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Milind Karve
Consulting Partner, Manufacturing Innovation and Transformation Group, TCS
Milind has over 22 years of rich experience in the manufacturing domain, covering areas
such as supply chain consulting, IT consulting, account management, IT strategy
definition, business planning and execution. He leads the Industrial Manufacturing subvertical within the Manufacturing Industry Solutions Unit at TCS, and is currently focused
on growing the unit's services in Japan.
Harish Shetty
Business Consultant, Manufacturing Innovation & Transformation Group (ITG), TCS
Harish has over 11 years of experience in the manufacturing consulting space. His
functional focus areas comprise production planning, strategic sourcing, order
management and new product introduction (NPI). Harish is a 'Lean Manufacturing'
expert and has successfully executed various cost optimization as well as product and
process improvement projects for leading industrial manufacturing organizations.
Pooja Ranjan
Assistant Consultant, Manufacturing Innovation and Transformation Group (ITG), TCS
Pooja Ranjan has over 10 years of experience in the manufacturing consulting space. Her
functional focus areas are customer experience management (CEM), primarily in the
sales and marketing function, where she has been a part of numerous successful
consulting engagements for several leading manufacturing organizations.
The industrial manufacturing industry has undergone significant change over the last two
decades. The core philosophy of manufacturing operations has changed, from the Plan-DoCheck-Act (PDCA) model prevalent in the 1990s, to the operational expenditure (OPEX)
focused model that we see in practice today. This shift is due to changes in the technology
landscape, emergence of new competitive forces and changing customer expectations. All
these parameters have increased the complexity of the industrial manufacturing business
environment. In such circumstances, manufacturers are attempting to increase the top line
by expanding their global presence, devising and adopting newer business models,
developing innovative products with differentiated pricing methods, and enhancing the
customer's positive experience thereby ensuring loyalty and retention.
However, these initiatives alone cannot provide the necessary far-reaching effects unless they
are harnessed to the right technology enablers. Next generation technologies including
social media, mobility, Big Data coupled with analytics, and cloud, can not only change the
outlook of the industrial manufacturing industry, but also play a significant role in influencing
the growth trajectory of the industry.
This paper discusses the various trends that impact the growth of the industrial
manufacturing industry and sheds light on how next generation technologies will be
prominent influencers of growth.
Contents
Differentiated Pricing
Product Differentiation
11
11
14
Conclusion
15
experience to their
increasingly empowered
customers are the need of
the hour.
Innovative solutions that have the potential to disrupt the status quo and allow manufacturers to provide a unique
experience to their increasingly empowered customers are the need of the hour.
Deming/
PDCA
1990 - 2000
Transaction-based reporting
(Data silos from multiple
legacy systems)
2000 - 2010
Diagnostic analysis
(Refreshed integrated
enterprise data)
Op-Ex
Thin margins
Staff augmentation
End-to-end ERP
implementation
Concept to Component
Product cost out (VAVE)
SCM transformation
Emerging markets
Supplier collaboration
2010 onwards
Predictive analysis
(Real-time enterprise data)
Internet
FTP
Telecommunication technology
Skill augmentation
Accuracy
Efficiency
Formal Relationship
CAD/CAM/CAE
MES
Resource optimization
Shared infrastructure
Multiple customer touchpoints
Growth of enterprise data and
its increasing importance
Social media
Mobility
Big Data/ Analytics
Cloud
Cloud
Servers/ Internet
Mainframes
PLM
CRM
ERP/WMS
BI
Identification of strategic
opportunities
Develop IT/ NPI/ SCM roadmap
Enhance customer experience
Transaction based
Mass production
Managed Services
Outcome based
Partnership
Operational excellence
Business advisory
Service & Innovation
Legend
Sample outsourced
projects
Industry forces
Technology enablers
Metrics
Expectations of
industrial manufacturers
from IT service providers
In-country-for-country
manufacturing, local and
international collaboration,
and niche market focus, are
emerging as key growth
strategies for industrial
manufacturing players.
