The IoT Impact on Business Models: What Should Manufacturers Do First?

  • March 20, 2017
  • Feature
The IoT Impact on Business Models: What Should Manufacturers Do First?
The IoT Impact on Business Models: What Should Manufacturers Do First?

By Bill Lydon, Editor,

A key mantra, repeated in virtually every presentation about the impact of the Internet of Things (IoT), Industrial Internet of Things (IIoT), and Industry 4.0 always exclaims “These will change business models!” They’re right to do so. Business models are undergoing change in multiple industries, including manufacturing, and manufacturers that don’t change with the times will see their competitiveness dwindle.  That said, typically coupled with these messages from automation suppliers are calls to action to make technology investments, usually in their specific product.   While there may be a great deal of truth in many of these statements, automation professionals have a responsibility to be mindful of their employer’s best interests.  While new technologies are opening new levels of productivity, making major investments in these new technologies, without rethinking your entire manufacturing processes, could lead to rash, costly purchasing decisions that negatively impact your business.

IoT concepts have already impacting services in other industries in a big way. These advances have connected users directly with the individual supplier, creating new business models, and many new businesses that have taken market-share from those operating on more traditional models. Oft-cited examples include:

  • Uber-  An on-demand car service
  • Zipcar– A rental car service
  • Airbnb – A hotel alternative, many times using private homes

The fundamental concept behind all three of these businesses is the effortless connection of the user, directly with suppliers, at a lower transaction cost.

A New Evolution to Lean Manufacturing

In the manufacturing world, the application of IoT is primarily used to achieve efficient, make-to-order manufacturing, linking the buyer directly with the manufacturing process and all related stakeholders.  This evolution to fully automated and connected lean manufacturing, is leading the effort with goals of achieving greater customer satisfaction and highly efficient production.

The Building Blocks of Our Manufacturing Future

The availability of many new technologies has provided the building blocks for dramatic changes in the manufacturing industry. These efforts include:

3D/Additive Manufacturing

Plastic, 3D-printed parts were among the first applications of this additive manufacturing technology, which has now been extended to create metal parts as well. Jet engine manufacturers, for example, have been using additive manufacturing to create metal replacement parts for their engines.  In one such effort, GE Aviation recently tested a demonstrator engine with 35% additive manufactured parts. The engine was made to validate 3D-printed parts for the clean-sheet design Advanced Turboprop (ATP) engine, which will power the new Cessna Denali single-engine turboprop aircraft.  The FAA cleared the first 3d 3D-printed part to fly in a commercial jet engine from GE in 2015. 

This 3D metal printing capability was demonstrated in the KUKA Robotics booth, at the 2016 IMTS show, by Midwest Engineered Systems.  They built stainless steel boat propellers using a laser welding additive manufacturing method.

Product Lifecycle Management (PLM) Software

Product lifecycle management (PLM) software integrates data, processes, business systems and people, in order to manage information throughout the entire lifecycle of a product, from conceptual design, design implementation, manufacturing, service, and end of life disposal.  Designed to be cheaper and more efficient, PLM software continues to be refined dramatically to make it easier to use.

Collaborative Robots

A new breed of light-weight and inexpensive robots are working cooperatively with people in production environments, providing a means for companies to implement flexible manufacturing.  Human collaboration is possible because these robots are inherently safe sensing. They note when humans and other obstacles are in their path, and automatically stop to avoid causing cause harm or destruction. Surprisingly, the typical cost of one of these robots is less than $40,000, and their simplified programming means they can be deployed without hiring specialized engineers.

Pervasive Communications

The cost and performance of machine-to-machine communications has improved dramatically with  IoT applications, making it possible to create holistic and responsive manufacturing, linked to customers and all the pieces of the manufacturing process.

Orchestrating New Business Models

I had a very interesting discussion with SAP’s Gil Perez, Senior Vice President Digital Assets & IoT about how SAP is changing their business model, through IoT.  Gil Perez is a member of the SAP SE Product & Innovations executive team responsible for developing and commercializing a range of SAP solutions enabling digital transformation. The solutions comprise SAP Vehicles Networks, SAP Connected Parking, SAP IoT Security, Robotics and extended Warehouse Management, as well as SAP Direct Manufacturing (3D printing and On-Demand Manufacturing).   

In September of 2016, SAP committed to invest €2 billion in IoT over five years as well as to continually expand their IoT portfolio. In January 2017, the company announced the SAP Leonardo IoT Portfolio as part of this commitment.  Further, SAP just announced the opening of the early access program for the SAP Distributed Manufacturing application to new customers. This application was created in joint collaboration with UPS in order to make 3D printing and on-demand manufacturing an integral part of the digital manufacturing landscape.  This, and other offerings, have been built on an SAP technology foundation that enables SAP customers to build IoT solutions, leveraging a consistent framework, featuring:

  • SAP Cloud Platform- A Platform-as-a-Service infrastructure provides the framework for SAP Leonardo.  SAP Cloud Platform provides end-to-end micro services for machine learning, analytics, Big Data, security, user experience, user management, and backend integration application program interfaces.
  • SAP Leonardo Business Services- These enable users to rapidly build Internet of Things applications, allowing them to develop digital twins, create reusable application services, and apply predictive algorithms. These is designed to help users process a high velocity of data, with the ability to stream analytics and run predictive scenarios. This is all delivered on an SAP Cloud Platform, which is connected to millions of devices
  • SAP Leonardo for Edge Computing- Ingests data regardless of connectivity, latency, or device protocol concerns, all while delivering intelligent edge applications.

As Gil Perez explained, a key part of the 3D printing and on-demand manufacturing use case is the digital  “manufacturing instruction” framework which contains all the specifications, requirements, and electronic design files transmitted to potential suppliers to quote. 

Figure: SAP Leonardo is a framework and ecosystem partners for IoT.  

SAP’s approach is one example of how new business models are leveraging platform-as-a-service and creating an ecosystem of suppliers for manufacturers. To this end, SAP has created relationships with a number of partners, including GE, Siemens, Bosch and PTC, to help provide solutions for customers.

Approaches like this have the potential to create more efficient manufacturing outsourcing with higher quality at a lower transaction cost.

Manufacturers Should Rethink Processes First

Before making major investments in any of these new technologies, manufacturers may do well to rethink their entire manufacturing processes to see how these new possibilities could help.  These technologies will continue to evolve current manufacturing processes, directly linking the producer with customers and suppliers, driving responsiveness and efficiency. 

Industry 4.0, Industrial Internet of Things, and Smart Manufacturing are still in the early stages of development, and the effectiveness of new approaches is not yet clear. Small, incremental investments in pilot programs might be the best way to help learn in a constructive, productive environment, and could save a lot of time and agony, when major investments are made down the road.

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