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Manufacturing and Engineering

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The circular economy: The importance of remanufacturing for productivity

The Circular Economy is defined as an economy “where the value of products, materials and resources is maintained in the economy for as long as possible, and the generation of waste minimised”. In contrast to a “Linear Economy” which is essentially a ‘take, make, dispose’ model of production, a Circular Economy […]
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Six attributes to look for in a top performing service business

Companies frequently review their approach and discuss how to become more explicit and attentive to their customers’ needs. Almost always this leads to a discussion about services. Service organisations represent the customer and the customer operations better than most other parts of the company due to their closeness and local […]
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23 Important Lessons Learned the Hard Way in Asset management

Great Asset Management is not just about physics models and analytics. It is a way of thinking involving all parts of the organisation and businesses. Here is a brief summary of some of the key lessons I have learned in my career with leading companies in Asset Management such as Rolls-Royce […]
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Mobile Apps: A bridge to monetising a world of connected things

The key to monetising the Internet of Things (IoT) and Big Data is not to focus on the technology itself, but the impact on customers’ business processes and business model. However, many companies do not find it easy to imagine how their business model might change. Many are lost in […]
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Five Guiding Principles for Service Transformation within Product Focused businesses

By the very nature of their history, engineering and industrial businesses tend to focus on technology and processes when developing product related services. However for these services to be enduring and profitable, they must also develop and even change their people as they evolve to a services centric culture. Generally […]
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We work with manufacturing and engineering companies of all industries and geographies to build, enhance and optimize their service business; Leverage digitization in business models, offerings and operations and drive growth.

A Sector in flux

As competition in manufacturing and engineering industries intensified, companies responded by developing increasingly global operations and supply chains and offshoring production. They implemented lean processes in the pursuit of lower costs and higher quality and enhanced their products and brand.

Faced with limits to growth for new industrial products and systems, managements began also to appreciate the importance of the installed base and the potential for revenue streams over the product lifetime. They recognized that actual product sales constitute only a fraction of the total revenue opportunity – the rest being services, from product support and spare parts to upgrades and productivity improvements. Estimates have shown that total service revenues associated with an industrial product over its lifetime amount to between 5 and 20 times the sales value of the product. After-sales services now constitute a strategic anchor for many industrial companies, aiming at a mix of maximizing customer loyalty and retention, generating additional revenues and profits from the installed base and defending against lower cost competitors.

Over time change was accepted as a constant. Now, however, new forces are driving ever more powerful shifts: Demand is fragmenting, both geographically and in terms of customer requirements — more options and customization, faster product cycles and more frequent upgrades, better and more after-sale service. At the same time, rapid digitization is radically transforming how manufacturers operate and interact with customers, while enabling entirely different kinds of products and services. Products, in fact, are no longer at the center of all things. They are increasingly defined by the outcomes they achieve and the data they generate. Data collected from products in the field become raw material for new services and customized solutions. To deliver outcomes, manufacturers must integrate more into their customers’ processes, inducing customers to place greater emphasis on the total customer experience. Therefore, making things is starting to matter less and knowing things more. In many cases successful companies will no longer be the ones that make the best products, but the ones that gather the best data and combine them to offer the best services, whether on their own or together with others.

Moving Forward

Given the flux  what is the best way forward for manufacturers? Should they try to get into the digitization game as early as possible in spite of uncertainties, or should they wait until things become clearer? One significant risk of waiting is the claim to the data: Digitization of assets is vendor neutral. If third parties (customers, competitors, independent providers) seize the initiative and digitize product data without the original manufacturer, this might not only endanger the manufacturer’s influence on product utility and performance (potentially jeopardizing service revenue streams), but also increases the risk of product commoditization and limits the manufacturer’s differentiation and margin potential. So access to, even “ownership”, of data is something manufacturers can ill afford to lose. And often the best way of keeping that access is by building on data to design and sell services and solutions.

For manufacturers to take full advantage of new technology to strengthen market positions, often requires transformational strategic, cultural and organizational shifts and upgrading of capabilities: Sales & Marketing must focus on value co-creation and customer experience; R&D must incorporate service thinking; Offerings, delivery systems and supply chains must integrate through the Industrial Internet of Things (IIoT) and turn data into actions.

Nevertheless, surveys indicate that only a minority of manufacturers are planning radical changes to harness the potential of digitization and services or have introduced training in digital skills. But it is wrong to underestimate the speed of technology driven disruption. Companies risk being left behind as competitors from within and from outside their industry draw ever closer to their customers.

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