The digitization of the manufacturing industry

Reference: The original article was published in German here.

Insights into platform economy 4.0 and online manufacturing in Germany

Who has been able to escape digitization and Industry 4.0 in recent years? We have been bombarded with supposed trends and have all been torn about what we should make of the future. Isn’t industry already a fully digitized, networked machine? After extensive investments in technology, software development and new business models, can we even expect a glimmer of profitability on the horizon? What are we to do with our existing people, machines and business models when radical change is now upon us?

To begin, let’s take a step back from the frenzy and perplexity. Let’s start with a more precise question and narrow our focus a bit: What can digitization be in the manufacturing sector and what tangible benefits can it bring? We want to offer an alternative view of digitization in the industry that is different from the mainstream (and has a focus on Germany particulary). So now would be a good time to grab a cup of coffee and use this article as a thought starter for future plans.

Cloud, AI, digitization — is this what is needed in mechanical engineering?

A classic approach to the digitization of manufacturing is based on an organizational pyramid that extends from management down to the sensor level of the machine. The desired networking and data integrity encompasses both horizontal (“Our machines talk to each other and/or carry out self-controlled actions.”) and vertical (top-down: “Each decision-maker knows which processes are currently in which state”, bottom-up: “Each level knows the higher-level goals”). There is no shortage of other competing views on Industry 4.0. In fact, there is a lot to be leveraged here, but we believe that the true potential lies elsewhere.

The customer and the company’s own business partners are outside the sphere of influence of the company itself and yet they are the most important elements for creating value in the company. Without customers, there are no sales, and without partners, there is no effectiveness or implementation strength. So why shouldn’t digitization start at this most crucial point and enable the networking of partners and customers?

This is where an important link beyond one’s own company has emerged. Joint, digital collaboration models can be set up at any time via API’s and databases to increase effectiveness and profitability. While there are still major challenges in the standardization of interfaces, the tasks in the industry are so specific and diverse that the solution here probably lies in the permanent creation of API’s that meet the respective requirements. Certainly, the complexity of software development is not easily implementable for every company, but even here there are solutions with low deployment thresholds, which we will come back to later.

AI and cloud as tools

In the consumer area, two trends are already clearly discernible, which will most likely find their way into the B2B area. On the one hand, there is the trend toward central platforms as transaction points for commerce (and thus as nerve centers for APIs), and on the other hand, despite the billion-strong audience on the Net, a concentration on a few relevant players can be identified in each individual area. Just think how many shoe stores you know in your city — and how many relevant internet stores for shoes. You can guess how wide distributions are turning into increasingly globalized and concentrated mega players with millions to billions of customers.

These mega-concentrations are the basis for new technological developments: Those serving millions of customers need powerful computing capacity delivered via cloud solutions. Those who want to address millions of customers, advise them and encourage them to buy can no longer address each one individually, but must rely on artificial intelligence to parallelize and automate processes. These systems are now also gradually finding their way into the business customer world.

Contract manufacturing in Germany: Advanced designs and individual solutions

A large proportion of corporate customer business relates to more complex products than shoes, entertainment offerings or household appliances. Often, the products require explanation, are priced to meet specific requirements or customers, or simply need to be developed individually. Trust and long-term thinking also play a decisive role in partner selection. One industrial sector of mechanical engineering that is currently undergoing radical and rapid digitalization despite these obstacles is contract manufacturing.

Here, too, individual, highly specific components are manufactured on the basis of customer orders according to standardized quality grades and beyond. The trend toward digitization itself began in a digital manufacturing process and is currently developing into more traditional manufacturing processes as well.

3D printing eliminates the need for extensive planning and manual activities that are common, for example, in CNC manufacturing, welding or casting. In theory, the production job can be started immediately with the design model, just as with a classic printer. Pioneers of online 3D printing quickly came up with the idea of automatically analyzing and pricing model data online. Since the pricing structure of 3D printing is mainly based on model volume and complexity does not necessarily lead to additional costs, this was an easy way to get started. Thus, the German pioneer Meltwerk became a cost-effective and simple procurement solution for 3D printed parts. The choice of materials was deliberately radically reduced here, enabling excellent conditions. Murtfeldt from Tübingen aquired the smart solution with foresight for future markets.

