James MacLennan
SVP & Chief Information Officer at IDEX Corporation
In the industrial manufacturing world, I’m seeing an interesting pattern develop. It comes up in strategic and tactical conversations with small, medium, and large sized firms, along various points in the value chain to the ultimate end customer. And the overriding pattern is “waiting to take the first step”.
Consider this typical Manufacturing Hierarchy; sophisticated components are put together to build complex systems, which populate large plants and drive huge processes. Or smaller, bespoke processes of high value – like a microbrewery, cooking up a wonderful selection of regional stouts, ales, and wits.
In our tasty little example**, the components manufacturer (ThermoCo) is building highly sophisticated thermostats. These are purchased as self-contained units by our system builder (UBrewCo), who puts together pumps, valves, meters, thermostats, actuators, and displays – along with some nicely formed sheet metal and other materials – to create a brewhouse (the “hot side” of a beer-making production line).
The end customer in all of this (SipperCo) is going to purchase a number of UBrewCo’s brewhouse systems, and set them up in a plant. And since SipperCo is branching out to a number of cities, they may want a series of manufacturing facilities set up – and will possibly contract with service provider (WeFixCo) for plant and asset management.
Now, when the urge to implement the Internet of Things strikes this industry, who might take the lead? ThermoCo has some electronics already on their devices, which are by all accounts a (the?) critical element in the overall system. But it’s tough for ThermoCo to grow share without introducing a significant new feature, so they want to differentiate by adding sensors, providing monitoring “in the cloud”, and delivering real-time predictive maintenance analytics to guarantee maximum uptime. Clearly, one might say, it makes sense for ThermoCo to build the solution – the “ThermoCloud”.
However (says conservative ThermoCo), it’s probably the system builder’s play. UBrewCo brewhouses incorporate a PLC controller that already hooks up to plant level monitoring systems. Thermocouple feels they just need to add sensors – but they need to wait until UBrewCo provides interface specs. And since UBrewCo controls the PLCs (reasons ThermoCo), they’ll probably be developing the monitoring and predictive stuff. It seems reasonable, then, the solution should be a “UBrewCloud”.
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Of course, UBrewCo also takes the opportunity to dodge the bullet; they are just one of many systems installed in SipperCo’s plants. Clearly (says pragmatic UBrewCo), it makes sense for a more holistic, plant-wide monitoring solution. Why, just think how much more accurate the predictive maintenance will be, when it takes so many inputs from so many components and systems? Obviously, the ultimate solution will be the “SipperCloud”.
Hold on (says focused SipperCo) – we are in the business of making tasty beers for thirsty people. We would expect our asset management subcontractors to have a system like that – it just makes sense, as they are doing the same basic service – monitoring systems and providing maintenance across many different manufacturing platforms. In the end, revenue from services is the big driver here – so it makes sense that we are talking about the “WeFixCloud”.
Our services company will have a say as well – WeFixCo points out that they are just the end user of all of this equipment. This is all predicated on adding COGs to these components and systems (sensors and communications), and WeFixCo has little control over product companies and their engineering plans. We are happy to help with the requirements (says busy WeFixCo), as we deeply understand the impact – but we are clearly not the ones to build this thing.
You may have noticed, by the way, that I skipped over the dealers and distributors that work with ThermoCo and UBrewCo – that is a whole side conversation, another dimension to complicate things. To be sure, they are a critical component of the value chain – delivering service and training, and typically the critical conduit for replacement parts. Why not address the challenge with “DealerCloud”?
The challenge here is real; I’ve sketched this picture out a number of times, and each time it is met with nods of agreement – this is apparently an intractable challenge, an immovable obstacle, a traffic jam at a crossroads. Everyone seems to be waiting for the next person to make the move. And everyone has a solid reason why it makes sense for someone, anyone, other than themselves, to make that initial investment.
