Future of Manufacturing:

Transcription

1 Freedom to Succeed Future of Manufacturing: New challenges in the Smart Environment November 2016

2 A roundtable discussion was held at the FT Future of Manufacturing summit on 4th October 2016, to explore the opportunities a smart environment will present for businesses at all levels of the manufacturing supply chain particularly, how the internet of things will lead to new business models and end-to-end solutions. The following is a non-attributable summary of the key issues raised. Disrupt or be disrupted Manufacturers have had fair warning that what may seem a ridiculous new toy can rapidly become a serious threat and then the obvious solution. This recognised pattern of disruption taught some industries the hard way and for some it was too late to adjust. Others have been fortunate to have a little more time to consider who will be the Uber equivalent in their industry which will disrupt their business with a new business model. The advance of 3D printers, self-driving cars, smart watches, 3D goggles, robots, smart clothing, drones, and more is already affecting traditional manufacturers. They are facing threats from digital disruptors that are often quicker to adapt traditional products and exploit new opportunities through the latest technology. How should they respond to these changes? At our recent roundtable event, we brought together key representatives from leading manufacturers in different sectors and markets to explore these issues and share key trends, insights and ideas. What was clear was that businesses are aware of the opportunities and the challenges but do not necessarily see a clear route through. 2

3 Future of Manufacturing: New challenges in the Smart Environment Making better use of data Businesses are increasingly obsessing about technology and data and yet for years they have run on a traditional basis. The challenge is that one size doesn t fit all and each business needs to consider the opportunities technology can offer for their products and services but also in their organisation and supply chain more generally. A more holistic focus and a clear strategy will generate better results. Our participants agreed that it is fundamental to have a clear understanding of data use and the sharing of data. There is little point in incurring significant capital expenditure fitting the latest sensors into your factory to collect data if you do not have a clear view as to how you wish to use that data and what value it will generate. Businesses are already collecting significant quantities of data but it has to be usable. Businesses need to think about maximum return for minimum effort and cost look at what you already have and whether you are maximising its use. Manufacturers face a challenge in identifying where they can make money. There might be services, such as maintenance or repair work, product enhancement or customisation that manufacturers can offer customers as a result of the insights they can glean from data from their products. They must work out what customers are willing to pay extra for and determine what they expect to be provided as part of the manufacturer s core offering. At the FT Future of Manufacturing summit we asked participants about how their businesses use data. Unsurprisingly, the majority of respondents use data to increase their knowledge of their customers. However, as data analytics improves and becomes more widely available, we expect more businesses to use their data to improve their manufacturing processes and work better with their supply chain. The use of connected technologies will provide access to a vast amount of data. How does/will your business maximise the value of this data? 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 39% Increase knowledge of customers 24% Improve manufacturing processes 20% Increase knowledge of suppliers 11% Sale of data 6% Other 3

4 Shift towards servitisation in manufacturing Manufacturers that adopt a product-as-a service approach to their operations can develop stronger, more direct relationships with customers. Nokia announced in 2013 that it was making 3D printable files available to allow consumers to create their own phone cover designs and print them off on 3D printers. A product-as-a-service approach allows manufacturers to provide goods directly to consumers and charge them on a perpetual per-outcome basis rather than via a single upfront payment. The business model opens the way for consumers to return products to manufacturers after they have used them, allowing the business to make the used assets available to other consumers. It has the benefit of allowing consumers to pay for product use rather than having to buy goods, often at great expense, where they might only use them infrequently. In relation to your core products, are your business models changing from production of products to delivery of a service? Yes 61% No 39% 4 There has already been a push towards greater servitisation in manufacturing. Manufacturers now offer services to complement the goods they produce. These will become increasingly sophisticated with new sensory technologies and data analytics software which allow manufacturers to understand and therefore charge appropriately for how their products are being used. Added to this is the potential for a high level of customisation. For example, with 3D printing, manufacturers can provide customers with personalised designs to print themselves. Adopting such a model requires manufacturers to think about licensing and how they control and, if necessary, enforce their IP rights. IP issues in 3D printing It is clear that many manufacturers are embracing the many benefits the 3D printing revolution is bringing and are developing new business models which allow others the freedom to 3D print their products, whilst returning revenue through appropriate licensing models. Those who are able to adapt and change their business models in this way are likely to benefit from the increasing revenues available from the licensing of their IP rights but legal pitfalls need to be considered. What do you perceive the greatest challenge to be in the context of offering 3D printing services? 20% Risk of IP infringements 36% Avoidance of being held responsible for the printed object being fit for purpose Violation of regulations Other

