2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
Microsoft Dynamics 365

2019 Manufacturing
Trends Report

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
Introduction
Since the start of the First Industrial Revolution, manufac-
turing has been the force pushing industrial and societal
transformation forward. Today, we’re in the midst of an-
other industrial revolution, as a new generation of so-
phisticated technologies is transforming manufacturing
into a highly connected, intelligent, and ultimately, more
productive industry. The manpowered shop floor of the
past is being replaced by smart manufacturing facilities
where tech-savvy workers, aided by intelligent robots,
are creating the products of the future.

In this Fourth Industrial Revolution, machinery is outfitted
with smart sensors to collect comprehensive, real-time
data; artificial intelligence enables superhuman produc-
tion efficiency and seamless quality assurance; blockchain
transactions significantly expand transparency and secu-
rity; edge computing assures nearly uninterrupted con-
nectivity; and impending 5G speeds allow for ever-larger
volumes of data processing from anywhere.

Modern manufacturers are no longer just makers, they
are the thread that connects the entire lifecycle of a
product, and to thrive in this modern environment, they
must increasingly rely upon technology to power break-
through innovations and drive more intelligent opera-
tions.

The following will explore six emerging trends in man-
ufacturing that we believe will help empower manufac-
turers to design more intelligent operations and increase
the speed of doing business.

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
Trends
                           4
               IT and OT converge
     IT systems merge with operational technologies

                           11
                 The rise of XaaS
       Manufacturers evolve their business models

                           24
           Intelligent manufacturing
Connected intelligent systems make manufacturing smarter

                           32
     Manufacturing technology evolves
   New technologies are revolutionizing manufacturing

                           40
Businesses adapt to an evolving workforce
         A new generation enters the workforce

                           48
       Living in the age of uncertainty
          Uncertainty puts strain on businesses

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
IT and OT converge
•   IT and OT converge
•   Businesses integrate new and legacy systems
•   Industrial IoT evolves
•   Businesses welcome cobots (collaborative robots)
•   Manufacturing goes green(er)

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
IT and OT
   converge

IT and OT converge                                                                      Executive summary
In the past, the management of industrial technology in manufacturing has been          The IT systems used for data-centric
divided between IT and operational technology (OT). Where IT provided top-              computing are being merged with the
down technology support for management and the back office, OT was built                operational technology (OT) systems
from the ground up, monitoring and controlling machinery, equipment, tools,             used to control and monitor processes
and assets.                                                                             and devices, creating smarter, more
                                                                                        efficient operations.
In this legacy role, OT has lived in a bit of a silo, where machines—manipulated
by human input—were programmed to perform very specific tasks. But in recent
years, advances in connectivity, big data, and the expansion of the Internet of
Things (IoT) have opened the door for a new breed of intelligent manufactur-            Highlights
ing technology that is impacting both IT and OT. Today, data-optimized smart            • There are projected to be 36.13
machines can receive input from a wide range of sources—from customer order               billion connected IoT devices by
data to production data—to enable more agile manufacturing, improve produc-               2021.
tion efficiency, and provide greater visibility into operational performance.           • Sales of collaborative robots
                                                                                          are projected to increase 159%
For the modern manufacturer, data is no longer just the purview of IT; from sup-          between 2018 and 2020.
ply chain management to the operations floor, data is now ubiquitous across the
organization. As data becomes unified across the organization, IT and OT can no
longer operate independently and, as a result, are converging.

This IT/OT convergence enables opportunities that have not been possible be-
fore. Through the integration of IT and OT data, business leaders can get access
to live dashboards that provide visibility across all parts of the organization. Con-
nected systems can communicate to detect unbalanced load flows and auto-
matically make corrections to prevent outages. Intelligent machines can identify          Advances in connectivity, big
faulty parts and select new assets to restore production. And with integrated             data, and the expansion of
controls, production management systems, and supply chain management sys-                 the Internet of Things (IoT)
tems that are integrated with other IT systems, manufacturers are able to intelli-        have opened the door for
gently route orders and automate work streams.                                            a new breed of intelligent
                                                                                          manufacturing technology.
Over the past several years, the trend towards IT/OT convergence has emerged
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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
across numerous industries, from
healthcare and transportation to de-
fense and utilities. As many of these
industries rely on heavy, expensive
equipment and highly specialized la-
bor forces, the merger has been slow
and tactful. But as technological ad-
vances in cloud-computing, remote
sensors, and connectivity improve,
it is becoming faster and easier for
manufacturers to integrate the man-
agement of industrial technology and
integrate new systems with their leg-
acy systems.

  In today’s world of
  connected, intelligent
  manufacturing, the
  convergence of IT and
  OT is an inevitability.

In today’s world of connected, intelli-
gent manufacturing, the convergence
of IT and OT is an inevitability, but that
does not mean this transition comes
without challenges. To start, IT and OT
teams must integrate independent
systems that were built and designed
separately. This means finding com-
mon ground to develop new infra-
structure and implementing protocols
that enable data sharing across sys-
tems.

Convergence also requires security
enhancements. For many manufac-
turers, their OT standards are propri-
etary and very specialized. In the past,
when these systems were set up as
independent, stand-alone tools, the
opportunity for a breach was some-
what limited due to the tightly defined
perimeters of the system. But as OT
systems become connected to wide-
spread IT communication networks,
the risk of a loss increases. As such,
businesses integrating the OT and IT
systems must implement well defined
standards that scale across their net-
work to ensure data and IP security.
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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
Businesses integrate                         2020, up from $5.1 billion in 2016.1 The
                                             increased availability has also driven
new and legacy                               down cost for IoT sensors. Between
systems                                      2004 and 2018, the average cost of
The migration to intelligent manufac-        a sensor dropped nearly 200% to an

                                                                                           44¢
turing does not mean starting with a         average cost of $0.44,2 making intel-
blank slate but rather effectively in-       ligent manufacturing more affordable
tegrating new technology within the          and accessible for manufacturers of
existing manufacturing environment.          all sizes.
And as new technology transforms
manufacturing into a highly connect-         As manufacturers migrate opera-
ed, intelligent, and ultimately more         tions to the cloud, companies that          Average cost of a sensor in
productive industry, businesses must         have invested heavily in on-premises        2018, nearly 200% less than
also find a way to enhance their legacy      platforms must wrestle with the chal-        the average cost in 2004.
systems to keep up with emerging, in-        lenge of leveraging these systems
creasingly sophisticated technologies.       while simultaneously migrating more
                                             functionality to the cloud. In coming
Integrating “dumb” machines with             years, more companies will embrace
“smart” machines starts with enabling        a hybrid data center model,3 where
data collection from those legacy ma-        on-premises legacy systems are de-
chines. Manufacturers are increasing-        voted to data and records functions
ly retrofitting existing equipment with      that require little customization—as
smart sensors that collect comprehen-        well as to storing information requir-
sive data in real time. This data can then   ing a higher degree of control and
be passed to execution, production           security4 —while those facets of a
planning, and ERP solutions to pro-          company’s operations that require
vide robust visibility into performance.     continuous adaptation will be divert-
                                             ed to the cloud. Doing so will allow
As more manufacturers seek to make           companies to reduce overhead costs
their legacy systems more intelligent,       related to IT, to take advantage of the
the market size for sensors and con-         flexibility and economies of scale af-
trollers has grown substantially and         forded by XaaS offerings, and to make
is projected to grow to $6.1 billion by      continued use of legacy systems.

