IIoT challenges industrial machinery OEMs

IIoT Indutry 4.0
Cristina De Luca -

November 28, 2022

Before the COVID-19 pandemic, many companies saw digitisation and the Internet of Things (IoT) as optional strategies. Now, there is an unprecedented urgency for some to accelerate the digitisation journey and connect equipment to the industrial IoT to remain competitive.

Before the pandemic, 86% of companies with industrial IoT connectivity saw increased profits by monitoring and optimizing their machines, and 35% indicated that profits increased significantly.  These savings, along with the ability to quickly adjust to the challenges of the pandemic, likely gave and continue to provide them with a competitive advantage.

As the world begins to face more unpredictable challenges – pandemics, weather events or changing economic conditions – the need for smart factories increases exponentially. Being agile and prepared will be the difference between success and failure.

Therefore, to maintain success today and in the future, rapid adoption of IIoT is the expectation, not the exception. With adaptive, automated factories and products, reducing and increasing production can be done efficiently, with fewer workers present, healthier machines, less unexpected maintenance and higher productivity rates.

This has particularly been messing with the OEM supplier market, according to the study “Digitalization and IoT’s role in revolutionizing industrial machinery“, by Siemens.

OEMs have faced many challenges when trying to implement a new digitisation strategy. While cost is a considerable factor, technological change has weighed in. In a recent study by research firm Tech Clarity, 36% of OEMS surveyed said that “resistance to change” inhibited the adoption of digitisation. Another reason? Legacy: 30% of OEMs said their equipment is too old to be digitised with current standards.

The few OEMs equipped with industrial IoT and digitisation solutions have quickly streamlined their offerings to continue doing business efficiently and meet growing customer demands. 

By embedding IIoT technology in OEMs’ machines, problem identification can be made remotely, operating parameters can be changed, and operation can be verified with supervisory control that enables potential problems to be avoided. OEMs can advise field engineers and operational managers on the best measures to remedy a problem or improve performance.

A Deloitte study points to one area where OEMs must focus on thriving in this IIoT universe: EaaS (Equipment-as-a-Service), which is moving from being a niche alternative to becoming a strategic imperative.

EaaS is a business practice in which an OEM offers equipment, machines and/or production systems through a variable consumption or usage model. the traditional purchase model. “Instead of customers buying the machine directly in a single transaction, they pay only based on other factors such as consumption or usage. The OEM or third-party financing partners retain ownership and absorb the responsibility of providing or managing maintenance services, repairs and parts replacements,” explains Krishna Yarramasu of relayr, a global leader in the EaaS field.

Driving forces for EaaS models
Source: Deloitte

Each actor in the diagram above brings a unique set of capabilities to the table, all of which are essential to an EaaS offering – and each has its incentive to participate. OEMs need to be very careful about which elements of the EaaS model they plan to develop in-house (which consumes valuable time and effort) and which they plan to deliver in collaboration with external partners (which, in many cases, maybe the only viable option).

“EaaS is a key business model for the future and will take us to the next stage of Industry 4.0,” explains Oliver Bendig, consultant at Deloitte in Germany. “Technologies such as AI, blockchain and information processing with learning systems will help make the manufacturing process more efficient and ensure that products remain competitive.” It increases recurring revenue and opens the door to more business opportunities, adds Carly Cohen from Siemens.

EaaS models are set to change how industrial equipment manufacturers do business fundamentally. While they may not be suitable for all asset segments and categories (e.g. those with high customisation and low volumes), these models offer great potential for growth in many domains (e.g. those with standard customisation and high volumes). To take advantage of this untapped opportunity, according to Deloitte, OEMs need to answer three questions quickly:

1 – What exactly is our current situation globally?

2 – What are our EaaS ambitions for the next 36 months?

3 – What have we defined as priorities, and how can we accelerate operationalisation?