A technology wave of change is moving through the machine tool industry as manufacturers face increased competition, pricing pressures, profit erosion and recruiting challenges. Manufacturing leaders analyzing options for competitive differentiation, incremental revenue growth, profitability and customer retention should consider their software prowess as essential to riding that wave. Many manufacturers may not fully understand how their business may be driven or limited by the software they ship with their machine tools. The scope of their digital ecosystem — or how outdated, disconnected and underutilized their software may be — matters.
This Software Savvy column will explore: how software can add competitive differentiation, revenue and profitability to machine products; how software packaging, pricing and distribution strategies increase EBITDA, and how information technology (IT) and operational technology (OT) can either negatively or positively impact factory operations and Factory of the Future initiatives.
One way to begin prioritizing your software initiatives is to separate software portfolios into internal and external categories.
The internal category includes: traditional IT components such as local area and wide area networking and associated user and cloud-based infrastructure systems; business operation systems for sales, marketing, supply chain management, accounting and more, and OT components such as factory floor systems that may incorporate manufacturing execution systems, the industrial internet of things, controls/automation, as well as maintenance, reliability and safety.
The external category includes customer-facing software systems, such as human-to-machine interface (HMI) applications, online and offline machine programming systems, specialty or proprietary software components for specialized (or competitively differentiated) machine operations, technical support systems, and, in some cases, supplier management systems. This external category — organizationally speaking — should also include the employees, software development toolkits, programming platforms, any cloud-based third-party access, OEM software components, and any IT systems that derive revenue from these external categories.
Look for the signs
There are many articles, whitepapers, books, academic courses, corporate training classes and hundreds of consulting businesses specializing in solving the problem of technology modernization. But each manufacturer is different — the size of your business uniquely contributes to the problem/ solution paradigm of modernization.
For internal software portfolios, here are some obvious signs it’s time to modernize:
- performance issues (slow software or systems)
- difficulty with software upgrades,
- pervasive systems integration issues,
- recurring security threats or breaches to business systems,
- limited or eliminated vendor support for older software versions,
- a constant need for multiple workaround solutions,
- ISO or other industry standard compliance infractions,
- increasing maintenance and reliability costs or safety compliance fines,
- outdated systems that can no longer integrate with new technology additions,
- the inability to recruit technology-savvy employees,
- high turnover in IT or OT leadership, engineering and support functions,
- and, generally speaking, employee complaints.
External software portfolios that require modernization often have unique problems, which can be divided into two categories: software and technology problems that hinder production (factory floor issues) and end-user software that ships with your machines.
The warning signs from the factory floor generally involve:
- overall systems performance and responsiveness problems,
- wireless communication issues,
- OT security breaches,
- systems interruptions without warnings,
- manufacturing processes and equipment that fail without warning,
- and the reliance on hardware or technology not intended for industrial settings.
For customer-facing software portfolios, the warning signs usually include:
- lost sales,
- eroding margins,
- and low support incidents, meaning customers have stopped using your software and found a workaround.
Generally, for external software portfolios in need of an overhaul, these are the four warning signs that manufacturers most often ignore or don’t immediately recognize.
- They encounter great difficulty when trying to hire college graduates or tech-savvy candidates.
- They have a low retention rate for new hires into their IT or OT departments.
- A large percentage of their existing workforce is averse to bringing new technology to the factory or end users.
- They lose sales to competitors’ products that appear to do everything their machines do, but more. If your sales team finds itself losing deals for a machine similar to that of a competitor in fit, form and function, it is possible that software performance was the differentiator and the driving factor in the lost sale. Particularly true if your sales team heard customer comments such as “we like the additional features offered by your competitor” or “your machine just doesn’t do what we want.”
Developing a Modernization Plan
Digital transformation, Factory of the Future, Industry 4.0 — I despise such jargon, slogans, marketing speak and sales vernacular, but these are the prevailing terms for describing, hyping and selling industrial plant and factory modernization solutions. I have written about all of these issues and have been using the monikers for years. If you want pragmatism on how and where to start transforming your operations into a highly profitable digital powerhouse, please consider the following lessons I learned first-hand through the years.
Fax machines didn’t simply disappear
In 1996, nobody wanted to trade their fax machines for email. I earned my degree in telecommunications and started working in the tech sector right out of college that year. My certifications in electronic messaging systems (i.e., Microsoft Exchange, Novell Groupwise, and Lotus Notes) sat on a shelf collecting dust until early adopters discovered that — with the combination of print document formats, networking technologies and email — they could eliminate the cost of fax machines, machine supplies and dedicated/leased lines, and increase work process efficiencies and employee productivity. Lesson: Be a change leader, not a follower.
Change is not easy
No company, department, division or site is ever ready for change. Using my email example, there came a time when companies were confronted by key customers who began mandating email use as part of supplier or customer agreements. Many companies lost business because they could not or would not react in time. I wrote millions of dollars in proposals during those years; customer retention and new business development were consistently cited as part of business justification. The inability to retain or capture customers usually equates to lost revenue, profits, jobs, brand erosion, cranky investors and takeovers. Modernizing technological changes requires evergreen processes baked into a continuous improvement culture. Your competitors may not want to change either. Do not let them set the bar. Lesson: Change anyway.
‘It’s just too expensive’
Dismissive economic judgments are just another way to avoid change. Again, using my email example, the servers, software and technology required to switch from fax-only communications to a fax-email hybrid system seemed expensive on the surface. As a telecommunications management graduate, I showed customers how to compare email costs to the amount they were paying for dedicated telecommunications lines. I also led a few human-factor studies that measured the amount of time it took employees to send faxes, get a coffee, wait, chat with co-workers, etc. As I remember, email deployments positively impacted cost and labor efficiencies — usually three to one (sometimes more) — and accelerated business development initiatives. Lesson: Study the cost-benefits of the most critical software and technology parts of your modernization effort with an eye on protecting and gaining customers, then solve those problems first.
A closing thought
The machine tool industry appears to be grappling with this question: “Should we design the software first and then the machine, or do we design the machine first and then the software?” I am greatly interested in learning the reactions to this question from those reading this column. As this debate continues, I strongly urge the company leaders among you to identify and organize your software portfolios, determine where your machines and factories have technology gaps, and align your business goals to cost-benefit analyses that are part of an overall continuous improvement journey.