                                                                                        Integrating “dumb”
                                                                                        machines with “smart”
                                                                                        machines starts with
                                                                                        enabling data collection
                                                                                        from those legacy
                                                                                        machines.

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
Industrial IoT evolves
                                                       The broad adoption of smart sensor
                                                       technology, connectivity improve-
                                                       ments, and advancements in cloud
                                                       computing have helped drive adop-
                                                       tion and evolution of Industrial IoT.
   Global IoT spend is                                 The Industrial IoT (IIoT) is poised to
   projected to reach                                  have a major impact on manufactur-
   $772 billion in 2018 and                            ing and the global economy, project-
   surpass $1 trillion in                              ed to create $15 trillion of global GDP
                                                       by 2030.5
   2020.

                                                                $15
                                                              trillion
                                                           IoT is projected to create $15
                                                          trillion of global GDP by 2030.

                                                       Global IoT spend is projected to reach
                                                       $772 billion in 2018 and surpass $1 tril-

Number of IoT connections                              lion in 2020. Manufacturers are pro-
                                                       jected to spend $189 billion on IoT

41+50+60+71+84+100
                                                       in 2018, the largest amount from any
worldwide (in billions)
                                               36.13

                                                       industry, with the primary focus on
                                                       manufacturing operations and pro-
                                                       duction asset management.6

                                                       The IoT has many applications in
                                                       manufacturing, from predictive main-
                                                       tenance to cloud-based artificial in-
                                                       telligence to machine learning, that
                                                       enable superhuman production effi-
14.87

                                                       ciency and practically seamless quality
                                                       assurance. Digitization is shifting the
                                                       landscape of traditional manufactur-
                                                       ing; we are only at the beginning of
                                                       this evolution, with many new oppor-
2016        2017       2018   2019    2020    2021     tunities ahead.
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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
“We want to build intelligence
  that augments human abilities and
  experiences.”
            -Satya Nadella, CEO, Microsoft

Businesses welcome

                                                                               3960+ 100+
cobots (collaborative                                                                Projected
robots)                                                                              sales of
With advancements in IoT, cloud
computing, and artificial intelligence     Cobots—collaborative by design—           collaborative                       150
has come advancements in manu-
facturing robotics. Initially developed
                                           are being used to augment human           robots
                                           labor rather than replace it. By taking
in 1995 through research grants from       on dangerous, physically strenuous,       worldwide
General Motors,7 cobots—collabora-         and repetitive tasks, these machines      (in thousands)
tive robots—are becoming a bigger          are making factories safer and more
part of the workforce. By 2025, Bar-       efficient for their human counterparts.
clays Equity Research projects the co-     And while many fear the loss of jobs

                                                                                                          90
bot market size will reach $12.23 bil-     due to automation,9 research sug-
lion, more than an 8x increase from        gests that AI will not only improve la-
2018 ($1.35 billion).8                     bor safety and work conditions, but it
                                           will actually add jobs to the market.10
The use of robots in manufacturing
is nothing new, but this new gener-
ation of cobots is not your average
                                           Innovations in robotics have made
                                           cobots more adaptable, compact,
                                                                                        58
machine. Today’s cobots are built with     safer, and more affordable. They are
artificial intelligence and machine        most useful when they’re powered
learning that power cognitive capa-        by AI and by people that can enable
bilities. These robots are able to use     their full potential. From startups to
computer vision to quickly inspect         global conglomerates, manufactur-
large quantities of items for flaws, au-   ers around the globe are realizing
tomate the transportation of mate-         increased productivity and reduced
rials throughout a facility, and avoid     costs by augmenting their human
hazards using predictive intelligence.     workforce with robot power.                2018              2019               2020

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2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
Manufacturing goes                          reduce the amount of waste, green-
                                            house gases, and other pollution
                                                                                      Forward looking manufacturers are
                                                                                      leaning on technology to reduce their
green(er)                                   created as byproducts of the manu-        environmental footprint. Cloud-based
More than ever, consumers and gov-          facturing process. Increasingly, manu-    collaboration tools, from shared-doc-
ernments are holding companies ac-          facturers are investing alternative-en-   uments to video conferencing, make
countable for the environmental im-         ergy sources, such as wind and solar,     it easier for teams to work together
pact of their offerings, and evidence       to power their operations, and using      from remote locations while reduc-
shows that they’re willing to pay for       recycled, recyclable, and reusable ma-    ing the need to travel. Companies are
it: a study by Nielsen revealed that        terials whenever possible.12              now deploying computer vision and
nearly three-quarters of all Millennials                                              smart sensors on the production line
and Gen Z would pay a premium for                                                     to improve efficiency, detect hazards,
sustainable products and services.11          Nearly three-quarters                   and reduce waste. And blockchain
As green business practices move              of all Millennials                      technology is proving a valuable tool
from the realm of moral imperative                                                    in ensuring the source and efficacy of
to economic driver, more and more
                                              and Gen Z would
                                                                                      raw materials.
manufacturers are taking concrete             pay a premium for
steps towards becoming environmen-            sustainable products                    Many large companies, from Tesla
tally conscious. This “greening” of the       and services.                           Motors and Method Soap to Apple
factory floor is happening in several                                                 and Proctor & Gamble, have all made
ways.                                                                                 commitments towards greener, envi-
                                            Many companies are also conducting        ronmentally sustainable practices. At
Manufacturers are optimizing their          lifecycle assessments of their products   Microsoft, we are proud to be a lead-
facilities and production processes to      to evaluate the environmental impact.     er in this area. We have been oper-
reduce their overall energy consump-        This includes everything from packag-     ating at 100% carbon neutrality since
tion. This includes steps like installing   ing design to reduce waste, product       2012 and even though our datacenter
energy-efficient heating and cooling        design to reduce harmful materials        are already 100% powered by renew-
systems and lighting. Improvements          and improve recyclability, and the use    able energy sources, we continue to
in energy consumption not only re-          of lean manufacturing practices to        work to improve our energy sourcing.
duce environmental impact, but they         make production more efficient and        Additionally, we continue to invest in
also reduce costs.                          environmentally friendly by reducing      new energy technology, from biogas
                                            storage and material-management           to fuel cells, to accelerate the avail-
Companies are also taking steps to          demands.13                                ability of new types of clean energy.

