This blog expands upon one of the ten Decision Imperatives that are part of our upcoming IDC Futurescape: Worldwide Manufacturing Product and Service Innovation 2015 Predictions report.
The manufacturing industry is on the precipice of a making transformational shift in business, away from selling standalone products that may include after-sales services and toward selling "value-in-use," or Product-as-a-Service.
As part of our annual effort to highlight what we see as some of the pivotal decisions that IT leaders at manufacturing companies will need to make in the coming three years, my colleague Jeff Hojlo and I have prepared an upcoming report, IDC Futurescape: Worldwide Manufacturing Product and Service Innovation 2015 Predictions. I want to highlight one of the Decision Imperatives included in the report for our IDC Community audience, which can also be found in our recent webcast, IDC FutureScape: Worldwide Manufacturing 2015 Predictions:
By 2018, 40% of Top 100 discrete manufacturers and 20% of Top 100 process manufacturers will provide Product-as-a-Service platforms.
Leading manufacturers have seen the potential that after-sales service revenues hold, with some generating up to 50% of their profits from after-sales sources. As manufacturers apply service innovation to their efforts, the product becomes a platform to deliver business outcomes and tangible value. IDC Manufacturing Insights defines product-as-a-service as the transformation of service from a standalone function within a manufacturing organization into an integrated product and service offering that delivers value in use. Manufacturers transition from selling physical products to selling the business outcomes the products will deliver.
Product-as-a-service has many applications for discrete and process manufacturers. While we are seeing a significant number of discrete manufacturers apply product as a service to their offerings, the opportunities are there for process manufacturers as well. Consider the paint manufacturer that delivers a continuous supply of white for the automotive OEM, based on production schedules and real-time plant inventory status. Or the grain silo monitoring company that now sells crop pricing optimization services rather than just installing condition monitoring cables inside silos, enabling a client to increase the grain's moisture level by one point and sell it as Grade 1, a revenue increase of more than $1 million on a million bushels. These examples will require new business models to support the transition to product as a service, and it has a number of implications for IT.
Among the IT impacts we see as a result of product-as-a-service are the need for IT to support a global service delivery network with systems that enable the process flow for this new business model. Major systems, from customer management to service parts planning to finance and accounting will need to be altered and brought in alignment with how the product-service is brought to market. The change necessary is not to be underestimated, which is why we see approximately 40% of manufacturing reaching out to external IT service providers to assist with the implementation of product-service systems.
Our guidance to manufacturers includes following industry developments closely, and collaborating for efficiencies in acquiring technology for Product-as-a-Service. There are many industry groups that are exploring how to work collectively to adopt technologies like Internet of Things, and this will naturally flow into the development of Product-as-a-Service offerings. An area that will likely make sense to collaborate is via the industry clouds that are blossoming. In certain manufacturing verticals, the service cloud will be an optimal place for collaboration, providing the necessary "plumbing" for managing the interconnected relationships with manufacturers, partners, and suppliers.
The shift to product-as-a-service will occur gradually, with a large portion of manufacturers taking some initiatives in this area by 2018. The technology requirements for such a transformation will be significant, and our research will reflect the manufacturing industry's best practices and progress in the coming year. Stay tuned!