5 Future of Manufacturing: New challenges in the Smart Environment Collaboration for manufacturing Our participants recognised the need within the manufacturing sector for a greater shift towards collaborative partnerships in order to enable organisations to remain at the forefront of their industry. New digital technologies, increasing connectivity, the drive for innovation, a greater focus on services and changes in customer demands are all factors which are behind a push towards more collaborative models. The benefits are clear. Where demand levels can be more confidently predicted through data, manufacturers could work together to share resources. For example, if production lines have capacity, manufacturers could consider leasing them out to others. Similarly, businesses could share workers so as to manage labour costs, tapping into that resource when demand surges and allowing collaboration partners to deploy the workers when demand falls and productivity levels are reduced. Again, manufacturers should learn from fast moving consumer businesses who are already sharing. Businesses should avoid retrofitting new situations into old contract structures and should, instead, embrace the new contracting models that are emerging to underpin collaborative partnerships in manufacturing. Our participants also believed that, to be successful, collaborators need to understand and be open as to what are they all trying to get out of relationship. Everyone needs to get a return and so all need to understand where the value add is for each participant. Manufacturers collaborate to speed up innovation, shorten time to market, and improve efficiency and supply-chain agility. 5

6 Retrofit or look outwards and do new Most Digital Health initiatives involve reducing the level of direct interaction between doctors and patients. Understandably, doctors are concerned about the prospect of patients selfmedicating without having proper regard to professional medical advice. A recurring theme throughout our discussion was whether a business should retrofit its current facilities, business models and products or start with a clean sheet. The answer is simple for new entrants, such as the likes of Tesla, who do not have years of invested capital and historic plants and so are able to embrace the new order immediately. However, for many manufacturers, it is not so easy both from a costs and cultural perspective. One of our participants commented that most companies we work with, for example in food manufacturing, do not have good data collection technology in place with no logic controllers on the floor and they are not connected up to capture data. Accordingly, significant capex will be required to make the necessary changes and to allow businesses the full benefits offered by the Internet of Things. It also requires a cultural change from the top with Boards being willing to open themselves up to new ways of doing things and making investments in areas where the return is not yet clear. The results of our survey, however, does demonstrate that this change is occurring, with the majority of the respondents being somewhere through the process of preparing their organisation to be ready for the application of Internet of Things technologies in their processes or products. Do you believe your organisation is prepared for the application of Internet of Things technologies in your processes or products? Partially planned Yes we have implemented a strategy No plans to develop a strategy yet Yes we have a strategy for the future There are alternatives to retrofitting - letting legacy sites serve their current purpose, delivering their current projects and, instead, making improvements in the customer demand patterns and analysing the production cycle and the supply chain signals to enable the whole supply chain to be more efficient effectively sticking within one s comfort zone but doing it better. 6

7 Future of Manufacturing: New challenges in the Smart Environment About the Pinsent Masons manufacturing team At Pinsent Masons we are at the forefront of advising a number of early adopters globally who have each recognised the need for innovation and technological advancement in their products and how they manufacture them. We provide new legal solutions and approaches to turn the series of new legal challenges manufacturers face into opportunities. We are helping manufacturers understand how increased connectivity and availability of data impacts on their supply chains and is galvanising consumers to influence product development and delivery. This creates the Contacts United Kingdom Nicole Livesey Partner Head of Advanced Manufacturing T: +44 (0) M: +44 (0) E: nicole.livesey@pinsentmasons.com opportunity to increase collaboration within, and the flexibility of, supply chains. Manufacturers can also develop new relationships with their customers and adapt their business models and products for additional sources of revenue. Our supply chain, commercial, TMT, IP, data protection, regulatory, corporate and infrastructure teams all have a wealth of experience within the sector and regularly draw upon the complementary and specialist skills each offers within the field. Germany Stephan Appt Partner T: M: E: stephan.appt@pinsentmasons.com France Annabelle Richard Partner T: M: E: annabelle.richard@pinsentmasons.com Middle East Diane Mullenex Partner T: +44 (0) M: +44 (0) E: diane.mullenex@pinsentmasons.com 7

8 This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority and the appropriate regulatory body in the other jurisdictions in which it operates. The word partner, used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. A list of the members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP s registered office: 30 Crown Place, London EC2A 4ES, United Kingdom. We use Pinsent Masons to refer to Pinsent Masons LLP, its subsidiaries and any affiliates which it or its partners operate as separate businesses for regulatory or other reasons. Reference to Pinsent Masons is to Pinsent Masons LLP and/or one or more of those subsidiaries or affiliates as the context requires. Pinsent Masons LLP For a full list of our locations around the globe please visit our websites: and