It’s a truism today to say that the manufacturing industry is changing. According to the Brookings Institution, employment in the manufacturing sector “has dropped from around 14 percent of the U.S. workforce in 1996 to almost 8 percent now. Many jobs have shifted overseas as employers seek low-cost labor and nations with fewer safety and environmental regulations.”
While these changes are undoubtedly important, what often goes unaddressed are the ways that the manufacturing sector is changing outside of the factory floor. In particular, the relationship between manufacturers and their customers is being revolutionized by three forces: the Internet of Things (IoT), Artificial Intelligence (AI) and subscription-based purchasing models.
Research cited by DataRPM CEO Sundeep Sanghavi in his article for Manufacturing Business Technology estimates the size of the Industrial IoT market at $11 Trillion. Given the size of the market, Mr. Sanghavi raises important points about how much manufacturers can save by combining the data from IoT devices with predictive analytics to save on maintenance costs. However, this concept can be applied beyond the direct cost savings for manufacturers themselves to end-user customers.
For example, we’ve seen how a large manufacturer of farm equipment in the U.S. has leveraged embedded IoT devices within their products to deepen their relationship with customers. Say that a farmer purchases a tractor. In the past, that would generally be the end of the engagement — it was fundamentally reactive relationship. Today the manufacturer has the ability to be proactive by monitoring the reams of data being transmitted by the “smart” tractor. With this data in hand, the manufacturer can actively reach out to the farmer if parts need replacing or a component is in danger of breaking down before a critical failure occurs. The result is that the customer comes away with a sense that the manufacturer is actively looking out for them.
In a sense, this is nothing new. Lay consumers have come to expect a similar level of service for many years. Think of your car. With certain exceptions, your vehicle is likely to actively inform you if your tire pressure is low, the battery is in need of replacement, etc. All that’s happening within manufacturing is the same concept being applied to industrial products, but with typically much greater specificity.
Data from IoT devices is of limited value if it doesn’t offer insights; AI can provide actionable analysis at a scale that data analysts can’t, especially as the volume of data being collected increases. This is a huge opportunity, with large vendors like Oracle making significant investments in AI for manufacturing applications.
AI has the potential to both improve manufacturers’ own internal processes and generate value for customers. Think about inventory management. In order to save on costs, you as a manufacturer want to maintain the bare minimum amount of inventory necessary to meet customer demand - any less and you miss out on sales, any more and you’re wasting money on storage and other costs. By combining internal data on product sales with usage data generated by IoT-enabled devices and running AI-powered analysis on the results, you can generate accurate predictions regarding demand, thereby maintaining the “perfect” amount of inventory.
But don’t just use these numbers internally, share them with your customers. Chances are that your customers’ data is not nearly as rich as yours and their analysis systems nowhere near as advanced. Sharing data with your customers regarding how they use your products helps them better plan for future needs and positions your business as a trusted partner, not just another vendor.
Subscription-based business models have disrupted a number of commercial industries and, like it or not, they’re coming to manufacturing too. However, rather than being something to fear, subscription-based models offer clear advantages to both manufacturers and their customers. Patrick Mascia, Industrial General Manager at Catalant Technologies, highlighted some of them in this publication, writing that “manufacturing companies can expect a more predictable and long-term relationship with customers, while customers can eliminate the risk of owning a piece of machinery they don’t have the infrastructure or money to repair or replace as new technologies arise.”
Consider the example of automobile manufacturers. While the terms have recently become more limited, Hyundai offers an “Unlimited+” subscription for its 2018 Hyundai Ioniq Electric. This is essentially an enhanced lease option offered to customers in Southern California. The program initially included a (since removed) allowance for monthly charging costs and still supports unlimited mileage, a comparative rarity in the world of leasing options, and a robust maintenance plan. In this arrangement Hyundai receives a steady revenue stream of $295 or $395 per month per customer and drivers get the peace of mind of knowing that they will be covered if anything happens to their car.
In short, while it’s undoubtedly true that manufacturing is changing, the future is ripe with possibility. New technologies provide an opportunity for manufacturers to build deeper long-term relationships with their customers. By embracing the emergence of IoT, AI and subscription-based pricing models in particular, manufacturers can better serve their customers while becoming more efficient and developing competitive advantages. In fact, I suspect you’re already seeing some of these changes in your business. If so, I’d love to hear about them in the comments below!
Corbin Murakami is a Product Manager at Liferay.