The industrial machinery and components industry (IM&C) provides companies with the equipment they require to produce the products they manufacture and sell to their customers. As such, IM&C is a key enabler of success in other industries, such as energy, healthcare, automotive, semiconductors, consumer products, transportation, and telecommunications.
Yet the industry is not without its challenges, as competition within the industry can be fierce and come from unexpected places. Companies like GE, previously a customer of IM&C companies, are now acting as a partner and supplier. This trend, as adjacent markets leverage technology advances, is disrupting the makeup and complexity of the industry. New technologies, process improvements, and products are all challenging the status quo. Globalization has also brought new competitors, with specialized industry skills, to the table.
The race to commodity pricing is also impacting the industry. For example, the cost of in-car sensors is estimated to have dropped as much as 70% in the past six years. Communications bandwidth costs and the price of 3D printing devices have also dropped considerably, but the biggest challenge the industry faces is from large outsiders looking to move in. Companies such as Amazon, Google, and Apple have the ability to disrupt the industry. Many of their technology developments, and acquisitions, are now IM&C focused.
The future is about innovation
Successful IM&C companies have been early adopters of sensor technologies, including industrial IoT (IIoT). This has helped drive the adoption of advanced communications and data storage solutions. It has also fueled the implementation of insight tools, such as data analytics and machine learning. In essence, IM&C manufacturers are the primary early adopters of digital transformation. In fact, if digital transformation doesn’t occur within the IM&C industry, it may not happen anywhere, but early adoption of technology may not be enough to maintain a competitive edge.
IM&C has been impacted by the disruptive forces of innovation spanning both technology and business models. UPS is leveraging 3D printing to manufacture and deliver physical products at the point of use, eliminating costly and lengthy transportation times. Air compressor company Kaeser is selling volumes of compressed air as a service, rather than selling the compressor. Amazon is leveraging drones inside warehouses to bypass traditional IM&C products, while GE is moving into the IIoT market itself, rather than relying on traditional IM&C partners. To keep pace, IM&C firms must embrace and support these types of challenges, such as offering equipment as a service, as catalysts to change.
Evolving a digital edge
IM&C manufacturers need to recognize and embrace new strategic priorities to succeed. Companies that continue to evolve their software and service offerings can benefit in two key areas. The first is top-line growth, through better and more differentiated solutions. The second is bottom-line cost savings, through more efficient and effective digitally enabled processes.
From an operational perspective, IM&C companies must focus on achieving value in the following areas:
- R&D and engineering: Developing a systems-engineering approach for mechanical, software, and electrical systems. This can both reduce headcount and improve time to market.
- Sales and marketing: Developing improved customer collaboration and solutions selling. This can drive increased revenue per sale and customer loyalty and retention.
- Supply chain: Developing a digitally enabled supply chain to optimize parts planning and logistics performance. This can reduce operational costs and improve on-time delivery.
- Manufacturing: Developing a process that allows real-time tracking of products and tracing of source materials. This can improve manufacturing quality, reduce defects, decrease inventory levels, and compress manufacturing lead times.
- Services-based revenue streams: Developing both aftermarket services offerings and new services-driven revenue streams. This can offset declines in profit margins associated with traditional, product-focused sales.
Achieving a digital edge requires embracing new technologies, leveraging data, and optimizing the business processes necessary to drive innovation and core business value. An ideal approach starts with a cloud-based platform enabling a common system of record for the entire ecosystem. It leverages technologies, such as IoT, to drive the increased collection of data, and blockchain, to improve transactional transparency. It applies tools, such as analytics and machine learning, to derive value from shared data. And it embraces design thinking to place the customer at the center of every business decision.
This is not an easy task, and it requires the right mindset and the right partnerships. But the need, and value, of such an approach is clear.
Learn more about how IM&C manufacturers are approaching innovation by reading the white paper “Accelerating Digital Transformation for Industrial Machinery & Components Manufacturers.”