Obsolescence Insurance, a New High-Margin Business for EMS Companies
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2020 is set to be a monumental year for the manufacturing industry. With 76 percent of voters interested in how presidential candidates will support and grow manufacturing in the U.S., all eyes are on leading original equipment manufacturers (OEMs) to make the months and years ahead their most productive yet.
From new technology innovations to burgeoning trade wars, 2019 was an exciting -- and sometimes hectic -- year for the manufacturing industry. Plus, the rise of the Internet of Things (IoT) and Machine Learning are paving the way for OEMs to design and build incredibly powerful and technology-enabled products.
Technology innovations, coupled with an ever-evolving customer landscape and the independent aftermarket, are leading many OEMs to explore Product-as-a-Service business models, where customers purchase a desired result or output of a product rather than the product itself.
This year, OEMs must begin exploring new revenue streams. Below are four key trends we can expect in the industry this year, with tips on how OEMs can use these trends to fuel success:
- The majority of OEMs’ businesses will be centered on delivering products-as-a-service by the end of the decade. According to IDC, 40 percent of manufacturers have some sort of IoT project underway. However, most OEMs’ deployed products are disconnected, or not IoT enabled. We predict that by 2030, sensor-equipped, IoT-connected products will be the norm, providing OEMs the data and insights they need to make maximizing product uptime and delivering products-as-a-service a reality.
- Flexible consumption models fuel products-as-a-service. Manufacturers can no longer employ a ‘one size fits all’ approach. As consumers flock to usership over ownership, customers will expect the same business models in their place of work. Several industrial manufacturers like BAE, Caterpillar, GE, ABB and more have launched subscription models, and we can expect many more to follow suit in 2020. OEMs will have to adopt new technologies, infrastructure and business processes to meet these new demands.
- Technology will accelerate the shift to delivering products-as-a-service. Leading manufacturers have already recognized that accelerating the transformation to delivering products-as-a-service can only be accomplished if the core of their current service operations – service parts inventory and price management – are fully optimized. Flexible, scalable technology will be a key accelerator and enabler to selling products-as-a-service. Additionally, subscribers expect their equipment to be up and running at all times – putting previously unseen demands on manufacturers’ service organizations. Sophisticated service business transformation technologies, coupled with increasing data-transfer bandwidths (5G), IoT, artificial intelligence and Machine Learning, are paving the way for OEMs to facilitate predictive and prescriptive maintenance, optimize productivity and maximize product uptime more efficiently than ever before.
- Governments and customers will push for manufacturing to be more environmentally sustainable. The way we create value in business today is very linear: we use natural resources to build a product, sell that product into market and dispose of it at the end of its lifecycle. The circular economy, however, aims to reduce waste and the continual use of natural resources. Adidas, for example, has the Futurecraft Loop shoe where consumers return the shoe to Adidas once they have worn them out and the shoes are repurposed for future Loops. It’s inevitable that this same model will make its way to the manufacturing sector, as governments, consumers and Wall Street will all expect to more sustainable business practices in place.
2020 is set to be a huge year for manufacturing on both a micro and macro level. From the rise of “as-a-Service” business models to the increased focus on sustainability, manufacturers are poised for a watershed year. And with the right infrastructure and resources in place, OEMs cannot only “roll” with these changes, but ultimately turn them into strategic advantages.
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