3 game-changers for the manufacturing industry in 2018

The Internet of Things (IoT) being built into the product design, manufacturers adopting a more service-centric business model and 3D printing reaching the tipping point of realizing business benefits on a large scale. These are the three game-changing predictions that Antony Bourne, Global Industry Director of Industrial and High-tech Manufacturing at IFS, outlines for 2018.

Trend #1

By the end of 2018, over 50 percent of manufacturers will be building IoT technology into the design phase of their products

When you think “IoT,” is your first thought newly affordable, available sensors being added to products after they’ve been manufactured? If it is, well I believe 2018 will change that perception as IoT takes a decisive step forward in its evolution. If we think of IoT as a product’s nervous system, 2018 will see it grow from picking up signals at the periphery to being the brain of the product, constantly sending, receiving, growing and gathering information, from the center of the product throughout its lifetime, in the process enabling new services and revenue streams. Manufacturing is one of the markets most heavily impacted by IoT today. According to Global Market Insights, IoT in the manufacturing market was valued at over $20 billion in 2016 and will grow at more than 20 percent estimated compound annual growth rate (CAGR) from 2017 to 2024.

Current IoT investments that are unique to the manufacturing environment are taking place in three major initiatives:

1. Smart manufacturing to increase production output, product quality or operations and workforce safety as well as lower resource consumption
2. Connected products to impact product performance, including collecting detailed information on products in the field, remote diagnostics and remote maintenance
3. Connected supply chains to increase visibility and coordination in the supply chain, tracking assets or inventory for more efficient execution

We will see IoT being included as a part of the design process in all three of these initiatives. Manufacturers are realizing that by engineering IoT technology into products and equipment already in the design process that you will be able to monitor not only the equipment’s performance to predict when it needs repair, but also how and when it is being used—which provides game-changing competitive advantages.

By the end of 2018, more than 50 percent of manufacturers will be building IoT technology into their products from day one—already thinking forward in the design phase and asking themselves what services and revenue this product can generate throughout its lifetime.

In fact, where will our revenue be coming from in the next five years?’ It’s a good question and it leads us to my next key prediction…

Trend #2

Servitization speeds ahead: by 2020 most manufacturers will earn over half of their revenue from services

With the manufacturing industry becoming more and more commoditized, the need to differentiate yourself is key to survival and profitability. We now see that a large number of manufacturers are shifting to a more service-centric business model—the buzz word is “servitization.”

Servitization is a way for a manufacturer to add capabilities to enhance their overall offering in addition to the product itself. One famous example is Apple, which did this a few years ago when it had gained the majority of market share with the iPod and introduced iTunes to increase loyalty, differentiate itself and generate more revenue. You may think that it will never apply to your business, but companies are now reaping the benefits of servitization across many different sub-segments. For example, Philips provides Schiphol airport outside Amsterdam with “lighting as a service,” which means that Schiphol pays for the light it uses, while Philips remains the owner of all fixtures and installations. Philips and its partner Cofely will be jointly responsible for the performance and durability of the system, and ultimately its re-use and recycling at end of life. This has resulted in a 50 percent reduction in electricity consumption without having to buy a lamp.

I see this development among IFS’s customers as well. For global furniture manufacturer Nowy Styl Group, servitization has been crucial to its growth. In 2007, it announced, “for us, chairs are not enough,” starting a transformation from pure manufacturer to world-class office interior consulting company. Another example is a customer that manufactures cleaning products and started to offer delivery and service dosing systems. The company understood that choosing the right cleaning products was just part of its customers’ main objective, i.e. keeping its premises hygienic. Applying the products in the most effective way, choosing the right accessories, establishing the right routines— all these were crucial to keeping premises clean too.

Both of these customers realized that with technology accelerating as fast as it is, no matter how beautifully designed a chair is or how effective a cleaning product may be, today’s luxury products turn into tomorrow’s commodities faster than ever, pulling prices down with them. With servitization, manufacturers escape the corrosion of commodification. Expert services built on years of experience provide a kind of value customers will always pay for, regardless of technology trends.

According to the IFS Digital Change Survey, conducted by the research and publishing company Raconteur, 68 percent of manufacturing companies claim that servitization is either “well-established and is already paying dividends” or “in progress and is receiving appropriate executive attention and support.” However, almost one in three manufacturing companies are still to derive value from servitization. These are missing out on revenue streams and new ways to develop their offerings. To be successful in their response to customer needs and increasing demands, manufacturers must look to new business models to compress time to market, taking an idea through from design to a saleable item as quickly as possible.

New technology like IoT adds an additional layer to servitization. With sensors detecting when your product or equipment needs service, this data can trigger an automated service action that will realize significant benefits to make your service organization more effective. This type of automated predictive maintenance will become more and more common as it is a natural next step after implementing IoT to optimize service efforts.

Trend #3

By 2019, the hype around 3D printing will be over and real benefits blooming

My third prediction is that 3D printing, just like IoT, will enter a new, more mature phase. No matter how big the ‘wow’ factor is when we first see it, apart from a smaller-scale manufacturing production like hearing aids and jewelry, 3D printing has so far failed to live up to its full potential. All this could change in 2018.

We are seeing a couple of developments that point in that direction. The first one is the improved scalability of 3D printing solutions. A new generation of 3D printing companies is moving into manufacturing traditionally dominated by injection-molding manufacturers, with newer, faster, better connected automated systems that reduce some of the time-consuming pre- and post-processing that has been such an obstacle to wide-scale uptake. One company, Stratasys, for example, has collaborated on a new printer, the Demonstrator, that combines three printers into a stack system—each printer able to communicate to its neighbors in real time. The new printer is highly scalable, meaning it can significantly increase production capacity, printing from 1,500–2,000 components a day. This means that you can achieve an economy of scale to bring costs down, which will be an important catalyst for the success of the 3D printing technology.

The aviation industry is pioneering 3D printing technology today, and the manufacturing industry can learn from that. One successful example is the new GE Turboprop ATP Engine, which was 35 percent 3D printed, taking it down from 855 components to 12 and contributing toward the engine being lighter, more compact and delivering a 15 percent lower fuel burn and 10 percent higher cruise power compared with competitor’s offerings.

The expanded capacity and reduction in pre- and post-processing that new, highly innovative mid-size 3D printing companies are bringing to the field mean that, in 2018, I think we will see manufacturing companies joining in with aviation and defense, and flying high too with new 3D printing capabilities.

Do you have questions or comments about any of the 2018 manufacturing industry trends?

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Photography provided by Monty Rakusen.