Time to supercharge UK manufacturing performance
Originally published in the July/August issue, Steve Martin, Head of the Glass Sector, Siemens UK & Ireland, outlines how the company is realigning its market proposition towards a service-based offer to help manufacturing customers better meet the challenges of global competition, embrace the benefits of a digitised future, make superior strategic investments and improve cash flow and profits.
UK manufacturers are facing a new challenge. How do they transform their businesses internally and externally to deliver new experiences to their customers that will not only satisfy them, but, ultimately, delight them! If companies are able to achieve this outcome, they will deliver a step change in their competitiveness, revenues and profits. The organisations who become more creative in their business models to enhance customer experience will be the future SME, FTSE100 or global player. These companies will form part of a new economy - the creative economy.
Globalisation is fundamentally increasing competition. This, in turn, puts pressure on price and results in reduced margins. Additionally, the three major input costs in the manufacturing process - utilities, labour and raw materials - are increasingly adding even more pressure to profits.
In addition, there is also the need to factor in the consumer demanding a signature or customised product with the latest technologies, rather than the mass produced item, and wanting it delivered more quickly and at the same price as the standard product. Such demands require manufacturers to have the latest technologies embedded and the ability to quickly upgrade their product otherwise they will likely lose orders.
KEY TO MANUFACTURING SUCCESS
The key areas to manufacturing success can be grouped into some core areas: agility, customisation, efficiency (quality, cost, delivery and culture) and digitalisation.
Manufacturers understand what they need to do internally in areas such as energy and operational efficiency. These are core activities which have been on their strategic agendas for many years, yet the success in reducing costs, improving delivery and quality has varied hugely due to factors including a lack of investment capital, the availability of skills to deliver effective programmes and the wrong culture set from the boardroom.
If a teacher was to grade the UK’s results in delivering against these areas, in general the response would be “could do better”. It is easy to see why this is. For most companies, cash and CAPEX is precious and it will always go towards investments which increase or protect revenue/EBIT such as R&D, sales & marketing, new production lines or maintaining facilities.
Digitalisation, however, is a new driver and is a hot agenda topic in the boardroom. Digital transformation is being added to many companies’ five year plans and is core to their strategies.
Business leaders appreciate its importance and they are aware of the benefits of the next industrial revolution – termed Industry 4.0. However, there is a problem. Gartner recently quoted that “by 2020 75% of companies will have digitally transformed their businesses, however, only 30% will deliver any business value to their customers or internal stakeholders through this transformation.”
In a recent survey from the ‘UK Manufacturer 2017’, UK companies said they are aware of digital and Industry 4.0 and want to implement it into their organisations. However, they don’t know how to start, what skills are required and what it will mean to their business, their supply chain and their customers!
As such, we believe this is the time to disrupt Siemens’ business model and move to a ‘Service Orientated Business Structure’ and develop new service offerings which will tap directly into the challenges outlined above and better support our customers.
We aim to facilitate processes that can unlock solutions to these challenges and we want to wrap these solutions into a service offer which is commercial and measurable. We also want to underpin these services with a payment plan that maximises the customer’s ability to control cash and profits. This would be Siemens joining the creative economy as well as delighting our valued customers.
A great deal of research has been conducted in the area of Advanced Services or ‘servitisation’ and the following statistics show the potential for this approach.
- “83% of UK manufacturing companies feel that servitisation would increase both their service and product revenues” (Manufacturing report 2017)
- “86% of 600 companies (end users and OEMs) across 13 countries felt moving from product and service orientated business models was a core part of their growth strategies” (Cisco Survey 2016)
- “64% of companies felt that servitisation would improve profitability by 13% in the next three years and by 19% in the next 10 years” (Cisco Survey 2016)
What does this new service-orientated model mean in practice?
In a classic approach the customer may want to install a new asset or production equipment on site to improve their competitiveness. They would raise the required capital via their CAPEX programme and procure from a machine builder (OEM) where Siemens would work on technology specification. The OEM would install the new asset on site with a standard warranty term and the end user is left to ensure the asset performs through its life.
In a ‘new world’, Siemens would sell a service to deliver an ‘outcome’ the end user wanted from the equipment through a period of time. Siemens would procure and install the required asset using financial support from Siemens Financial Services (SFS) and deliver a performance based service with the customer being charged a monthly operating or service fee. Siemens would supply the technology hardware, the digital infrastructure, the service.
What does this mean to the customer? The shift from CAPEX to OPEX makes customers more competitive, allowing them to spend on other strategic investments and improving their cash flow.
Imagine the possibilities, benefits and opportunities if the following models were on offer:
- Siemens Digital as a service
- Siemens Energy as a service
- Siemens OE as a service
- Siemens Software as a service
- Siemens Automation as a service.
The opportunities are endless provided they deliver outcomes which contribute to the success of the customer and their stakeholders.
As an example, a customer has a challenge to improve its EBITDA to 20% by 2020 (it’s currently 12%) and delight their stakeholders. Their problem is that they are at maximum utilisation based on current conditions and their current product mix is quickly becoming a commodity through increasing competition. This is reducing their ability to raise and control their price levels which are currently falling. The result is that their EBITDA is trending downwards. They also have increasing input costs so, whichever way they look, there is no good news. What options do they have to change course, transform their business and cause a disruption in their marketplace?
HELP AT HAND
For the companies who are attracted to the business value benefits a digitisation journey can deliver, but are unsure where to start, what skills to employ and what technology to invest in, don’t worry, help is at hand.
Siemens’ digital design team offers access to the data analysts, technology specialists and business consultants with the skills to underscore the holistic Siemens digital proposition. By adopting ‘Design Thinking’ methodology we will drive innovation, accelerate progress and, most importantly, derive an ‘outcome statement’. Design Thinking is a methodology used by designers to solve complex problems, and find desirable solutions for clients. This will illuminate what needs to be done to deliver true business value and provide the knowledge of what to do to get there, including the strategic investments necessary for success. We will collaborate with our customers and are in a unique position to offer the range of services that can deliver commercial solutions – and we can measure and fund them also.
Siemens is set to work with customers, their supply chain and stakeholders, taking them through an innovative, creative and systematic process to quickly unlock outcomes, ideas and solutions with disruptive power. For instance, the service could be a digital transformation solution through ‘Siemens Digital as a service’, or could be a combination of services to deliver the required outcomes.
We are on the cusp of a radical change across the manufacturing landscape where a combination of ambitious thinking, technological innovation and the adoption of new business models is an opportunity to supercharge UK manufacturing performance, drive productivity enhancements and underpin economic success.