   Improve operations
   To compete in today’s fast pace environment, manufacturers must work faster and smarter. At Microsoft, we are
   empowering manufacturers to do more with tools that streamline processes, provide greater visibility into operations,
   and deliver actionable insights.

   Streamline operations                    Get greater visibility                    Be more proactive
   To meet rising customer demands,         To effectively guide their organiza-      To grow their businesses, manufac-
   modern       manufacturers      must     tions, manufacturers require visibili-    turers must look beyond the past
   streamline operations to provide         ty into all areas of their business. By   and into the future. Microsoft em-
   greater transparency, improve de-        combining unified data in the cloud       powers leaders with tools to help
   livery times, and build better prod-     with powerful data visualization tools,   them identify emerging trends,
   ucts. From productivity tools, like      like Power BI, Microsoft provides         predict outcomes, and automat-
   Office 365, to intelligent automa-       manufacturers with a single source of     ically optimize workflows. This al-
   tion capabilities in Dynamics 365,       visibility into their operations—from     lows manufacturers to become
   Microsoft is helping manufacturers       the shop floor to transaction data—       less reactive and more proactive
   operate more effectively and effi-       so they can make more informed de-        with their business strategies and
   ciently.                                 cisions.                                  operations.

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The rise of XaaS
•   The new X-economies
•   The Servitization of Manufacturing
•   Manufacturers re-evaluate their value chain
•   Manufacturers move from B2B to B2B2C
•   Brands go direct-to-consumer
•   The gig and sharing economies grow
•   On-demand and micro-manufacturing go mainstream

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                                               Page 11
The rise of XaaS

The new X-economies                                                                  Executive summary
Millennials, burdened by high unemployment, low wages, and high debt, have           Driven by growth of the IoT and the
rapidly embraced new business models that offer them the latest products with        cloud, many organizations are moving
greater flexibility and lower costs. In today’s market, startups have led the way    from product models to service models,
with these new offerings, but manufacturers—either through acquisitions or           giving their customers more options
internal development—are beginning to evolve their business models to the            with greater flexibility.
needs of the modern consumer. These models fall into one of a few categories:

On-demand services
Projected to grow to nearly $57 billion in 2018, on-demand services represent        Highlights
perhaps the largest of these categories.14 A model popularized greatly by Uber,      • On-demand services are projected
on-demand businesses are launching for just about every category imaginable,           to grow to nearly $57 billion in
from printing and dog walkers to babysitters and massages. While many of these         2018.
businesses are service based, the growth in on-demand services has also driven
                                                                                     • By 2021, 20% of G2000
growth in on-demand and micro-manufacturing.
                                                                                       manufacturers will depend on
                                                                                       technologies like IoT, blockchain,
Sharing economy                                                                        and machine learning to automate
The sharing economy—where consumers “share” products and services directly             large-scale processes.
instead of purchasing via a retailer or distributor—is another business model that
has grown in popularity over the last several years. Perhaps the most commonly       • 3.9 million people regularly worked
known example of a sharing economy business is Airbnb, where travelers can             in the gig economy in 2017; by
rent homes and rooms directly from other individuals. The sharing economy              2021, that number is projected to
is projected to grow to 86.5 million U.S. users by 2021, up from 44.8 million in       reach 9.2 million.
2016.15 While the sharing economy helps reduce waste, it also poses a threat to
manufacturers, as consumers may opt to “borrow” goods opposed to buying
new products. As such, manufacturers are being forced to re-evaluate their busi-       The sharing economy
ness models to participate in this new economy.
                                                                                       is projected to grow to
Subscription box services                                                              86.5 million U.S. users
Subscription box services have become incredibly popular due to their highly           by 2021, up from 44.8
targeted nature and ease of use. They also present a unique opportunity for            million in 2016.
manufacturers to sell direct to consumers. Companies like Birchbox, ClubW,
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                                                           Page 12
Stitch Fix, and NatureBox are just the                     two decades later, a new set of on-
tip of the iceberg when it comes to                        line consignment stores has emerged           While XaaS has
the subscription box market, which                         to help streamline this process. Sites
                                                                                                         historically referred to
now provides services for dogs own-                        like thredUP, Swap, and TheRealReal
ers, coffee lovers, mountain climbers,                     allow shoppers to sell and purchase           cloud computing, it is
gold miners, and sock enthusiasts.                         used clothes, jewelry, toys, and luxury       increasingly being used
                                                           fashion accessories online. Similar to        to define all service-
                                                           the sharing economy, online consign-          based business models.

          $57
                                                           ment stores pose a unique threat to
                                                           manufacturers, and a unique oppor-
                                                                                                       cloud; however, Platform as a Service
                                                           tunity for those willing to think differ-
                                                                                                       (PaaS) and Infrastructure as a Service
                                                           ently about their business models.
                                                                                                       (IaaS) models have also gained trac-
                                                                                                       tion as a way for technology compa-

         billion
                                                           XaaS
                                                                                                       nies to expand their footprint.
                                                           As cloud computing becomes more
                                                           ubiquitous, Anything as a Service
                                                           (XaaS) business models are also be-         While XaaS has historically referred
        Projected size of the on-                          coming more popular. The principle          to cloud computing, it is increasingly
       demand economy in 2018.                             behind XaaS is that businesses can          being used to define all service-based
                                                           provide better, more cost-effective         business models, from Manufacturing
                                                           solutions to customers via subscrip-        as a Service and Product as a Service
                                                           tions or pay-as-you-go models than          to Transportation as a Service (Uber
Online consignment                                         via traditional software licensing mod-     and Lyft) and Shopping as a Service
When eBay and Craigslist launched in                       els. The most commonly known XaaS           (Trunk Club and Stitch Fix). Regardless
the mid-1990s, they provided individ-                      model is Software as a Service (SaaS),      of what you call it, it’s clear that cus-
uals with the opportunity to use the                       which provides individual software          tomers’ needs are evolving and busi-
internet to sell used goods. Nearly                        applications and services through the       nesses must adapt accordingly.