One of the many concerns for businesses today is how to ride out the downs
in the business cycle, how to mitigate risks arising out of the economic
slowdown, and how to meet changing customer expectations that are
continuously evolving due to the changing business environment. These
concerns are spurring organizations to develop new business models along with a balanced product portfolio with
both short- and long-order cycle products.
In a bid to create differentiation, organizations are focusing on developing product portfolios comprising end-toend offerings for customers. Our research and experience shows that the R&D spend of leading industrial
manufacturing players has been increasing, indicating that they are allocating larger budgets to develop new
products or improve existing products. In addition to focusing on in-house product development, organizations are
leveraging their alliances and partnerships for product development. Besides, to fill the gaps in product offerings,
many organizations are acquiring companies that provide complementary offerings to theirs. For example, one of
our clients is a Swedish major in power and automation technology that spends four percent of turnover on R&D.
One of its key strategic initiatives for 2011-15 is to make value-creating acquisitions that will close key gaps in its
product portfolio, and market and geography lines. As a part of this strategy, it acquired a manufacturer of drives,
motors and generators, to broaden the product offerings of its Discrete Automation and Motion Division in North
America.
From our experience in working with leading manufacturers, and through our interactions with analysts, we have
found that industrial manufacturers are looking to their IT Service Provider to enhance their product/ service
offerings and consequently help in revenue growth. A consortium-based approach for large projects, led by the
prime IT service provider, in collaboration with sub-system vendors, is gaining ground in the industrial
manufacturing industry.
Organizations are innovating new business models to increase the top line as well as the bottom line. Many
manufacturers are moving away from a product-centric approach to a more service-oriented one. There has been a
visible leap from the traditional break-fix on demand services, to service solutions with agreements on servicelevels a move towards providing services that are much more integrated, along with technology-driven,
intelligent services. Manufacturers are increasingly providing remote maintenance and diagnostics, proactive
condition monitoring for early detection of possible faults, asset performance management, software modeling of
components such as bearings and shafts, etc. Technologies such as industrial internet (integration of complex
physical machinery with networked sensors and software) are shaping the industry in a big way. For example,
today, services represent 75 percent of industrial earnings of one of our clients (an American multi-national
conglomerate), an increase of 100 percent over the past decade. Further, the conglomerate is making major
investments in software and analytics to make smarter machines with the ability to extract and analyze data, by
leveraging the power of the industrial internet.
Also, some of the heavy engineering manufacturing companies in this industry are adopting the 'design anywhere,
manufacture anywhere and service everywhere' concept to strengthen the market spread and bring uniformity and
standardization in product design and manufacturing technologies. The 'service everywhere' concept also supports
the service-centric approach highlighted above, since it focuses on rendering services to the customer globally.
This demands improvisation in service models and execution, and provides new opportunities for revenue growth.
Differentiated Pricing
Traditionally, industrial manufacturers have used the cost-plus pricing strategy to determine the selling price, based
on the manufactured cost and adding the target gross profit margins. However, due to eroding margins and
customers demanding more value for the price they pay for products and services, this pricing method is not viable
in today's environment. Many manufacturers are now shifting to newer models of bundled pricing, dynamic pricing
and value-based pricing. While bundled pricing aims to lower marketing and selling cost, dynamic pricing allows
the price to change in response to supply and demand conditions (a basic, yet highly effective form of dynamic
pricing is online auctioning). Industry analysts and subject matter experts (SMEs) predict that up to one-third of
B2B e-commerce in the next several years will involve dynamic pricing. In contrast, value-based pricing is almost
the opposite of cost-driven pricing, and uses the buyer's perception of value to drive the price by allowing
companies to grab a higher share of consumer surplus for the value being rendered to the consumer.
