Distributing material in times of distributed manufacturing
by Dagmar Dieterle
In 2015, the World Economic Forum (WEF) announced "distributed manufacturing" as one of the ten emerging technologies. In recent months in particular, the issue has gained renewed attention. For us as materials distributors, this leads to the question: "If manufacturing is being distributed, what will the future of distributing material look like?
The advantages of digitalization and its consequences
Like any other industry, manufacturing is based on digitalization, which makes it possible to start production processes anywhere in the world at the push of a button – distributed manufacturing thanks to Industrial Internet of Things (IIoT). But it also lays the foundation for a new trend: from mass production to customized products. Demand is rising and batch sizes are declining as a result.
However, digital progress also means that material usage will drop overwhelmingly. In a joint study with the Ellen MacArthur Foundation, McKinsey estimates material cost savings in the EU processing industry of up to $630 billion per year by 2025. The reason: the increase in productivity.
Our industry is facing huge changes. We won't be able to increase sales by simply selling more material, because there won't be any more demand. Also, the increase in profitability will reach its limits through massive scaling of our stockholding facilities. Our actual added value will be in the services related to the material and not in the material itself. At thyssenkrupp Materials Services we call this "Materials as a Service" – the smart interaction of materials and individual services.
Paradigm shift in value creation
We are faced with the challenge of delivering the smallest batch sizes of all types of materials to the remotest places in the world in the shortest possible time. The answer: supply chain management. 20 years ago I learned that a good sale was driven by a good purchase. In other words: buy cheap and sell expensive. What happened in between was of secondary importance. Today this is no longer true: what happens in between is crucial. In the future, added value will be created primarily when we support our customers in their supply chain. The prerequisite for this is the optimization of our own supply chain. To achieve this, we also need to leverage the strengths of digitalization and need appropriate software.
Three fundamental questions
Software solutions will have to support the entire value chain and thus be able to allow vertical integration. This leads us to the first of three fundamental questions: Will traditional software companies that provide our current IT backbone demonstrate their ability to vertically integrate, or do we need to diversify our IT backbone?
As a long-term player in this market, thyssenkrupp Materials Services has a huge data source – and data is the new gold. This brings us to the second question: How can we make our data easy to use and market our ability to interpret and digitize this data?
Cloud infrastructures form the backbone of the IIoT. For this we need external backbones such as Infrastructure as a Service and Product as a Service. These infrastructures require technical expertise and not industrial know-how. This raises the third question: "How can we strengthen cooperation between technology and industry instead of stimulating competition?
One thing is clear: the role of the material distributor changes with distributed manufacturing. Our legacy can be our force if we release the power in our organizations not by exchanging but by changing.