Sharing Economy Users and
Penetration, 2016-2020

52+6577+ 85+ 94+ 100+
                 (millions and % of adult internet users)
 Adult sharing economy users   % of adult internet users

                                                                                                                                          86.5
                                                                                                               81.2
  80
                                                                                           73.7
  70                                                                 66.3
  60                                             56.5
  50
                44.8
  40

  30                                                                                                             36%                        38%
                                                                                            33%
                                                                      30%
  20                                               26%
                  21%
  10

   0
                 2016                             2017                2018                  2019                 2020                      2021

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                                                                             Page 13
The Servitization of                        creasingly leverage technology to im-
                                            prove operational efficiencies, reduce
                                                                                        Manufacturing as a Service
                                                                                        While contract manufacturing has
Manufacturing                               waste, and support lean production          always been a service, digitization is
Manufacturing has long been driven          initiatives.                                changing the way products are de-
by a push for engineering excellence                                                    signed and the way contract man-
and operational efficiency, and over the    Today, with a market full of feature-sat-   ufacturers produce those products.
last decade, this push has accelerated.     urated products and costs cut down to       These changes have led to the ex-
Lower cost of entry and new technolo-       the bone, manufacturers are shifting        pansion of Manufacturing as a Ser-
gy has pushed companies to compete                                                      vice, where businesses can leverage
                                            to a more customer-centric approach,
on product features and functionality.                                                  a shared network of manufacturing
                                            exploring new service-based business
One needn’t look farther than the avail-                                                infrastructure—from machines and
                                            models to build value and grow rela-
ability of Bluetooth-enabled devices to                                                 maintenance to software and net-
                                            tionships with customers in a modern,
see this trend in action. Today, there                                                  working—to produce goods.
                                            connected world. Adding services to
are nearly 2.6 million Bluetooth hear-
                                            their portfolios allows manufactur-
ing aids,16 168 million Bluetooth head-                                                 In practice, this service may be a sin-
                                            ers to differentiate their offerings and
sets,17 and 87 million Bluetooth-en-                                                    gularly managed network of manu-
                                            gain a competitive edge in a rapidly
abled automotive devices worldwide.18                                                   facturing equipment or a network of
                                            changing industry.

You can get a Bluetooth-enabled                                                         self-managed manufacturers. With a
toaster,19 floss dispenser,20 egg tray,21                                               singularly managed network, a cus-

                                                       $6
water bottle,22 fork,23 trash can,24 and                                                tomer can send an order for a part,
even Bluetooth-enabled belts that can                                                   including appropriate design files and
charge your smartphone.25                                                               specs, and based on workload, mate-
                                                                                        rials, workforce availability, location,
In conjunction with the race for new                                                    and scale, the network will dynamical-
features, the growth of online retail—                                                  ly route the order to a given facility,
driven by Amazon—has shrunk mar-
gins and led to cost-cutting efforts.
The pressure to cut costs has made
                                                   billion                              or set of facilities, to most efficiently
                                                                                        fulfill the request. The customer may
                                                                                        not even be aware of the routing, but
its way upstream, with manufactur-             Cost of a new semiconductor              they will get the benefits of faster,
ers being pushed to deliver products                 fabrication plant.                 more cost-effective production.
faster, for less. This has led to some
“Bluetooth-enabled belt-tightening”                                                     With manufacturer networks, such
(pun intended), as manufacturers in-                                                    as Dassault Systemes’s 3DExperience
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                                                            Page 14
Marketplace,26 customers can re-
search and submit projects to in-net-
work manufacturers using a standard-
ized set of files. The manufacturers
can then automatically review the
designs—including the geometrics,          faster, less expensive prototyping,
the pathways cutting-tools will be         helping manufacturers better balance
required to make, and the materials        workloads, and opening doors for
needed—and provide fast, precise           manufacturers who may not other-
quotes to prospective customers. This      wise have access to bid on individual
cuts both the administrative burden        projects.                                   Percent of top 100
as well as the manufacturing costs.                                                  manufacturers who will
                                           Product as a Service                       provide Product as a
With faster speeds and lower costs,        As manufacturers shift to become
Manufacturing as a Service is having
                                                                                      Service platforms by

                                                                                     40+60+J
                                           more customer-focused, many are
a significant impact on R&D, innova-       adopting Product as a Service busi-          the end of 2018
tion, and prototyping. This impact is      ness models to better support their
highlighted in certain industries that     customers’ needs. In Product as a
require high-tech manufacturing ca-        Service business models, the physical
pabilities, such as those in a semicon-    products, software, and support are
ductor fabrication plant (fab). New

                                                                                                40%
                                           delivered as a service or virtualized
fabs cost upwards of $6 billion.27 This    experience, and the buyer no longer
cost of entry is completely unafford-      takes ownership of a physical product.
able for many companies looking to
enter or grow in this space; however,      Product as a Service is nothing new—
manufacturing fab companies, like          in fact, the automotive industry has
TSMC, now offer services to do the         been offering Product as a Service
chip manufacturing for “fabless” com-      through comprehensive leasing pro-           Discrete manufacturers
panies.28 The availability of these man-   grams for decades. In a more modern

                                                                                     20+80+J
ufacturing services—coupled with the       Product as a Service model, BMW is
opportunity to design and iterate new      offering their cars as an on-demand
chips at a lower cost—has spawned          service through their ReachNow pro-
the development of new chip design         gram. New technology is evolving
companies and many innovations             and advancing how manufacturers
in the space. Like many other XaaS

                                                                                                20%
                                           are offering Products as a Service, and
business models, Manufacturing as a        based on some early projections, up-
Service helps businesses move mon-         wards of 40% of the top 100 discrete
ey from CAPEX to OPEX, freeing up          manufacturers and 20% of top 100
capital for investment in research and     process manufacturers will provide
development, marketing, and sales.         Product as a Service platforms by the
                                           end of 2018.29
There are many other benefits to the                                                    Process manufacturers
Manufacturing as a Service business        There are three primary drivers ele-
model, including but not limited to        vating Product as a Service business
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                                                           Page 15
models in manufacturing. The first
is easier data collection, enabled by
improvements in sensor technology.
Sensors have become smaller, more
powerful, and less expensive—pro-
jected to reach an average cost of
$0.38 by 2020, down from $1.30 in              their data, process information fast-
2004.30 With these changes, the mar-           er, and intelligently automate actions.
ket size for sensors and controllers has       Furthermore, modern advancements
grown substantially and is projected           in computer processing now enable
to increase to $5.6 billion in 2018.31         these functions to run at a scale, which
The adoption of sensors has driven             was not previously possible. It can in-
                                                                                           The sensors and
easier and more robust data collec-            form product development, improve
                                               sales, and enhance customer support.        controllers market is
tion. When embedded into products,
these sensors provide manufacturers                                                        projected to increase to
with near real-time feedback about             The third driver is the intersection of     $5.6 billion in 2018.
product usage. They can also be used           hardware and software. As products
to collect better data from across the         become more intelligent and connect-
value chain and manufacturing oper-            ed, it becomes harder to distinguish
ations.                                        the product from the technology on
                                               which the product runs—particular-
The second driver has been better              ly the software. The convergence of
connectivity and computer process-             hardware and software ties the on-
ing through the cloud. While manu-             going use of the product directly to
facturers were certainly able to collect       the manufacturer, as customers may
product and operations data before,            become reliant upon the manufactur-
the cloud has enabled them to more             er for software support and updates.
easily unify data from across all touch        This provides manufacturers with
points within the value chain. Coupled         an excellent opportunity to build an
with artificial intelligence and machine       ongoing relationship with customers
learning, this unification allows them         over the lifecycle of a product, includ-
to gain more profound insights into            ing augmenting products with digital

