The manufacturing industry has always been a good litmus test for the practical application of technology – but in the face of mass disruption the likes of which we have never experienced, the move to remote working has thrown a digital spanner into the works.
But judging by the reactions of industry leaders on both sides of the Atlantic, the manufacturing sector will have its gears turning before too long, albeit with a very different approach to efficiency and productivity. In light of a comprehensive survey of industry leaders in Germany and the US by relayr and forsa, I spoke with relayr’s Senior VP of Global Sales, Guneet Bedi, to gauge the mood of manufacturing leaders as they move into uncharted territory.
The pulse of production
The pandemic has been a uniquely challenging time for everyone, and those industries that have not been able to pivot almost instantly to a digital way of working have felt the sting of enforced lockdown more than most. Despite the manufacturing industry’s strong need for physical labor and maintenance (Bedi points out that “a typical elevator repair job can take up to six trips”), the sector has been embracing technology for a significant amount of time and as such manufacturing leaders are, on the whole, motivated to make even further digital improvements. “Since February, we have seen three times the number of inquiries about as-a-service [XaaS] business models,” says Bedi, “A lot of people are thinking about how to become more resilient, and there’s no surprise that recurring revenue models are more resilient in the face of downturns and Black Swan events,” the likes of which businesses are living through now and will in the months to come.
This desire to pivot business models, and move even further towards a digital manufacturing process, is encouraging, but attitudes are notably different in the US and Germany, which could indicate a split in how medium-sized and multinational enterprises are responding to the pandemic. “24% of German manufacturing leaders are confident that their business will see positive effects when they rebound, compared to 13% in the US,” says Bedi, “this could be a result of German companies generally having a more favorable view of technology, as Germany is several years ahead of the US in terms of familiarity with technology.” This confidence and comfortability with tech, however, does not necessarily mean that German companies will fare better, or be more willing to transform their business models to respond to the pandemic. “US companies are twice as likely to change their business model compared to German companies, which could be partly due to the size difference of relayr’s clients in Germany and the US [their German clients average $1-2Bn in annual revenue, compared to $200-400m in the US]. I see willingness in the US to move fast and become very nimble in the face of extreme challenging times, whereas German companies are more bullish and confident that they can bounce back.”
Strength in solidarity
There are common themes that cross the Atlantic however, and delving further into the statistics with Bedi it is clear that the priorities of the manufacturing industry as a whole have shifted. “Employee safety and wellbeing has really shot to the top of everyone’s list,” says Bedi, and manufacturing companies are having to look at ways of transforming their operations to make sure they have enough staff, and that they are protected at work. Bedi continues: “Even before Covid there was a huge proportion of the US workforce retiring or going to retire, and now it’s even harder for staff to go on-site in a pandemic, that remote side of working has and will become extremely important in the manufacturing world.” For Bedi, this need to maximize efficiency, maintain customers, and keep employees safe, naturally lends itself to an XaaS business model. When considering remote working and pay-per-use models together, some interesting things start to take shape. “I think the pay-per-use model is gaining traction in part because the financial incentives were never aligned for equipment manufacturers and service companies to begin with,” says Bedi, and now that fewer workers are available on-site, peace-of-mind for operators and clients is paramount. “80% of the cost of ownership is in maintenance. So what if instead of paying $300k up front plus another ~$1.2M over the life of the asset, you can pay $60 per hour of usage including maintenance and operating costs – that peace-of-mind of guaranteed uptime has been really disruptive for small-medium sized businesses,” says Bedi.
But it’s not just smaller companies that are realizing the benefits of combining service, maintenance and equipment into a rolling lease agreement, and there are some fascinating examples of large-scale shifts to a flexible, technology-enabled way of operating. “Aluvation, for example, have a microfactory inside a shipping container for heat treatment, so they just bring this container to a Daimler/BMW parking lot, they treat all the parts that need to be treated, and then everything is charged by the amount of metal treated, or the hours of operations.” Providing this specialist manufacturing process in a mobile setting and charging for the service provided has been a game-changer, and most importantly improves the process for everyone. Daimler/BMW get all their metal parts treated literally in their backyard and only pay for how much they have used the microfactory, and Aluvation can “have three sites in Mexico, Germany and Dublin SA and run this process remotely from anywhere in the world.”
Transformation: a marathon and a sprint
Even faced with such tumultuous and unpredictable challenges as a global pandemic, manufacturing leaders are adaptable and understand the benefits that technology can bring – 95% of respondents in Germany and 99% in the US reported that technological advantages such as Industrial IoT, Big Data, and Artificial Intelligence help them to cope with uncertainty.
At the same time, large enterprises in Germany and small-medium sized manufacturers in the US are increasingly turning to recurring revenue models to rejuvenate their business – as Bedi states “this shift is already happening – we are now seeing aluminium heating as a service, compressed air as a service, everything is being considered as a potential revenue source.” The seemingly radical move towards recurring revenue streams and remote work is actually a calculated one, and manufacturing leaders are seeing the benefits of transforming both their business and their operational structures to be more resilient and adaptable. The Covid-19 pandemic has been a huge blow to industries of all kinds, but if everyone can pivot their way of thinking to a completely new way of working with the same enthusiasm as these manufacturing leaders, then ‘the new normal’ may arrive sooner than we think.