2019 MANUFACTURING TRENDS REPORT - MICROSOFT DYNAMICS 365 - HUBSPOT
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Microsoft Dynamics 365
2019 Manufacturing
Trends Report
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Page 1
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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Page 2
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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Page 3
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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Page 4
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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Page 5
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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Page 6
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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Page 7
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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Page 8
“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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Page 9
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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Page 10The 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 11The 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 12Stitch 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 13The 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 14Marketplace,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 15models 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 16services, 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 17Manufacturers 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 18By 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 19Brands 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
Visitors
Apr-14
Feb-16
Apr-16
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
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Page 20The 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 21a+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 22resulting 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 23Manufacturing 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 24Manufacturing 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 25Industry 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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