In addition, as services are gaining ground in the portfolio of industrial manufacturers, the latter are actively
considering lifecycle costing and performance-based approaches. The lifecycle costing-based approach takes into
account the outlay of money required during the entire lifecycle of the product purchase, installation,
maintenance, disposal etc. Thus it allows manufacturers to tap into the customer services opportunity while
creating a unique buying experience for the end-customer. Performance-based pricing, on the other hand, allows
the buyer to pay only for actual services rendered by the service provider. This approach is gaining ground because
customers today want the seller to share the risk related to the execution of the services, and often have
performance-linked penalty clause(s) written into the service contracts. However, the transition to these pricing
models offers numerous challenges and often demands a holistic approach from the organization.
In addition to adopting newer pricing models, manufacturers are also investing in newer technologies to aid in
pricing and profitability management. For instance, one of our clients, a Fortune100 industrial manufacturer,
recently employed an advanced pricing tool along with SAP ECC 6.0, to improve visibility and to take more
informed pricing decisions; this tool has helped deliver 1-6% incremental return on sales for some of the product
segments.
Product Differentiation
Industrial manufacturers today are attaching great importance to product differentiation to drive revenue growth.
They understand that to improve sales, customers need to be convinced of the superior value of the product or
service as compared to a competitor's products. Recently, the CEO of a Fortune 100 diversified manufacturing
company spelt out his vision for the company We want to become the 'Apple' of the manufacturing world.
Manufacturers are consciously trying to develop and project various value-adds of their products to their
customers, thereby building a differentiated brand.
Traditionally, New Product Introduction (NPI) in the industrial manufacturing industry was primarily to improve the
bottom line of the company. Manufacturers considered it important to optimize costs in the NPI process and create
a product portfolio as per the available technology in the market. But now, manufacturers are focusing on
developing products as per customer needs and preferences. Our internal research shows that to remain ahead of
competition and capture market leadership, industrial manufacturers are adopting various strategies for product
differentiation as mentioned below:
1. Co-innovation strategy: Co-innovation or co-creation involves collaborating with customers as well as
suppliers in the product development process. This ensures that the products are designed as per customers'
requirements and are aligned with the manufacturing processes. Most global organizations leverage online
panels of engineers to evaluate their products during the development phase, thus avoiding rework and overengineering. Co-innovation improves the chances of a successful product launch and ensures realization of
expected revenues.
2. Product Platform strategies: A platform strategy involves component re-use to leverage economies of scale
across different products or offerings, while minimizing its impact on performance and/or differentiation of any
product variant. This strategy has been widely employed in the automotive industry, Volkswagen being a prime
example (the auto giant uses four platforms to roll out all its vehicles). This concept is gaining popularity with
industrial manufacturers as, with increasing competition, there is now a stronger focus on introducing new and
differentiated products with reduced 'time to market.' Industrial manufacturers, specifically power tool, power
equipment, and control and automation equipment manufacturers, are increasingly utilizing this strategy.
3. Next generation technologies: Mobility, Big Data and cloud computing are transforming the way
manufacturing companies operate. These technologies have the potential to change the business model of
manufacturing companies. Industrial manufacturing companies are realizing the importance of employing
these new generation technologies in order to remain relevant in the
ever-evolving business environment. Manufacturers are looking at
opportunities to leverage Big Data and mobility, not just for tangible
Co-innovation, component
benefits to the company, but to create services that add value for their
reuse, and next generation
customers. For example, a Swedish electrical multinational has listed the
technologies can help
application of disruptive technology and/or business models to bring
industrial manufacturers
value propositions to customers, as one of its top five business priorities.
bring about significant
The company is actively utilizing new technology and business models
product differentiation.
emerging from these technologies to position itself for market
leadership.
