmable Logic Controller (PLC) have efficiently gathered performance data from equipment since the 1980s and 1990s. And many continue to do so. Manufacturers need to think carefully about which data performance tracking technology is most relevant to them. For those producing large-scale capital equipment to be deployed in the field, new sensor-enabled data gathering technology is a fantastic value-add. It enables them to offer maintenance and services around the clock, in tough environments – a serious competitive edge.

But for manufacturers producing a higher volume of smaller products in-house, for example, IoT field sensors and monitoring would be costly. In these cases preventing problems before the goods leave the factory is the priority. So if SCADA or PLC do the job – an IoT solution is already effectively up and running. Currently 50 per cent of the cost of implementing IoT projects goes to integration. Some of it, for sure, unnecessarily. For these high-volume manufacturers an open architecture ERP system that lets them integrate their existing legacy systems without costly integration could be money better spent. The best plan of attack is to carry out an audit. Identify which KPIs, measured where, really count for your business. Today’s IoT offers tremendous advantages for some… But for others it can be a costly irrelevance.

Prediction 2: In the next three years, apprenticeships will become more important than degrees

The future of every industry depends on its people. Sometimes good people are hard to find. Across Europe and North America, manufacturers are wrestling with a skills gap. In 2017 solving the skills shortages could bring in a new era of apprenticeships, in-house peer training and manufacturers working more closely with local education institutions to get younger talent into the industry.

A Deloitte study found that “over the next decade nearly 3.5 million manufacturing jobs in the U.S. will likely need to be filled. The skills gap is expected to result in 2 million of those jobs going unfilled.” In Europe the picture is similar; 82 per cent of the executives surveyed in Deloitte’s report believe the skills gap will impact their ability to meet customer demand, while 78 per cent believe it will impact their ability to increase productivity and implement new technologies.

The study shows that a career in manufacturing is ranked consistently low. Only 37 per cent said they would encourage their children to go for a manufacturing career.

So what is to be done?

Manufacturers need to take a more proactive role in spotting and training young talent. Apprenticeships and in-house training will move up the agenda. Take as an example the U.K. firm British Engines, a global engineering group producing technology for a whole range of industrial sectors. During a recent recruitment drive they turned away from LinkedIn and reached out instead to young talent in their local area. Ads were placed on local public transport and in local papers. The success of their campaign reflects the findings of a 2016 The Wall Street Journal report: “…hard-to-fill roles are middle-skill positions, such as maintenance technician, that require education or training beyond high school, like an apprenticeship or a course at community college.” For young talent, apprenticeships mean solid, bankable skills with no debt attached. For employers it means the skills they really want.

There are also new types of skills that will be particularly high in demand in the future. A factory will often consist of thousands of IoT sensors and a number of new devices connected to the internet continuously gathering data. This will result in greater needs to analyze large data volumes and automating key processes based on data. For young apprentices the technical, analytic and personal skills learnt are gifts that will keep giving. In some countries, like the U.K., manufacturing salaries are higher than the national average. So bring in new blood. Think carefully about how you build up your skills set. Ask yourself: Who will benefit my company more in the long run – a graduate with a degree? Or a young, eager professional schooled in the reality of my business and committed to its success?

Prediction 3: 75 per cent of mid-sized manufacturers in Europe and the U.S. will adopt servitization before 2018

It’s not easy being a manufacturer: The price of manufactured goods in the West has been falling for decades. The Producer Price Index for major European or U.S. states all show the same trend: from 2015-2016 the price of manufactured goods in the U.K. fell 0.7 per cent, 1.4 per cent in Finland and 0.29 per cent in Germany. Some years prices may creep up, but the big picture is clear: In ten years’ time western manufacturers will no longer be able to compete on price. The days of ‘make it and sell it’ as a default business model are over. So how else can manufactures compete?

Jargon aside “servitization” is, quite simply, understanding the bottom line of what your customers really want. Take Xerox. After decades of producing ever more sophisticated photocopiers, in 2000 the company asked: What is it our customers really want? Great photocopying machines? Or excellent quality printed documents on demand – whenever, however? Managed Print Services was born. By 2013 Xerox had transformed from product-centric to service-centric. The results for Xerox customers were broad and positive: Reuters achieved a 19 per cent cut in its Total Cost of Ownership, Sandwell Council a 30 per cent cut in printing costs, PwC met 100 per cent of its security needs, and the U.K.’s Department of Work and Pensions had a 36 per cent cut in electricity consumption. For Xerox, too, the rewards were significant: a sharper competitive edge, more predictable revenue streams and a portfolio of customers who are in it for the long haul.

IFS customer Beijer Electronics is another great example. A global innovator in industrial automation and data, Beijer makes smart black-box systems that optimize input output devices. With copies of their technology appearing at ever cheaper prices and hardware sales predicted to decline, Beijer needed to be both proactive and innovative. So the company servitized, launching the online WARP Engineering Studio. With WARP customers can integrate, customize and better control how they use Beijer’s products. WARP provides premium services customers can operate on top of their black boxes – and speeds up their processes. For Beijer selling products as a service through WARP means customers will not want, or need, to compare them on product price. The capabilities the Studio delivers are what the customer value. Servitization gives Beijer a highly strategic competitive edge. It lets them monetize their vast in-house expertise, harnessing it to make sure that their customers get what they really want.

How can manufactures start building their services? Step one: Start small. Are you offering customers spare parts and consumables that add value to their purchase? Step two: What maintenance services do you offer customers? Built-in maintenance de-risks a customer’s purchase. Service contracts that guarantee, for example 99 per cent uptime, can be optimized through live IoT feeds, where the supplier schedules preventative maintenance that lets the customer focus on their core business. Step three is all about sharing risk – and revenues. Sell capabilities rather than just equipment. Customers pay a monthly fee for a guaranteed service. Manufacturers get a solid, predictable revenue stream independent of falling product prices.

The journey isn’t easy; sales cycles can be longer, new service departments may need to be created, revenue gaps can occur before services mature. But when manufacturers move beyond the factory walls and ask themselves what it is their customers really need from their products, new relationships, growth and opportunity can flourish.

Antony Bourne is global industry director of Industrial and High-tech Manufacturing, IFS. Reach him at  antony.bourne@ifsworld.com.