From machine constructor to platform operator

Machinery and plant manufacturers – pace-setters of digitalization – Part 1 of 3

Particularly in the corona crisis, corporate leaders of machinery and plant manufacturers  are more focused on digitalization than ever before. As a major challenge at the IT infrastructure, process and strategy level, the coronavirus has finally brought the race for the digital enterprise into full swing. After all, as the backbone of the SME sector and an important pillar of the German-speaking economy, these companies are at the epicenter of digitalization, especially in these times of crisis.

The machinery and plant engineering companies are regarded as accomplished experts and innovation drivers in their markets. Thanks to their very special structure, they have the basic prerequisites to influence attitudes and approaches toward digital transformation.

Accordingly, the question arises as to what the status quo in the mechanical and plant engineering industry currently looks like in the context of digitalization and where these companies should be heading. The Expert View series “From machine constructor to platform operator” aims to answer these questions and give decision-makers at these companies an outlook on how they can use data-based business models and processes to achieve a platform economy.

Status Quo – between tradition and transformation

Machinery and plant engineering companies, in particular, are classically regarded as organizations with a long-term orientation that place great value on continuity, stability and sustainability. A high level of employee orientation and personal relationships within the company enable, among other things, short decision-making paths, which are seen as a further competitive advantage over other companies.

Long-term continuity should therefore not be confused with rigid structures and stagnation in development. This is because the characteristic organization of family businesses achieves progress and innovation in a different way: 

With a high degree of calculation and prior risk assessment, family businesses are clearly committed to innovation, mutability and long-term openness. 

Machinery and plant engineering companies in particular still do not “blindly” take high risks, as is more common in the startup environment. In this way, industrially oriented companies clearly show that they also want to be culturally prepared for the new age and can thus enrich their long-term orientation with a drive for innovation with good sensitivity for progress and change.

In addition to cultural progress, machinery and plant manufacturers in Germany have already automated quite a bit at the technology, process and product level in recent years. On the one hand, this relates to their own production processes through continuously advancing automation.  On the other hand, a lot has happened in the ecosystem of the value chain – the sharing of production data beyond company boundaries brought the breakthrough in the “smart supply chain”. In particular, machinery and plant manufacturers that provide service for their equipment themselves after delivery now have almost all predictive maintenance offerings in their portfolio. 

Trend topics in 2021 for machinery and plant manufacturers  

Not only has digitalization itself long been defined as a top strategic topic in the machinery and plant engineering sector, but many initiatives are also planned that are directly related to the digital value chain and transformation.

For those who would like to delve deeper into the technology trends 2021, I recommend the Expert View by my colleague Dr Stefan Ried.

Digitalization strategy

The strategic level must never be ignored in such far-reaching transformation processes, as the digital strategy also has an impact on the holistic corporate strategy. Of course, digitalization only bears fruit when the planned strategies and activities are properly implemented. However, many stumbling blocks are also laid out on the path to a digital company. 

Setting up and restructuring the IT infrastructure 

As a basis for all use cases and as a technological cornerstone for all ongoing digitalization activities, the most up-to-date, high-performance IT infrastructure possible is necessary – this topic should be evergreen by now. However, there are still companies that are only now planning to increase the budget for the new IT system landscape and have realized that the classic “rigid” IT operation, which is still associated with high infrastructure costs, is giving way to dynamic models.

Return on investment

So when do companies invest in which value creation? Here we see the following correlation: 

  • Companies in a good economic situation invest in digital products and the ecosystem of their customers. Digital products are often seen as an investment in the future. The return on investment (ROI) is often 1-2 years in the future. Nevertheless, this can be a good strategy to compensate for shrinking revenues from the core business in the long term. 
  • Companies in critical economic situations invest mainly in cost savings and efficiency. Here, ROI is usually achieved much faster. However, it is a bottom-line investment in margins that cannot build up additional revenue streams. 

Technology, product and process innovations 

In addition to specific expectations for revenue, competitiveness and expansion, companies have precise ideas about which areas and functions digitalization will impact. Since family businesses are more strongly represented in the classic industrial sectors, the optimization of existing processes in production, logistics and quality assurance (Robotic Process Automation and Automated Robotic Intelligence), as well as the opportunity in the development of new software- and sensor-based products – are also top priorities for them. 