  Average cost of IoT sensor
  $1.50
                  2004 average cost: $1.30
  $1.25   $1.30

                      $1.11
  $1.00
                              $0.95
  $0.75                               $0.82
                                              $0.70
                                                                $0.51
                                                       $0.60
  $0.50                                                                   $0.44
                                                                                   $0.38

  $0.25                                       2020 average cost forecast. $0.38

  $0.00
          2004        2006    2008    2010    2012    2014     2016      2018     2020

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                                                               Page 16
services, providing support, and en-        (MaaS), Maintenance as a Service
abling new functionality to old prod-       (MAaaS), and Integration as a Service
ucts through over-the-air software          (INTaaS). Diversifying offerings in this
updates.                                    way is a key benefit for manufacturers
                                            that embrace service-oriented mod-
Digital services                            els. Acronyms aside, one thing seems
As technology, such as IoT, artificial      clear: the future of manufacturing lies
intelligence, and machine learning,         in customer-centric manufacturing
provides manufacturers with greater         services.                                     XaaS
visibility into their products and oper-                                                  Design as a Service
ations, they are leveraging this infor-     Challenges                                    Experimentation as a Service
mation to build digital services—such       While these service-based business            Equipment as a Service
as predictive maintenance—that will         models bring many opportunities for           Simulation as a Service
augment their other manufacturing           manufacturers, they don’t come with-          Management as a Service
and product services.                       out their challenges. To start, many of       Maintenance as a Service
                                            these services require a high degree          Integration as a Service
ThyssenKrupp, a German multina-             of flexibility to execute. And as many
tional conglomerate and the world’s         manufacturers have gone to lean
fifth-largest elevator company,32 drew      manufacturing extremes, they have           the phone is useless absent the soft-
upon IoT technology to connect its          done so at the cost of flexibility. Thus,   ware, the customer does not “own”
elevators to the cloud. Data collected      to deliver these services, they must        this software.
from an elevator’s sensors allows al-       restructure both operations and staff.
gorithms to process that information                                                    This lack of ownership may not seem
and predict when maintenance is re-         As these customer-centric approach-         like a huge deal for products with rel-
quired—before the elevator breaks           es drive greater customization and          atively short purchase cycles, but as
down.33 This predictive maintenance         personalization—such as with engi-          expensive, highly-customized indus-
is further enhanced by the use of           neered-to-order or configured-to-or-        trial products become indistinguish-
augmented reality, with elevator tech-      der products—manufacturers must             able from the software on which they
nicians utilizing Microsoft HoloLens        manage a growing volume of SKUs.            run, there is a debate brewing around
to receive remote, hands-free in-           This presents unique challenges in          the ownership of these products in
structions from experts while they’re       many different areas, from supply chain     two areas. The first is around warran-
in the field. Initial field trials showed   management to support. As standard-         ties. If someone made modifications
that elevator technicians were able to      ization decreases and product com-          to their car engine, it is reasonably un-
fix problems four times faster using        plexity increases, manufacturers must       derstood that these alterations would
HoloLens technology than without            ensure they have the right talent in        void any manufacturer warranty. But
it.34 By outfitting competitor elevators    place to handle production and sup-         this line becomes blurred as individ-
with their sensors, ThyssenKrupp has        port, an area where there are already       uals seek to modify the software run-
been able to extend this service of-        constraints due to existing skill gaps.     ning their products to help customize
fering beyond their existing customer                                                   functionality. Secondly, by retaining
base, further enhancing their compet-       An additional concern lies in the own-      tight control over the software, it holds
itive edge.                                 ership of products and intellectual         customers hostage to the manufac-
                                            property (IP). Since 1998, manufactur-      turer, making them dependent upon
In addition to Manufacturing as a           ers have cited the Digital Millennium       future updates lest risk their multimil-
Service, Product as a Service, and          Copyright Act—a far-reaching copy-          lion-dollar investments be rendered
the digital services discussed above,       right law that governs the intersec-        obsolete, not for non-functional me-
cloud networked manufacturing               tion of hardware and software—for           chanics but because of poorly func-
opens up a broad range of services          guidance on addressing such issues.         tioning software. As the line between
for manufacturers to explore, includ-       For example, the DMCA allows man-           software and hardware continues to
ing but not limited to Design as a          ufacturers to stipulate that a user who     blur, manufacturers and consumers
Service (DaaS), Experimentation as a        buys a smartphone is technically pur-       will need to establish a balance that
Service (EaaS), Equipment as a Ser-         chasing the hardware and a lifetime         allows for both parties to maintain
vice (EaaS), Simulation as a Service        license to use the phone’s operating        appropriate levels of ownership and
(SIMaaS), Management as a Service           system software. Despite the fact that      control.
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                                                            Page 17
Manufacturers re-
evaluate their value
chain
Consumers don’t differentiate be-          by converting their retail stores into
tween manufacturers, brands, prod-         mini-fulfillment centers, which allows
ucts, and resellers; to them, the prod-    them to cut down on fulfillment time
uct and the brand experience are           and avoid the expense of building

                                                                                           50+50+J
one and the same. If a product fails,      new distribution centers. Rethinking
it reflects poorly on the brand. The       fulfillment centers and distribution has
customer doesn’t know or care that         the added bonus of offering greater
the cause of the failure was a bro-        visibility into inventory availability—
ken part that was manufactured by a        something customers increasingly ex-
third-party supplier. And if a customer    pect. In 2017, 58% of consumers said
has a poor support experience or a
service disruption due to the failure of
an externally managed software ven-
                                           they expect to be able to see a prod-
                                           uct’s inventory levels online, and if an
                                           item is out of stock, they expect infor-
                                                                                                     50%
dor, their grievance will not be with      mation about when it will be back.36
the vendor; it will be with the compa-     This requires businesses to track in-
ny whose name is on the product.           ventory across its entire journey, from
                                           the moment it leaves a manufactur-
                                                                                            Percent of customers who
A customer’s brand sentiment comes         ing facility to its arrival at a fulfillment
                                                                                          said they would switch brands
from their entire experience across        center to the second its delivered to a
                                                                                          due to a negative experience.
the purchase lifecycle and lifespan of     customer’s door.
the product, so manufacturers must
ensure excellence at every touch           The pressure to perform is forcing
point. For example, efficient, transpar-   businesses to seek tighter control
ent shipping is a key selling point for    over their value chain, creating great-
many of today’s consumers. Accord-         er accountability and helping to en-
ing to a recent study conducted by         sure that demands are met. To help
Temando, 49% of customers expect-          meet the needs of their customers’
ed hyper-local delivery, and 59% of        customer, manufacturers must obtain
shoppers would opt to purchase an          visibility into their own supply chain,
item from a brick-and-mortar store         as well as have systems and processes
if the online competitor’s shipping        in place for sharing this information
fees were too high. Perhaps most           with their business partners. Many
important, 73% of customers were           companies have begun pursuing ver-
brand loyal if they had a positive ex-     tical integration to gain greater con-
perience—and 50% said they would           trol over the parts and processes that
switch brands if they had a negative       go into their end products. This allows
experience.35                              them to directly shape the consum-
                                           er experience and better manage all
Taking greater control of distribution     touch points. Though challenging,
allows manufacturers to have a more        this shift presents companies with the
direct hand in creating a positive cus-    opportunity to prepare for the future,
tomer experience. One way business-        improve the customer experience,
es are taking control of distribution is   and decrease costs.
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                                                             Page 18
By leveraging technology to get closer to the
end user, manufacturers can improve future
iterations of the product, create a better user
experience, provide superior service, and
improve sales.                                              Manufacturers move
                                                            from B2B to B2B2C
                                                            The shift to a customer-centric ap-
                                                            proach doesn’t just apply to those
                                                            who manufacture final products but
                                                            also to businesses across the supply
                                                            chain, from raw materials suppliers to
                                                            parts manufacturers, who must now
                                                            consider the needs of the end user
                                                            and how their services impact the cus-
                                                            tomer experience. To do this, modern
                                                            B2B businesses must understand the
                                                            end customer’s journey—from dis-
                                                            covery to purchase to service.

