Smart, connected products are key to the future of manufacturing

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Product-based business models are fast being disrupted by service-based business models, forcing a re-think among manufacturers looking to succeed in the connected world.

IoT investment

Manufacturing is expected to spend $189 billion on IoT in 2018, according to IDC. It will be largely focused on operations and production asset management and is expected to rise for the foreseeable future as manufacturing sees the benefits of a connected world.

The Internet of Things (IoT) has opened manufacturing to new entrants. At the same time, the big established players have found IoT adoption difficult as they can't play alone. Markus Meukel, VP IoT at McKinsey maintains that we'll see an ecosystem of partnerships developing to get over this barrier.

"Open systems, open environments and open APIs are inevitable," he explains. "You can't play without them. You can't win on your own because you simply can't serve the whole complexity of this environment."
"By leveraging technology partnerships, companies can tap into existing resources and expertise, overcoming capability gaps and accelerating time to market," adds Werner Reuss, Head of IoT Industry vertical at Orange Business Services.

The code to tapping into the power of IoT

The connected products market will be worth up to $457 billion by 2020 according to IDC. With such big opportunities emerging, it may seem odd that manufacturers aren't rushing to join the connected revolution.

The answer is simple:

"They are caught in pilot purgatory," according to Meukel, spending large amounts of time testing, but somehow avoiding the big roll out. "Manufacturers understand the basic use cases in the value creation of new products and services, but they find it very difficult to scale up – lacking both resources and knowledge. It is easy to put a proof of concept in place, but who is going to take this and deliver it globally."

Manufacturers are all too aware that they need to re-think their business models using digital technologies and scale up fast to grasp these new opportunities. But they need advice from experienced consultants and technology players to advance, according to Meukel. They need to be shown the importance of putting the different building blocks, strategy and infrastructure in place, so they can mobilize their companies and make them more agile.

"Manufacturers find it hard to justify a business case without a quick pay back, which is why their transformation ends up being over three to five years," explains Meukel.

Open systems, open APIs

Everything comes with a service

Products can now be copied easily, which has put manufacturers under a growing threat from consumerization. They therefore need to enrich their business models to survive.

"How to get a product purchase from a physical sale to a subscription pay-for-use or service model isn't an easy journey. To deal with a changing marketplace, manufacturers must define recurring revenue models," explains Reuss.

One company that has done this successfully is e.l.m. leblanc, part of the Bosch Group, which operates in the residential and industrial markets for boilers and ventilation products. e.l.m. leblanc has been connecting boilers since 2004. Back then, it equipped its boilers with a "black box" designed to send a boiler's very last piece of data before it died, so it could run a post mortem.

Fast forward more than a decade. Data is now central to e.l.m. leblanc's IoT and Industry 4.0 strategy.

"We know the value of data and how it can help to improve the quality of service for our customers, enabling them to unlock this new potential for their own customers," explains Emmanuel Bricard, CIO of e.l.m. leblanc. The company has worked to share value across the actors in its entire supply and service chain utilizing IoT. "This is an important part of our new business model," Bricard adds.

Orange Business Services, for example, has delivered a customized remote monitoring IoT platform for e.l.m. leblanc's boilers, built on Microsoft Azure cloud and utilizing the Orange LoRa network.

The Orange remote monitoring solution collects the boiler's data and automatically alerts technicians of any malfunctions. This enables efficient maintenance intervention, with predictions on the probable causes of failure based on real-time data analytics. Preemptive alerts can also be raised by the platform through predictive maintenance algorithms.

Bricard said it took time to convince everyone that change was necessary, and it was essential to embrace IoT and the cloud. A lot of work had to be done between departments to define new ways to carry out processes, security and validation. It also had to manage the behavior of customers, who needed to understand this connected world. e.l.m. leblanc, for example, provides its own after-sales services as well as selling connected boxes to servicing partners.

"Partners were afraid we would use data to target their customers with our own teams, so we had to assure them that we could only see statistical data and didn't know where boilers they look after were connected," explains Bricard.

Bricard said working with partners, such as Orange Business Services, was essential to make the journey to a service model easier and link the dots in its ecosystem.

"We knew our future lay in connected devices," he explains. "We had historically been a boiler creator, developer, maker, seller and maintainer – we wanted to move our status to service provider. To become a service provider, service development is key, and the connected boilers are our cornerstone."

Connected services can start simple

So, how can companies move off the proof-of-concept (PoC) starting blocks and efficiently scale up like e.l.m. leblanc? The successful transformation cases in IoT that McKinsey has surveyed have started very simply with an area such as remote monitoring. The value step from planned to predictive maintenance is actually very little, even though the latter is much more complex, according to Meukel.

"This is where you need a clear business case," he says. "A holistic, digital vision is very important. Handling materials in a supply chain can be a more efficient way of connecting using IoT than something more obvious but highly complex."

Hear more from McKinsey's Markus Meukel, Emmanuel Bricard, CIO of e.l.m. leblanc and Werner Reuss from Orange Business Services, in this exclusive webinar on how to create value from IoT.

Jan Howells

Jan has been writing about technology for over 22 years for magazines and web sites, including ComputerActive, IQ magazine and Signum. She has been a business correspondent on ComputerWorld in Sydney and covered the channel for Ziff-Davis in New York.