OEM Growth Needs More Agile, Lean Operations

May 23, 2016
Industrial equipment manufacturers need a more responsive and cost-effective operating model to compete in an environment of dropping demand, rising commodity prices, soaring labor costs and tightening margins.

Industrial equipment manufacturers are pursuing the development of leaner, more agile business models as a way to fuel growth in the slowing global OEM market. But to achieve optimal results, their models will need to include digitized operations, digitally enabled service offerings, and cost management that can aid speed to market.

An overwhelming 96 percent of industrial equipment manufacturers view the creation of new business models as key to driving success in the changing equipment market, according to a new Accenture survey of senior executives headquartered in 14 different countries, including the U.S. Many have already begun reshaping various areas of their organization. This shift is largely due to OEMs recognizing that a more responsive and cost-effective operating model is needed to compete and grow in an environment of dropping demand, rising commodity prices, soaring labor costs and tightening margins.

Building a model that increases agility while reducing costs will require that companies digitalize their operations and optimize engineering, manufacturing and supply chain processes to become leaner. The rise of the digital world has also given rise to demand for new digital manufacturing services. To remain competitive, OEMs will need to expand their product portfolios to include such services while maximizing the Industrial Internet of Things (IIoT) market as an integral part of their new models.

Recalibrating for success

There are four actions that equipment manufacturers should consider taking that could help them make the transition to a new operating model and succeed in the changing business environment:

  1. Reinvest cost savings derived from creating leaner engineering and manufacturing operations and supply chain processes. These should be invested into developing and sustaining a new, enterprise-wide operating model to drive growth. The research shows that only 31 percent of respondents believe their company’s operating model is aligned to fuel strategic growth.
  2. Establish a model that focuses on developing innovative digitally enabled products and services that meet customer demand. In addition, OEMs should adopt a variable cost structure that provides transparency regarding production cost changes of such products and services to increase agility and time to market.
  3. Explore the process benefits of employing a new business model powered by digital technology. To gain a competitive advantage, equipment suppliers will also need to accelerate time to market throughout the delivery process—from ideation and incubation to industrialization and product and services deployment. Digitalization not only can provide a faster process, but also contribute to a leaner operation. The majority of surveyed respondents say increased technology would enable their model to operate at half its base cost.
  4. Align the entire organization behind sustaining the new business model. To shape an enhanced operating structure and optimize a value chain dedicated to fueling growth, OEM leaders, employees and stakeholders must be in line with the new direction. In addition, the organization will need to consider the talent required to support the new model and ensure that the right skills are in place.

Employing a change management approach can help the leadership gain buy-in across all levels of the organization. However, pursuing such a strategy also might be challenging, as 51 percent of those surveyed say implementing change is the most common barrier to advancing the company’s operating model.

A digital future

Undergoing this transformation will not be without challenges. But pursuing such a strategy will become increasingly critical not only to prevail in a sluggish market, but to compete in a radically changing competitive landscape driven more and more by customer demand for digitally enabled products and services. Industrial equipment manufacturers that can forge a leaner, faster, digitally enhanced business model will be much better prepared to succeed in the emerging industrial equipment market.

>>Andy Howard, [email protected], is managing director of the Automotive and Industrial Equipment Group at Accenture.

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