The pressure is on for manufacturers to digitally transform operations in order to meet the expectations of their customers.
From heightened demands around environmental, social, and governance (ESG) compliance to rapidly evolving digital capabilities like generative AI, manufacturers must rethink the way they work from the ground up.
That said, decision-makers need to be discerning about the technologies they invest in. Inflation remains a concern and there’s a lot on offer in terms of technologies. Understanding what needs to change as part of digital transformation and why are critical answers to get to.
We are both industry experts focused on the digital transformation of manufacturing, and we recently discussed the most pressing trends we see when speaking with our customers on the sell side of the business. Here are three highlights of our conversation.
1. Workforce Management as a Driver for Digital Transformation
Delivering for customers begins with having the right workforce in place to bring products to market. With current skills shortages, manufacturers are looking to digital transformation in two ways to help them run their operations.
One is using AI to fill the gap where skills are missing, and the other is to support employees and help them work more efficiently.
Companies on antiquated systems will find it hard to attract top graduates and people who are at the forefront of the industry. These workers want to be working with the latest technologies, not spending their time on manual processes that could be handled more efficiently by tech, and in particular, generative AI.
Employees also want systems that are easy to use, where they can access the information they need with one click, rather than having to search for it. This means being able to pull data from various systems and have these systems talk to one another in an intelligent way. At the forefront of this is using AI to deliver insights to help employees become more efficient and reduce leakage in operations.
2. Adoption of Anything-as-a-Service Business Models
The development of smart products is changing how manufacturers configure their business. There are few limits to what can be offered as a service, demonstrated by the increasing adoption by industrial manufacturers of “Anything as a Service.”
Some startups are moving entirely away from a product model to a subscription service. This is aimed at offering customers a more affordable way of gaining access to advanced technologies. It’s attractive because it reduces the need for capital investments in technology and equipment that quickly become obsolete.
That said, smart products need to be commissioned, maintained, and upgraded, and while they add opportunities for additional revenue streams, they also create complexity: Whereas manufacturing sales used to happen at a point in time, they are now long-term engagements based on contractual obligations and entitlements. The key element of success is having systems that can effectively connect and manage all the various elements of these service offerings on an ongoing basis.
It’s important to have advanced contract lifecycle management in place. Ensuring what was negotiated and agreed on in the initial contracts is delivered on in operations.
3. Circular Economy Evolution in Manufacturing
A lesser-understood trend, but one that is set to become a primary focus for industrial manufacturers, is sustainability. Consumer attention, as well as global regulations are homing in on product life cycles, carbon footprints, and waste. Sending components and even by-products of manufacturing to waste facilities is going to become more complex in the future.
The circular economy seeks to retain resources within a revolving marketplace, reducing the need for extraction and production of virgin resources. Currently, the focus is on recycling and reducing the carbon footprint of products. But globally the push is towards regeneration and End Producer Responsibility (EPR). This means that in the future manufacturers will be held to account by wholesalers, retailers, and customers for the amount and types of resources they use, how they’re sourced, and how waste is disposed of.
Being able to generate this data and, more importantly, track circular economy initiatives as they are implemented over time, has multiple benefits. It provides demonstrable proof that sustainability is a priority, which is something that can be leveraged to attract new customer contracts. Additionally, as more robust regulations are developed, having the technologies to extract data accurately is going to become increasingly important to prove compliance.
How can industrial manufacturers leverage AI to get ahead on these trends?
Early in the development of AI, the core focus was stripping out data, pushing it to an AI system and then feeding back the results. The modern and much more efficient approach is to integrate AI into data systems. This is where industrial manufacturers can really benefit from the SAP-Icertis partnership.
Many industrial manufacturers use SAP to manage operations on both the buy and sell side. Icertis Contract Intelligence adds another layer by applying proprietary generative AI to the contract documents that define supplier and customer relationships.
It takes a great deal of time and effort to negotiate contracts and ensure that there are provisions and pricing structures in place to support bottom-line growth. Yet too often once the contracts are filed away, those provisions are forgotten about, resulting in leakage of between 2% and 8% of potential revenues.
Integrating Icertis Contract Intelligence, and therefore structured contract data, into SAP systems enables manufacturers to track business performance against contractual obligations in real time. The integrated system becomes a single source of truth that connects all aspects of the business, enabling obligations to align with deliverables in a way that is profitable.
Almost every manufacturer is looking for ways to leverage AI to help them stay competitive in rapidly evolving markets. The SAP-Icertis partnership gives greater visibility to operations, which enables business leaders to make more informed decisions when responding to industry trends. Using AI to extract more of the existing and often hidden value of contracts that underscore all operations is a highly effective way to do that.
Want to keep exploring? Watch our full conversation here.