"This blog is posted on behalf of TCS, a sponsor of the IDC Pan-European Manufacturing Executive Summit 2013."
TCS’ internal research, on-field experiences and insights from industry experts – all indicate a subtle change in the way the manufacturing industry operates. This change is attributed to the ever-evolving complexity in buyer behavior, technological advancements, and competitive pressures; and is driving manufacturers to explore newer business models and focal points in industry investments.
Though the opportunity in manufacturing is enormous, it grows moderately in alignment with the high state of maturity and is affected by the unpredictable demands of end customers. Our analysis of the industry spend on IT shows that, on an average, it is 2% of sales. This is much lower in comparison to similar spends in other industries such as banking and insurance, retail and consumer products. Moreover, over two thirds of this spend is on "business as usual" (often referred to as "keep the lights on" or "run the business" budgets).
But the future may not necessarily be a captive of the past. The nature and context of the opportunities are rapidly changing, making it necessary for us to assess whether the content, structure and model of the current IT services industry can be utilized to exploit this opportunity.
Based on a close interaction with the world's leading manufacturers, and a careful observation of business patterns on the ground, we have outlined the manufacturing industry's tectonic shifts and aligned them with the emerging future technology landscape. Industry analysts have increasingly started referring to next generation technologies such as cloud, Big Data, mobility, and social-driven IT, in various forums. It is the changes in the underlying business model brought about by these new technologies that are reinventing manufacturing.
The advent of new forces driven by the convergence of new technologies is enabling firms to create newer waves of competitive differentiation and creating what we refer to as the "Seven Mega Trends" of the manufacturing industry.
"Consumerization" of manufacturing: The industry is witnessing an increase in global transformation programs with leading manufacturers reaching out both formally and informally to end customers.
Virtualization and digitization: Companies are increasingly opting for virtual collaboration platforms to work with the globally dispersed supplier base and using simulation, visualization and virtualization to understand the product behavior and performance under virtual conditions.
Connected supply chain: A modern supply chain plays a key role in the entire process, spanning the range from demand planning to co-innovation and product development.
Complexity reduction and modularization of business: To manage a complex set of products, processes and companies, manufacturing firms are looking for ways to simplify internal business operations while staying in touch with customers.
Product design, material science and sustainability: There is a visible increase in use of materials that are high on performance, low on cost and even lower on carbon footprints. The application of next generation material science technologies on these breakthrough materials enables organizations to create significantly differentiated products.
Next generation technology: Next generation solutions are the new buzzwords and this is evident in the infotainment industry, where embedded electronics, telematics, mobility, telecom services and conventional engineering systems are converging to create compelling value propositions.
Evolution of the manufacturing model: Large centralized manufacturing units have given way to a network of smaller modular factories, which are closer to centers of demand, placing pressure on logistics and supply chain optimization.
The next gen manufacturer will look very different from the kind we see today. Traditional businesses will not change, but the convergence of innovative technologies to change business processes and models will bring in greater agility.
IT providers will need to play an industry-defining role by transforming into "masters of the manufacturing business game" to stay relevant in the emerging industry context. Providers will not deal with just discrete technologies or one monolithic manufacturing industry. They will need to deal with the convergence of the technologies and the mega trends that affect the manufacturing industry.
The manufacturing industry, today, is seeking business transformation capabilities from IT providers for the following:
Facilitating market entry, establishing manufacturing facilities rapidly, and establishing market networks and business systems - the scope goes well beyond simply deploying IT systems.
Providing design and deployment capabilities on a "services model" like a pay-per-use model, measured in terms of either resource consumption or transactions. Examples of usage would include HPC, social media platforms and conventional systems such as service management and dealer management or even traditional core systems such as production planning, scheduling, logistics and business intelligence.
Playing the role of a true system integrator by bringing together multiple service providers under one umbrella and taking accountability for the full system. For example, being a provider of infotainment systems that can also provide the telecom services billing plans, mobile app stores, telematics and embedded electronics, in addition to the conventional IT system itself.
Operating their plants and business systems, along with accountability for service delivery - linking revenues to actual performance using "takt" rates and cycle times
Participating in strategic cost reduction initiatives on a risk share and gain share basis.