It’s not the data …
One recurring theme: the real value is in the analytics and the value-added services built upon the data that is collected. And for many years, data has been collected, cleaned, stored, and processed in a number of different places along these types of value chains. But the problem of what to do with the data has always been there; creative analysts, armed with snazzy visualization libraries, waiting for an impactful question for their engaging answers.
In fact, there is a new, more interesting debate brewing (aiw) around data ownership. I am seeing a strong preference for the basic assumption, made by the purchaser, that data generated by these Smart, Connected Products is theirs alone. The manufacturer may have rights to use this data for value-added services, but those telematics are tied to the metal that made them.
Data ownership gets interesting when your business model switches from selling to leasing equipment (addressing the job-to-be-done), but that’s an entirely different post …
Start at the Value
We’ve already discussed how value is created for all participants in the value chain – manufacturers, distribution, and end customer. But who stands to gain the most when we deliver detailed operational data?
The component manufacturer (Thermoco) is after market share and vendor lock-in. Share growth is tough, because switching costs are high – but share gains generate predictable, healthy margins.
The system manufacturer (UBrewCo) is looking for differentiation and market share, plus possibly service revenue – two different ways to grow the top line.
The end customer (SipperCo) wants reduced downtime and higher availability of their manufacturing processes. They are not in the systems business, they are here to make beer – at high quality and lowest cost.
The asset manager (WeFixCo) is all about leveraging resources across multiple plants. Over time, this could develop into a differentiated-level-of-service offering that competitors could not match – but in the short term they’re probably just looking to cut their costs.
So even though benefits accrue for everyone, the most impactful value seems to be with component and system manufacturers – the folks that make the equipment. Revenue growth can be more compelling than cost-cutting, especially when significant process change and/or infrastructure build is required. Many, therefore, look to the equipment manufacturers to make the leap; they are the ones that can add the sensors in the most economical manner.
One powerful tactic here would be partnering; component and system manufacturers working together to spec in sensors, data collection, and communications. R&D costs could be shared, spreading the risk a bit; the bigger conversations will be around technology sharing and exclusivity. Yes, a few more complications, but finding a way to co-develop these new capabilities could break the inertia and get things rolling.
It’s All About the Plumbing
Of course, one could argue that eventually, all participants in this value chain will get there in the end. Ubiquitous data availability, universal monitoring, and predictive maintenance down to the component level will be, at the end of the day, table stakes; everyone will have it, and true differentiation will be in the services provided.
So what is the value of being a first mover? Remember that underneath all is the data – and the APIs required to see it, move it, and share it. If your firm can take a significant part in defining the formats, standards, even the storage of the data in your particular market ecosystem, you can have a strong voice in the eventual definition of the industry standard.
The long-term value for anyone and everyone in the value chain is open access to the data; you won’t make money charging for data, you will survive and thrive only by leveraging that data. Especially in the early days, anything built that is “customer facing” (apps, services, web sites, etc.) and revenue-generating is temporary at best. It’s critical to focus on the use of the data, and the free-flow of data through the pipes between the members of the value chain.
If you really want to have a say in that, have any level of control over that conversation, best to get involved early. And there’s nothing earlier than “first mover”.
What about Distribution?
The dealer / distributors present in many industrial value chains have a say here as well – they are typically data savvy, focused on smooth transactions at scale, and very interested in making things “sticky” between themselves and their customers. In addition, Dealers can clearly benefit from incremental volume plus the increased service and training demand that can come from a better informed end customer. Dealer / distributors can and should be looked at as the connecting glue that can broker, participate, even lead conversations around investment, technology, and implementation.
Next Steps
I am having a lot of fun working these issues in a number of industrial markets and niches – and every one has a unique story, and a different “best approach”. There is no one “best practice” for answering this question – just examples from other value chains, and imaginative conversation to find that riff that makes the most sense for your particular value chain.
I’ve got plenty of “beer conversations” stories to share … drop me a line and let’s talk!
Also posted on cazh1.com; check out this series of posts on IOT Field Notes
