We do not have to forecast about what might happen with the future of manufacturing and visions like Germany’s Industry 4.0. We can see it at work around us today. Many industries and business models are getting disrupted. It is not hard to see that companies in the technology sector have overtaken many of the firms that make physical things with examples like Apple valued at $700B, Microsoft $364B, and Google $357 today. With Apple twice as large as Exxon in market capitalization and General Electric at $263B, Johnson and Johnson at $273B, and even the retail market dominant Walmart valued at only $234B. As Deloitte highlights in their report “Business Ecosystems Come of Age” (here) these ecosystems and the value they create exist on top of powerful new business platforms.
It is mentioned frequently that customer demands are increasing, expectations of regional, local, or even individual preferences are more and more expected. The change of manufacturing equipment machinery, such as integrated 3D printers with CNC machines and other robotics into mini-factory station will enable local producers to meet these local market needs faster than centralized large corporations will be able to do this in a centralized fashion. Thus, large manufacturers will have to start thinking about their current products as extensible platforms in the future expecting this inevitable downstream fragmentation. They will have to provide API’s, modularity, different business models, and participate in this dynamic ecosystem to survive. They can still utilize technologies such as Internet of Things (IOT) to retain value extraction from their platform and ensure they are not intermediated away from the end customer but they will not be able to be all things to all people from centralized factories to every preference or individual on the planet.
One shining example of this is a recent article about Pepsico (here) who back in 2011 developed a new potato chip as their new platform that has fueled nine of the top 50 new food and beverage introductions across all measured U.S. Retail channels in 2013 with innovation as a percentage of net revenue growing to 9 percent the same year. Now, how can you invent a new potato chip that is so amazing? First, they target a key segment of young males and through rich investigation of how consumers interacted with the product, aromas, flavors, etc., they found they wanted a heartier chip but the company still wanted to keep it thin.
Instead of making the chip thicker they decided to add this feeling of depth by making it wavy, but even cutting prototypes was challenging because blades didn’t exist to curve along both axis at the same time. They eventually resorted to a 3D printing technology for prototype testing. The feedback was ecstatic, but now the real hard part began. How do you produce this same chip in all the existing plants without retrofitting the equipment. They eventually co-innovated with their blade maker to enable production with existing equipment. This chip, however, wasn’t just a potato chip. They didn’t start bagging them and shipping them around the world. This was their new ‘platform’ for each region to localize to regional preferences of taste. By the spring of 2014, the deep ridged chip platform had entered 14 countries and also let to partnership in this ecosystem introducing a Lay’s Ruffles Deep Ridged Classic Hot Wing flavored potato chips.
If you are going to produce leveraging scale in the future you will have to start thinking about how you can develop a physical platform much like the IT companies and even Pepsico did with the potato chip. You must start thinking about the ecosystem that will be competing with new machines and have local market presence and marketing insights. New technologies such as IOT and big data analytics can still connect you to the customer and help you extract value while expanding your business leveraging the emerging ecosystem instead of going it alone worldwide.
Recently, Thomas Ohnemus, VP of Extended Supply Chain Marketing sat down at the SAPInsider and discussed other changes coming with Industry 4.0 covering. I encourage you to watch it to find out about:
- A brief history on Industry 4.0, and how it relates to Internet of Things (IoT) and manufacturing
- How the service economy and smart technology impact supply chain considerations
- The importance of the connectivity throughout the entire extended supply chain
Click (here) to watch the video at SAPInsider Site