In particular, the further development and evaluation of the product portfolio by means of technologies such as the Internet of Things represents a focus for the family businesses. In this way, they want to provide additional digital functions for their products or even create entirely new application scenarios. Conversely, this does not mean that the digitalization of customer contact is neglected by family businesses. 

In particular, the interaction of systems and processes on the customer order processing (e.g. ERP systems) and the manufacturing order processing level (operational manufacturing systems = “MES”) in networked communication, is currently one of the biggest challenges for manufacturing companies. 

Manufacturing Execution System (“MES”) is a process-oriented operating manufacturing management system or operational control system. Compared to similarly effective systems for production planning, it is characterized by its direct connection to automation and enables real-time monitoring and control of production. 

Internet of Things – the bridge to the customer

 Digital projects in machinery and plant engineering in particular either contribute to internal value creation or are digital products that have visibility at the customer (manufacturing and production industry).

Especially in the last few years, a significant part of the investments is still increasing in Industry 4.0 – with a strong focus on optimization and/or automation along the manufacturing and supply chain in the ecosystem of the manufacturer. This can improve the margin of the production process but often it remains completely hidden from the ultimate customer. 

The variety of possible technological uses of IoT results in a very broad spectrum of use cases and areas of application. The footprint of German industrial companies in the context of IoT often covers not just one, but several use cases. 

For example, the IoT activities of many companies focus primarily on the service and production area as well as the measurement of all process activities. In this sense, the two areas of digital service processes and digital production processes are among the most strongly pursued use cases for IoT today.

In the case of machinery and plant manufacturers, the measurement of resource efficiency (asset efficiency) is particularly important for process optimization. By means of analyses, it is primarily a matter of monitoring the plant and production lines within a company. In addition, asset efficiency analytics enable easy location and tracking of key assets, including along the supply chain (e.g., raw materials, finished products, and containers), to optimize logistics, maintain inventory levels, prevent quality issues, and detect theft.

In contrast, digital products and services create highly visible value with customers. A digital product has an impact far into the customer’s ecosystem and sustainability in the after-sales lifecycle of the physical product.

When it comes to digital products and services, the digital twin plays a particularly important role. Put simply, a digital twin is a virtual reproduction of a physical product which provides precise information on hardware, software, location, use and condition, etc., on a screen. This is what makes a multitude of data evaluations possible in the first place.

Thinking further, a machine manufacturer with a digital twin that offers a predictive maintenance solution not only for new machines, for example, but a retrofit for all of its customers’ existing machines – including machines from other manufacturers – can create considerable added value for its customers. 

So with IoT, it is not just the service processes that change for the manufacturer or independent service provider. The provider is also suddenly perceived as a digital integrator and not just a machine manufacturer. Predictive maintenance solutions can actually be new revenue streams for many manufacturers if they still manage to build value this way during the economic downturn.

Recommendation – from data value to data business

 Now, after the decade of data collection (Big Data), it is time to move into the implementation of digital and data-based business models. In recent years, the first companies have succeeded in initiating IoT projects and also in launching the first digital products on the market. 

However, in order to be able to do even more with the production data of customers, the legal basis or the trust of the respective customers is often lacking. Only those manufacturers who change their core business, for example, from the CAPEX purchase model to a full-service rental model, can already effectively perform data analysis today because they continue to own the machines in the field. 

Data is thus the epitome of modern growth and the recipe for success in the age of digitalization. Those who have (good and extensive) data, have the chance to better understand their target customer group, adapt their product offering, design production processes more efficiently, and much more. 

Especially in the context of the IoT, completely new potentials are developing with data-driven business models. Networked products and software-based solutions are becoming growth drivers, especially in manufacturing industries. The development and operation of IoT solutions, the visualization and preparation of data are thus becoming the drivers of digitization. 

Outlook –  part 2 of the Expert View series 

The second part of the Expert View series deals specifically with protocols, standards and technologies for the common data platforms (Mindsphere, Azure & Co. incl. standard interfaces, MQTT). This is because the choice of technology in particular depends very much on the requirements of a particular industry and the digital strategy of the company. External help should be sought, especially when evaluating technology. When choosing a service provider, it is always helpful to have a partnership at eye level. Small companies often fare better with medium-sized IoT service providers than with global service providers.

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