Part 9 of the “Intelligent ERP-Driven Industries” series
Discrete manufacturers in automotive, aerospace and defense, high tech, and industrial machinery and components are facing unprecedented pressures on their ability to innovate, engage with customers and consumers, and maximize return on their assets. By 2018, nearly one-third of discrete manufacturing leaders will be disrupted by competitors that are digitally enabled, reports IDC. In the age of digital disruption and transformation, discrete manufacturers must rethink traditional business models to capitalize on new, digital opportunities. One such opportunity is the sale of digital products.
Digital products offer many benefits over physical products, including frictionless buying, immediate delivery, and no shipping or supply chain management costs. But digital products can be difficult to sell on their own. To address this challenge, companies are pairing digital products with physical ones. For discrete manufacturers, this pairing offers new business models and revenue-stream opportunities.
Valuing digital products: Using physical products to drive digital sales
What is the value of a digital product? Consumers in the B2C world have historically been slow to jump at the purchase of digital products. As Fast Company reports, it takes a companion physical product to give the digital product value. For example, consider the case of Apple’s iPod and digital music downloads. In the age of Napster and free MP3s, digital music downloads were a slow seller. This changed after Apple introduced its iPod in 2001, creating a new physical product to house these digital downloads. More than 5 billion songs were sold through Apple’s iTunes store by 2008.
Learning from Apple, discrete manufacturers can adopt a similar approach by integrating their physical and digital offerings. Digital offerings, such as remote upgrade service and preventive maintenance contracts, are a natural add-on to physical products. IDC estimates that by 2018, 60% of large manufacturers will bring in new revenue from information-based products and services with embedded intelligence driving the highest profitability levels.
Three applications for digital-physical product integration
For discrete manufacturers, integrating digital and physical products offers three key benefits:
- Increased aftermarket value. Selling remote monitoring and digital services is perhaps the most obvious application for digital and physical product integration. Offering upgrades, continuous service, and preventive maintenance via remote monitoring is an important new revenue stream for discrete manufacturers. For example, remote monitoring can dramatically extend the shelf life of industrial machinery used in the food and beverage industries, high-tech manufacturing, and automotive manufacturing. Typically, an industrial machine has a shelf life of 20+ years. But the rapid pace of technological change means machines constantly need to be retrofitted. Condition-monitoring sensors combined with the Internet of Things (IoT), cloud technology, and analytics would enable discrete manufacturers to offer ongoing digital service plans.
- Data monetization. IDC estimates that less than 10% of data is effectively used. Discrete manufacturers must treat data as a digital asset and use this data to improve user experiences, provide insight, influence decisions, and set directions. In the automotive space, discrete manufacturers can leverage usage and engagement information to effectively send content, such as software upgrades and infotainment. Like the Apple iPod/digital download model, auto manufacturers could use the physical product (the car entertainment system) to sell the digital product (the infotainment) to drivers. Automobile manufacturers can use analytic data to better understand driving patterns and preferences, location usage, and demographics. Analyzing this data will allow manufacturers to better target their digital infotainment offerings.
- Faster design-to-market cycles. Embedding sensors in industrial machines will generate a wealth of digital performance data that is useful not only for predictive maintenance but also for streamlining future production. Industrial machines are incredibly complex. Ideally, these machines are built following a model-based systems engineering approach that allows designs to be reused for a variety of customers. Integrating sensors into these machines will produce a stream of data that discrete manufacturers can use for future production guidelines. This includes using the data to configure new customer orders. This approach accelerates design-to-market cycles and increases customer satisfaction.
For discrete manufacturers to capitalize on new business opportunities, they need a strategic partner to support digital and physical product integration. Manufacturers need a platform that enables the seamless integration of industrial IoT with advanced analytics process to support product development.
Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading “Accelerating Digital Transformation in Industrial Machinery and Components.”