The need for Asia Pacific’s manufacturers to transform into service oriented companies

By Scott Hunter, Regional Business Lead, Manufacturing, Microsoft Asia.

It is undisputed that Asia is the world’s largest manufacturing hub. Markets such as China, Thailand, Indonesia, and even developing Southeast Asia markets such as Myanmar and Laos have a sizable proportion of its GDP contribution from the manufacturing sector. And it is no surprise given how Asia Pacific has raced to transform themselves from a region heavily dependent on agricultural outputs to one that yields high value contributions to their overall economic growth.

But the rise of the 4th industrial revolution has brought about an urgent need for businesses in Asia Pacific to transform, especially propelled by the rise of breakthrough technologies in the field such as Internet of Things and Artificial Intelligence.

But more importantly, the contribution rate of manufacturing to the world’s economy is declining. According to The World Bank, manufacturing represented 21.5% of global GDP in 1995 but fell sharply to 16.6% in 2015. Asia is not spared from this decline. The rising costs of manufacturing, especially in developed markets, have driven manufacturers and complementary businesses to move their operations to cheaper developing markets such as those in Southeast Asia. They are holding fast to their long-held number one business concern of keeping a lid on escalating operational costs, according to a recently released study, by IDC and commissioned by Microsoft1.

However, now it is time to move the focus. Manufacturers have to look beyond just lowering the costs through automation, optimization and productivity improvements. They need to embrace real digitally transformative initiatives because these will result in new and improved products and services, and open the door to new business models. The Study found that digital transformation of Asia Pacific’s manufacturing sector will potentially add US$387 billion to the region’s GDP, or increase growth rate by 1.0% annually by 2021.

The Study also found that manufacturers that are undergoing digital transformation today are already seeing tangible results to their businesses between 13% to 17% today. Business leaders are also expecting to see at least 40% improvements to these benefits in three years:


Fig 1: Top five benefits manufacturing organizations in Asia Pacific see from digital transformation today and in three years

The question is then how Asia’s manufacturers should transform themselves in order to stay relevant in the digital age.

Data is Key to Unlock Digital Transformation Potential

The adoption of advanced technologies is transforming manufacturing floors across Asia Pacific. The Digital Twin concept, a virtual model of processes, products and services, allows for the pairing of physical and virtual worlds to allow for data collection, monitoring and analysis such that predictive actions can be taken.

But this is not new. Complex simulations have been undertaken for years with the help of modelling technologies (i.e. computer-aided design models) to ensure and validate processes. Digital Twins will only make sense in the new economy if manufacturers are able to continuously update their data collection process, as well as adopt modern technologies to help them make better sense of the data they own – especially through the use of analytics and machine learning.

At every step of the day, data plays an important part for organizations to advance their digital transformation journey with the ultimate goal of creating new revenue streams. The good news is that the Study found that Asia’s manufacturing business leaders already recognize the value of data for their business operations today. As many as 44% of business leaders polled are already assessing how data can be a capital asset to their operations today.

It is undisputed that data presents an untapped potential for organizations to unlock its digital transformation potential. There is a three-step process which organizations can consider integrating into their workstreams today:

  1. Collection of Data:Organizations need to have in place a data strategy to manage structured and unstructured data within the workstreams. By investing in big data analytics and IoT solutions, manufacturers are better able to collect and sort data in a cohesive manner.
  2. Optimisation of Existing Products and Services through Data: Leveraging data, organizations in the manufacturing sector can seek to optimize their processes, supply chain and ultimately deliver improvements to their existing product and services. Using big data analytics, machine learning, and artificial intelligence, businesses are able to improve efficiencies through predictive analysis.
  3. Creating New Business Models with Data: Ultimately, data should be used to create new value chains, services and business models (i.e. management solutions based on predictive maintenance, 3D Modelling, and Smart Operations).

Every Company is a Software Company

Satya Nadella, CEO of Microsoft has highlighted the need for companies to become software Companies in the digital age. He said:

“You have to start thinking and operating like a digital Company. It’s no longer just about procuring one solution and deploying one. It’s not about one simple software solution. It’s really you yourself thinking of your own future as a digital Company.”

One such example is Toyota Industries through its Toyota Materials Handling Europe.

With the goal to become a market leader in material handling solutions and services, Toyota Material Handling Europe is investing in technology and embarking on a digital transformation journey. The Group worked with Microsoft for advisory and development services to create T-Stream, a brand-new all-in-one solution. It will empower employees, increase customer value and satisfaction, and help the company to achieve the number-one position in the market. Built on Microsoft’s Azure cloud, it runs on Windows, utilizes Bing Maps and GPS systems to provide technicians with an improved, proactive service that can carry out maintenance for customers before breakdowns occur.

In the future, the company will be able to change its business model completely thanks to data. Connected trucks will also allow Toyota to move towards predictive service, repairing trucks before anything can happen, aiming for zero breakdowns.

Toyota joins many of our manufacturing customers such as thyssenkrupp, Trimble, Volvo and more that are taking a step in transforming themselves from traditional manufacturing operations into a technology-first organization.

Manufacturing organizations that are interested in adopting a digital-first journey must ensure that they are supported by these two key factors:

  1. Have a digital supply chain in place: By building a digital supply chain with a fully automated feedback loop, manufacturers ensure an open ecosystem of data that can be shared across various stakeholders, ensuring visibility, control, coordination and ultimately transformation.
  2. Build trusted partnerships: As the use of industrial IoT and AI increase, organizations need to build a partner ecosystem whereby data is shared and used in a safe and secure manner on a trusted platform.

The time is now. Manufacturing organizations must move from process automation to a holistic, enterprise-wide transformation in order to attain competitive advantages in the digital age.

Unlocking the Economic Impact of Digital Transformation in Asia Pacific[1] conducted with 1,560 respondents in 15 markets:

  • 15 Asia Pacific markets were involved: Australia, China, Hong Kong, Indonesia, India, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Sri Lanka, Taiwan, Thailand, and Vietnam.
  • Business and IT leaders from organizations with more than 250 staff were polled.
  • Industries polled included education, financial services, government, healthcare, manufacturing, and retail.
  • Respondents are decision makers involved in shaping their organizations’ digital strategy.

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