                                                            While these shifts have yielded clear
                                                            benefits for consumers—greater
                                                            transparency and better service—
                                                            they introduce new challenges for
                                                            traditional B2B businesses, because
                                                            in order to better serve the end cus-
                                                            tomer, these companies must gath-
                                                            er more information about the end
                                                            user—something historically reserved
                                                            for the B2C businesses with which the
                                                            customer directly interacted.37

                                                            Fortunately, the IoT introduces new
                                                            opportunities for manufacturers to
                                                            gain insight into how their products
                                                            are being used. With very little ef-
                                                            fort, modern manufacturers can learn
                                                            which product features are used the
                                                            most, which features are not utilized,
                                                            where users are getting stuck during
                                                            their interaction with the product,
                                                            where the product is failing to ful-
                                                            fill needs, where problems are likely
                                                            to arise, and whether consumers are
                                                            using a product in ways that it wasn’t
                                                            originally intended. By leveraging
                                                            technology to get closer to the end
                                                            user, manufacturers can improve fu-
                                                            ture iterations of the product, create a
                                                            better user experience, provide supe-
                                                            rior service, and improve sales.
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                                                  Page 19
Brands go direct-to-
consumer
In order to pursue bigger profit mar-
gins and retain control of the custom-
er experience, some manufacturers                                                                                  Having achieved a valuation of $1.2
                                                                                                                   billion, eyewear manufacturer War-
are bypassing traditional retail chan-
                                                                                                                   by Parker has succeeded with di-
nels and going straight to the con-
                                                                                                                   rect-to-consumer (D2C) sales, initially
sumer. Cutting out the middleman                                                                                                                                                                                                              year after their first subscription, and
                                                                                                                   via e-commerce platforms and now
allows brands to build relationships                                                                               with physical locations as well.39 Major                                                                                   was purchased for $1 billion by Unile-
with customers and collect more ac-                                                                                multi-channel brands Nike and Adi-                                                                                         ver in 2016.43 To compete with Dollar
curate data. This shift, in turn, enables                                                                          das have doubled down on their D2C                                                                                         Shave Club and online market com-
manufacturers to develop more per-                                                                                 efforts. Nike announced a new com-                                                                                         petitor Harry’s, Gillette recently initiat-
sonalized experiences, something                                                                                   pany alignment, the Consumer Direct                                                                                        ed its own shaving subscription club,
that 75% of customers prefer.38                                                                                    Offense, that includes the creation of                                                                                     Gillette On Demand. The new service

      75+25+J
                                                                                                                   a Nike Direct organization, which will                                                                                     allows customers to order refills via
                                                                                                                   strategize ways to deepen one-to-                                                                                          text.44
                                                                                                                   one relationships with customers.40
                                                                                                                   In 2016, Adidas launched Avenue A,                                                                                         Since the cost of entry is minimal,
                                                                                                                   limited-edition boxes that ship curat-                                                                                     the marketplace is already saturated
                                                                                                                   ed selections of women’s apparel and                                                                                       with subscription services; as of ear-

                        75%
                                                                                                                   footwear to subscribers.41                                                                                                 ly 2018, subscription box aggregator
                                                                                                                                                                                                                                              My Subscription Addition indexed
                                                                                                                   Direct-to-consumer subscription ser-                                                                                       roughly 3,000 boxes.45 And now, even
                                                                                                                   vices have grown significantly in pop-                                                                                     major retailers—including Starbucks,
                                                                                                                   ularity; visits to subscription-box web-                                                                                   Amazon, Macy’s, Walmart, and Nord-
                                                                                                                   sites increased 890% between 2014                                                                                          strom—are joining in with their own
                                                                                                                   to 2018.42 Arguably one of the most                                                                                        subscription box services. To succeed
          Percent of customers                                                                                     successful D2C practitioners is Dol-                                                                                       in this sector, subscription services
         who prefer personalized                                                                                   lar Shave Club. The men’s grooming                                                                                         must feature an offering that has the
              experiences.                                                                                         company disrupted its sector, retain-                                                                                      ability to surprise and satisfy custom-
                                                                                                                   ing nearly half of its customers for one                                                                                   ers on a recurring basis.

