Three Trends Driving Change For Industrial Manufacturers In 2021

pubdate: 2021-10-25

By Judy Cubiss, Director and Global Marketing Lead, Automotive and Industrial Machinery & Components


The global pandemic has forced many industries to change course, and industrial manufacturing is no exception.

Forward-looking industrial manufacturers that had already started their digitalization journey were in a much stronger position during the pandemic.

Now, many industrial equipment manufacturers are taking what they’ve learned from the ongoing crisis and they’re investing in new technologies, processes, and business models, to emerge stronger than before and prepared for the next disruptive event.

Why are industrial manufacturers making the shift toward digitalization now?

In a recent industry event, George Kube, global vice president of industrial machinery and components at SAP, said, “One answer that I hear more and more to this question is, 'It's actually the COVID-19 crisis that is driving digitalization for us, because it fosters the need to be more virtual and to be more digital in everything that we do’.”

As a result, the pandemic has pushed manufacturers who were reluctant about changing processes to be more open to adopting advanced technology and trying new business models.

Three Key Industry Trends

Industrial manufacturers are altering their businesses not only in response to the pandemic, but also as a result of other key trends that are influencing changes in the industrial manufacturing and components sector.

1.Customer Demand for Personalization

It’s not enough for industrial manufacturers to simply deliver great products anymore. Today’s customers expect good experiences and exceptional service to go along with those products.

Customers also expect industrial manufacturers to customize solutions to their unique needs, and deliver those personalized solutions at close to standard costs. This requires manufacturers to have greater flexibility, automation, and intelligence throughout their business processes.

It also requires effective and automated collaboration between sales, engineering, manufacturing, and aftermarket sales divisions.

Kube added, “Customers are getting ever-more demanding and they know exactly what they want, and they want exactly the right product from you.”

Gustavo Millan, also from SAP commented, “Manufacturing companies have been offering engineered to order, configured to order for a long time. What I think the shift is now is about customers that are increasingly demanding or expecting more personalized solutions at the mere standard cost. So, that means that manufacturing companies need to have full visibility of the value chain in order to stay close to the cost of the standard order."

2.Technology Adoption

Industrial manufacturers are changing the way they run their businesses by implementing a range of advanced technologies to automate business processes, to improve operational efficiency, and to pioneer new business models.

During the discussion. Ankit Sharma from the industrial machinery and components industry unit explained, “One interesting development of this pandemic is how the experienced work force, which was earlier not very comfortable with the adoption of digital technology, is now more accepting to trying new digital methods for servicing.”

Some good examples of innovative service offerings include remote machine diagnostics and e-service portals for automatic parts ordering.

Digitalization can benefit both customers and original equipment manufacturers (OEMs) because customers can easily order products or services online, or have it done automatically based on inventory levels, and OEMs can see significant cost savings through reduced travel and resources.

3.The Drive To ‘As-a-Service’ Models

Selling a product is no longer enough. Industrial manufacturers need to design, sell, deliver and maintain personalized solution bundles that deliver ongoing value and outcomes.

There is an increased focus on developing smart equipment and collecting generated data for new service-based models including those based on outcomes.

Service and outcome-based business models are critical growth drivers for revenue and profitability if product sales begin to stagnate.

Sharma added, “It is fascinating to see how resilient the service business has been, even in the pandemic. Companies with a firm focus on service business have seen stability and even growth in service business revenues, where other business segments have declined. So, this is a good time to start the servitization journey.”

What is ‘Servitization’?

Servitization is the latest buzzword to describe the trend of using products or equipment to sell a growing variety of services, often based on the data generated and enabled or enhanced by advanced technology.

This can include new subscription-based business models, digital installation offerings, predictive maintenance contracts, and innovative outcome-based digital services.

New digital competitors are constantly entering the market, putting increased pressure on industrial manufacturers to focus on service-based business models to increase margins and hit revenue targets.

Melchior Bryant of global-management consultancy Bain & Company, explained, “Services are becoming an important addition to portfolios, especially to boost profitability. And for some OEMs, it is the only way to have profitable lifetime revenues.”

Strategic Priorities for Industrial Manufacturers

Industrial manufacturing companies must balance the need to be resilient, while improving current processes, and innovating for the future.

Based on many discussions with customers, SAP has outlined the following strategic priorities that businesses should consider as they move toward digitalizing their operations.

Be Customer Centric. Position the customer at the center of every decision and use operational and experiential feedback to create great customer experiences and services.

Serve the Segment of One. Support personalization and manage every aspect of the industrial manufacturing value chain in a consistent way, while trying to keep costs as close to standard as possible.  

Embrace Smart Products and Digital Solutions. Adopt innovative products and solutions containing advanced digital technology, and base services on the data that is generated from those products.

Implement a Smart Factory and Digital Supply Chain. Supply chains and manufacturing networks must become more intelligent, resilient, connected, transparent, automated, modular, and flexible.

Develop Service-Based Business Models. Using smart products and digital twins to represent assets allows businesses to collaborate in real time and enables services such as remote monitoring and diagnostics. Innovative industrial manufacturing companies provide machines and equipment that can be bundled with additional services and consumables, and can also charge for the outcomes.

Innovation is a Key Driver for Industrial Manufacturing

To thrive in the post-pandemic economy and prepare for future disruptions, industrial manufacturers must become more agile and efficient. To do this, they need to simultaneously establish industry best practices to achieve operational excellence, pioneer next practices to create differentiation, and finally innovate to bring their business to the next level.