[1] Security Systems News, Honeywell aims at doubling residential penetration (Nov 2012), accessed Aug 5, 2013,
http://www.securitysystemsnews.com/article/honeywell-aims-doubling-residential-penetration
10
11
Growth
Growth
Trends
Trends
Focus on
New as
well as
Niche
Markets
Social Media
Social Media
Mobility
Cloud
Use Case
Impact
Use Case
Impact
Use Case
Impact
Use Case
Impact
Product Sentiment
Analysis from
social media
Real-time
alignment of
demand and
supply
Market
segmentation
Real-time
collaboration
with channel
partners
Actionable
insights tied to
business
outcomes of endcustomer
Collaboration
with
customers for
real time
analytical
services
Use of cloud as
centralized
data base to
store pricing
information
Departure
from
Traditional
Business
Model
Solutions
(Product+ services)
Branding
Differentia
ted Pricing
Voice of Customer
study for
competition
analysis
Intelligent Services
*
Configure and
compare products
on the move
Differentia
ted
Product
Platform
Supplier and
customer
collaboration for
innovation
Mobility
enablement to
reduce time-tomarket
Focus on
Customer
retention
Digital touch
points & VOC for
customer care
Mobile enabled
e-commerce &
customer care
Pricing and
Margin Analysis
Track entire
product
development
cycle process
effectively
through stage
gate analytics for
better decision
making
Real time
collaboration
of engineering
centers across
geographies
Leveraging Big
Data for better
customer insights
Infrastructure
for mobile
equipment
12
Figure 2 depicts the impact (Low - L, Medium M and High - H) of social media, mobility, analytics and cloud
(SMAC) technologies on the growth trends in the industrial manufacturing industry, along with illustrative use
cases. For instance, we believe that organizations can leverage Big Data to gain valuable customer insights which
can then be used in decision making, and take corrective action to improve the customer retention levels. Thus, Big
Data can have a high impact on the 'Focus on Customer Retention' growth trend.
A few illustrative use cases listed in Figure 2 are elaborated in some detail in Figure 3.
Digital Touchpoints
& VOC
Additional Enablers:
Mobility, Big Data and
Analytics
Additional Enablers:
Big Data and Analytics
KPIs affected: Net
Productivity %, Gross Margin
Major
Emerging
Technology
Enablers
Intelligent Services
Collaboration with
customers and business partners
Social
Mobility
Cloud
13
We have found from our experience that the manufacturing industry has been slower than other industries like
retail and telecom, to incorporate new technologies into its operations. However, today industrial manufacturers
are increasingly exploring business cases and possible return on investment (ROI) opportunities that new
generation technologies can offer. Even though they may be unsure about the exact rate of return, no one has any
doubts about the long term impact these technologies will have on the way business is carried out in future. In
addition, most do not wish to lag behind and miss the opportunity.
Fostering product innovation and conceptualization by shortening the decision time in adopting out-of-box
ideas, and reducing time-to-market.
Augmenting the service portfolio by bundling products with service offerings enabled by next generation
technologies. For instance, a building automation business unit of a large automation and controls solutions
company has started offering services comprising mobile monitoring and control applications along with home
security, safety and comfort products.
Optimizing plant operations leading to improved operational performance and productivity on the plant floor.
Quality improvements by exploiting untapped unstructured enterprise-wide quality data to improve product
quality, reduce cost, increase profits and reduce waste.
Service providers are gearing up to support this challenge by creating industry-specific solutions, and leveraging
their cross-industry experience to help industrial manufacturers with use cases and solutions in technologies like
Big Data and enterprise mobility. They have built accelerators as their proprietary tools to aid in faster
implementation of next generation technologies. These tools help in Meta data management, social media data
adoption, data migration and sensor data capture and transport. In this way, service providers can also take on the
role of business advisors to enable manufacturers to bring about disruptive innovations leveraging next generation
technologies.
14
Conclusion
Industrial manufacturing organizations are striving hard to increase their top line amid increasingly complex and
competitive industry dynamics. Managing business challenges while ensuring growth demands a change in
strategy, business models, processes and technology. Next generation technologies are disrupting the status quo,
and have immense potential to influence growth. Thus, manufacturers need to carefully evaluate technologyenabled options to craft their strategies for profitable growth, starting with a 'working prototype' and scaling up
depending on the initial success. Accurately strategized and executed technology-enabled business models
present tremendous opportunities to profitably grow the business and create enormous shareholder value for
industrial manufacturing businesses.
15
Contact
For more information about TCS consulting services, contact
manufacturing.solutions@tcs.com
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