50,000,000

                                                                                                                                                                                                                                              U.S.
40,000,000

                                                                                                                                                                                                                                              Subscription
30,000,000

                                                                                                                                                                                                                                              Box Industry
20,000,000

                                                                                                                                                                                                                                              Total Monthly
10,000,000

0

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                                                                                                                                                                      Page 20
The gig and sharing                        world, and companies like Airbnb and
                                           Uber used mobile applications to rad-
economies grow                             ically disrupt their respective indus-
The proliferation of digital platforms
and technology has made the gig
                                           tries.50                                  The gig economy’s
economy more feasible and appeal-          The gig economy poses a unique chal-      size of employed
ing to an increasing number of peo-        lenge for traditional businesses. Cor-    (in the U.S.)
ple. Thirty-six percent of the Amer-       porations need to figure out how to                                               15.8%
ican workforce is now freelancing;46       effectively engage and manage a re-
workers are choosing the flexibility       mote portion of the workforce, as well
of freelance work over the tradition-      as determine how to securely grant
al perks of a nine-to-five job (such as    access to internal systems.51 There are
paid time off, healthcare benefits, and    also concerns that a company’s cul-                              10.1%
retirement packages).                      ture will suffer if there are too many           9.3%
                                           freelance workers in the environment.
Intuit estimated that 3.9 million peo-     However, there are substantial bene-
ple regularly worked in the gig econ-      fits for businesses who utilize the gig
omy in 2017, and by 2021, they project     economy.
that number will reach 9.2 million.47
Forty-one percent of people partici-       Freelancing offers corporations a
pating in the gig economy also have a      more flexible and affordable means of
part-time or full-time job, with the ex-   hiring talent, especially if the compa-
tra hours they gain being used to sup-     ny is only looking to fill a temporary
plement income.48 One common mis-          need. In 2017, Samsung decided to
conception is that the gig economy is      experiment with using Upwork to sat-
                                                                                       1995             2005             2015
solely powered by Millennials. While       isfy needs for quick turnaround proj-
they currently make up the largest         ects. This resulted in 60% cost savings
share of the gig economy workforce,        and reduced administrative time by
a recent survey by Payoneer reported       64%.52 Despite this, most companies
that one in three U.S. gig workers was     still are not fully embracing freelance
over the age of 50.49                      workers, with a recent Ernst & Young
                                           study finding that only 17% of global
None of this would be possible with-       corporations’ workforce was contin-
out rapid advances in technology.          gent.53
Cloud-based platforms make it pos-
sible for remote workers to connect        In its Global Corporate Sustainabil-
with employers from anywhere in the        ity Report, Nielsen found that 66%
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                                                           Page 21
a+00+3836252920111358524233322624142165
                       0+
                                           Build greater customer loyalty
                                                                                                             On-demand and
                                                                                                             micro-manufacturing
           Target new customers with more effective digital campaigns

                                           Increase customer satisfaction

                           Increase order values (e.g., cross-sell/up-sell)                                  go mainstream
                Reduce customer churn with more effective experiences                                        The growth in on-demand and mi-
                                              Increase conversation rates                                    cro-manufacturing has been driven by
                              Reduce marketer effort in personalization                                      decreases in the cost of 3D printing,
  Increase relevancy of the brand experience; increase brand relevancy                                       a demand for personalization, and a
                                                                                                             growing demand for artisan goods in
                                                                                                             a world of mass-produced products.

Primary goals of                                                                                             The advent of e-commerce redefined
                                                                                                             the customer experience, allowing
personalization                                                                                              consumers to view and compare a
                                                                                                             wider variety of products than ever
 Primary goal    Secondary goal    Tertiary goal                                                             before. Today, consumers expect
                                                                                                             products that are not only custom-
of consumers are willing to spend                                launched in 2016 in Seattle, Portland,      ized to their market and culture but
more for a product if it comes from                              and Brooklyn. Consumers can choose          actually personalized to them as an
a sustainable brand.54 It is perhaps no                          between the BMW 3 Series or Mini            individual.60
surprise, then, to see the rise of the                           Coopers—a competitive advantage
so-called sharing economy, with com-                             over Car2Go’s Smart Car fleet.57 In an      This is where micro-manufacturing
panies such as Zipcar, WeWork, Rent                              additional twist on the usual business      comes in handy. Smaller, nimbler fac-
the Runway and more facilitating the                             model, the entire ReachNow fleet            tories are able to more easily custom-
reselling, renting, or sharing of items                          can switch between car-sharing and          ize their products to client specifica-
and spaces. This is not necessarily a                            ride-sharing depending on current           tions. Local Motors is doing just this.
rejection of consumerism but rather                              demands.58 This approach allows BMW         A small U.S. startup, Local Motors
a trend toward minimalism support-                               to participate in the sharing economy       operates five global micro-factories,
ed by the digital revolution. Mobile                             and to be responsive to consumers’          where it produces items like Strati, the
technology, big data, and advanced                               changing needs. In March 2018, BMW          world’s first 3D-printed car. Local Mo-
algorithms make it possible to facili-                           and Car2Go’s parent company, Daim-          tors frequently crowdsources produc-
tate the sharing economy in a simple,                            ler, reached an agreement to merge          tion designs from participants around
user-friendly manner.                                            their services, indicating the success of   the world, with the winner receiving a
                                                                 this strategy.59                            cash prize and royalties on sales of the
As the gig and sharing economies
continue to grow, customers are pur-
chasing fewer new goods. In response,
many manufacturers are choosing to
adopt service-based business models.
Almost all vehicle manufacturers saw
decreased sales in December 2017 and
some were down year-over-year as
well. Ford posted a 0.9% full-year de-
cline55 and General Motors decreased
1.3% year-over-year.56 As more and
more people move to dense urban
centers, the need—and desire—to
own a car dissipates. In light of these
trends, and the success of such services
as Uber and Car2Go, BMW introduced
ReachNow, a car-sharing service that
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                                                                                 Page 22
resulting product. This process result-    On-demand production is not only
                                      ed in the design of Olli, a self-driving   enticing for customers; it virtually
                                      shuttle bus powered by artificial intel-   eliminates inventory issues and dra-
                                      ligence. Local Motors’ groundbreak-        matically reduces production waste.62
                                      ing production model allows the com-       Rather than guessing what the de-
                                      pany to tap into a global talent pool      mand for a product will be, factories
                                      for new product ideas while gaining        are able to meet the point of demand
                                      insight into region-specific needs and     directly, producing appropriate vol-
                                      preferences.                               umes as needs arise.63 However, de-
                                                                                 spite the many benefits, micro-manu-
                                      Increasingly, consumers aren’t just        facturing has yet to be widely adopted.
                                      expecting customized products—             But that could soon change. In early
                                      they’re expecting customized prod-         2018, Amazon received a patent for a
                                      ucts nearly instantly. Candylicious, a     new retailing system that would en-
                                      store in the Dubai Mall, is one such       able the company to accept online
                                      company meeting this demand with           orders for custom 3D-printed items.64
                                      custom candies that can be created in      The resulting products would then be
                                      just five minutes. German candy man-       available either for pickup or delivery.
                                      ufacturer Katjes developed the tech-       As the demand for faster, more per-
                                      nology, and the in-store application is    sonalized products grows, so will the
                                      so simple that children can easily op-     need for on-demand production and
                                      erate it.61 Another example is Ministry    micro-manufacturing.
                                      of Supply, a menswear store founded
                                      by MIT graduates. The company de-
                                      veloped a machine in its Boston loca-
                                      tion that can create a custom garment
                                      on-demand in 90 minutes.

Deliver amazing experiences
Driven by new technologies and changing demographics, today’s customers demand more from brands than ever
before. Manufacturers must be more responsive to new trends and deliver the seamless experiences customers now
expect. At Microsoft, we’re helping companies meet changing customer demands with the tools and technology to
better understand customer needs, become more agile, and deliver amazing customer experiences.

Understand customers                  Improve agility                            Exceed expectations
Modern manufacturers must look        Businesses must work with greater          As the baseline for service contin-
beyond their customers’ experi-       precision and agility to meet today’s      ues to climb, manufacturers must
ence and consider their customers’    rapidly changing customer and mar-         rely on technology to deliver the
customer experiences. Microsoft       ket demands. By connecting data            amazing experiences that cus-
Dynamics 365 enables companies        from across the value chain, Azure and     tomers expect, at scale. Microsoft
to track product usage and per-       Dynamics 365 help organizations im-        is empowering organizations with
formance so they can predict and      prove communication across the val-        the tools and technology to create
prevent potential issues and create   ue chain, predict and respond more         innovative, frictionless experiences
better user product experiences       rapidly to trends, and better manage       to delight customers and exceed
for the end-user.                     changes on the fly.                        expectations every time.

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                                                      Page 23
Manufacturing becomes
intelligent
•   A brief history of manufacturing
•   Industry 4.0 and intelligent manufacturing evolve
•   AI and ML deliver instant intelligence
•   Ubiquitous computing becomes the norm
•   Blockchain becomes more than just a buzzword
•   Intelligent Supply Chains emerge

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                                                        Page 24
Manufacturing becomes
   intelligent

A brief history of manufacturing                                                     Executive summary
In the early 1700s, European and American societies were predominantly rural         Augmented with smart sensors
and agrarian. The majority of goods were made in the home or obtained by             and advanced data processing,
trading with members of the local community. But by the mid-1700s, this model        manufacturing is more connected and
began to change.                                                                     intelligent than ever.

The textile industry—which once required natural fibers to be spun into thread
and then hand woven to make fabric—was transformed in 1764 by the devel-
opment of the spinning jenny (“jenny” being short for the word “engine”), a          Highlights
machine that could produce multiple spools of wool at once. In 1768, Richard         • By 2021, 20% of G2000
Arkwright created a version of the spinning machine that was powered by a              manufacturers will have moved
water mill. This combination of power, machinery, and semi-skilled labor led to        to an intelligent manufacturing
the development of the first modern factory systems and a wave of innovation           model.
known as the Industrial Revolution.65 66
                                                                                     • Businesses will generate $2.9
                                                                                       trillion in business value from AI by
The First Industrial Revolution spawned the growth of industrial and urban so-
                                                                                       2021.
cieties. Factories and powered machinery lead to major innovations in the iron
and textile industries, and the development of the steam engine played a central     • Twenty-three percent of businesses
role in the dissemination of goods, a task that was previously both slow and           are currently using blockchain
expensive.                                                                             technology.

The 50 years leading up to World War I marked the Second Industrial Revolution,
when electricity was first used to power mass production. This era of innovation
spawned advancements in the telephone, light bulb, and internal combustion
engine.
                                                                                       From the personal computer
The Third Industrial Revolution was characterized by the migration from analog         to the internet, the Third
electronics to digital technology. From the personal computer to the internet, the     Industrial Revolution has
Third Industrial Revolution has given rise to many of the devices and platforms        given rise to many of the
on which we rely today.67                                                              devices and platforms on
                                                                                       which we rely today.

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                                                          Page 25
Industry 4.0                                ises to make industrial settings saf-
                                            er for human workers by leveraging
and intelligent                             technologies such as video, images,
manufacturing evolve                        sensors, GPS data, and augmented
Now, nearly two hundred and sixty           reality. By adding 7,000 sensors to its
years after the start of the First Indus-   remote-controlled extraction device,
trial Revolution, we are in the midst of    mining equipment manufacturer Joy-
the Fourth Industrial Revolution, often     Global created a machine that could
referred to as Industry 4.0.68 Industry     be sent into areas that were too dan-
4.0 is marked by automation and data        gerous for human workers.70
exchange in manufacturing technolo-
gies, including cyber-physical systems,     Given the many benefits, it’s no sur-
the Internet of Things (IoT), cloud         prise that businesses are adopting in-
computing, and cognitive comput-            telligent manufacturing. IDC predicts
ing.69 Together, these developments         that by 2021, 20% of G2000 manufac-
have resulted in a new era of smart fac-    turers will have transitioned to intel-
tories and intelligent manufacturing.       ligent manufacturing, reducing exe-
                                            cution times by up to 25%. IDC also
Intelligent manufacturing combines
self-monitored manufacturing pro-
                                            reports that by 2019, 50% of manufac-
                                            turers will crowdsource product ideas
                                                                                        Industrial
cesses and machines, automated qual-
ity assurance of final products, and in-
                                            and improvements directly from cus-
                                            tomers, improving product success
                                                                                        Revolutions
sights from outside the manufacturing       rates by as much as 25%.71
process. In this new model for manu-
facturing, AI-enhanced computers are        Industry 4.0 has the potential to be a                   Late 18th century
able to detect and report on physical       powerful driver of economic growth,                      First Industrial
processes happening in the real world       predicted to add between $500 bil-
                                                                                                     Revolution
and make human-like decisions in            lion-$1.5 trillion in value to the global
real time, sometimes referred to as         economy between 2018 and 2022.72                         Power generation
a “cyber-physical production system.”       These new technologies and practices
And cloud-based monitoring and              will help factories and supply chains
                                                                                                     Beginning of 20th century
management enable up-to-the-min-            become progressively more efficient.
                                                                                                     Second
ute intelligence on asset function and      McKinsey predicts that machine
health, facilitating predictive mainte-     learning will reduce supply chain fore-
                                                                                                     Industrial
nance and servicing to avoid break-         casting errors by 50% and reduce lost
                                                                                                     Revolution
downs and associated downtime.              sales by 65% because of better prod-                     Industrialization
                                            uct availability.73 Over the next five
Intelligent manufacturing isn’t just        years, companies that have embraced                      1970s-2000s
about data; it’s about using data to        intelligent manufacturing will see an-                   Third
make automated decisions, predic-           nual improvements in efficiency that                     Industrial
tions, and real-time optimizations          are seven times higher than the aver-
across the end-to-end value chain. As       age rate of growth since 1990.74                         Revolution
with previous waves of the Industrial                                                                Electronic
Revolution, Industry 4.0 promises to        The most exciting outcome of Industry                    automation
dramatically reshape how we make            4.0 isn’t in how it changes the day-to-
and deliver goods. This technology is       day operation of factories but rather
being used to bring down labor costs,       in its potential to transform how com-                   2010-present
reduce product defects, shorten un-         panies relate to partners at every level                 Fourth
planned downtimes, improve transi-          of their value chain. With Industry 4.0,                 Industrial
tion times, and increase production         companies can expect to have verti-                      Revolution
speed—all while making manufactur-          cal and horizontal system integration,
                                                                                                     Intelligent
ing more flexible.                          where firms, suppliers, and even cus-
                                                                                                     automation
                                            tomers are more tightly integrated
Intelligent manufacturing also prom-        thanks to robust data sharing.
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