Based on 3D printing, increasingly comprehensive online ordering solutions were developed. 247 Tailor Steel, however, began a five-year odyssey in the Netherlands back in 2003 until laser sheet metal parts became available for online ordering. Founder Carel van Sorgen was way ahead of his competitors. At the same time, Facebook had about 50 users and Google didn’t offer many more services than its search engine. No Dropbox, no iTunes, no Whatsapp. But Carel was already implementing the first online ordering option for sheet metal parts in contract manufacturing. Two laser cutting systems became 31 — a success story that continues today thanks to early positioning, but is currently facing increased competitive pressure.

From additive manufacturing to industrial production

But more complex manufacturing technologies, such as CNC machining, are also undergoing digitization. In mechanical engineering, CNC production is synonymous with precision, which also has its price. Due to the significantly more complex machines and process flows compared to 3D printing and sheet metal edging, simple calculations are no longer enough here. Instant price generation for milled parts requires advanced analysis methods to correctly account for features, complexities and machining strategies in the calculation. The calculation of turned parts is somewhat simpler.

We have set out on the path to on-demand manufacturing of CNC milled parts for Germany at InstaWerk. The core of the business involves two innovative components. On the one hand, through our cloud-based online CNC milled parts costing, we can provide our self-service customers with convenient, cost-effective and fast procurement of milled parts 24 hours a day, 7 days a week. On the other hand, our platform approach allows us to focus on customer support and satisfaction while maintaining readily available manufacturing capacity and specialized machinery through the underlying fabricator network.

We have now come full circle to more complex manufacturing processes. Several suppliers are currently active in the development of procurement solutions for welded parts. Castings will also probably become available in the foreseeable future via online costing models. The eternal e-mail back and forth will therefore increasingly be replaced by intelligent procurement solutions (“keyword eProcurement).

Manufacturers are our partners: How we generate added value for all sides

CNC manufacturing is a capital-intensive and know-how-based business. Over 6,000 companies are all active in the manufacture of CNC parts in Germany. Anyone who talks to those involved in the industry here quickly realizes that digitization is not just seen as an opportunity. Online platforms with instant price generation carry the risk of leading to a downward spiral in prices due to the price transparency of suppliers and global sourcing.

This is where the impact of different platform providers’ business models is immediately apparent. While some providers on the manufacturing side of the platform auction off the orders more or less immediately, we at InstaWerk rely on a partnership-based collaboration with our manufacturing partners. A core feature of this is the pooling of individual and small orders into relevant order sizes. We may have a smaller network compared to our competitors, but the partners we work with receive relevant order sizes from InstaWerk that lead to high capacity utilization, economic relevance and long-term joint success.

Nevertheless, we want to face the reality of globalization. Simple parts without challenging tolerances or demanding quality requirements can be procured worldwide in the required quality. Here we offer our customers competitive costs and can also generate suitable batch sizes and orders for foreign manufacturers. At the same time, the grouping of orders with a few, selected manufacturers enables a high level of trust in the handling of data, whereas with many other platforms the tenders can be viewed by a large number of manufacturers and other interested parties.

Therefore, we are convinced to operate a business model based on partnership, which on the one hand meets customer requirements for competitive costs, delivery stability and trust, but also provides the paver side with relevant orders and a long-term perspective in a digital world. In this way, we can turn our digitization expertise into an online sales channel for manufacturers and, via our software, relieve engineers, technicians and buyers of a lot of work in the procurement of drawing parts.

Customer Focus: From CAD designers to strategic buyers

Nevertheless, on-demand manufacturing is often reduced to the task of ordering uncomplicated prototypes and small batches online. However, the leverage in the digitization of external manufacturing also lies in the networkability of systems that extend beyond the company itself. Here, new value creation opportunities arise for various roles in the company.

At the management level, opportunities for price transparency and constant availability of manufacturing resources are created. This enables the company to react dynamically to customer and market demands in the sense of an agile response as well as for in-house developments without having to make immense investments. It is no longer a secret that higher margins can be realized through speed and short reaction times. But the fact that networked systems at the strategic level create the tools for precisely this agility in the company is not yet widely anchored and thus offers potential for increasing competitiveness.

Development departments are facing increasing pressure to innovate and speed up. This makes it all the more important to quickly turn developments into prototypes for trials and market testing. For this purpose, on-demand prototype manufacturers such as InstaWerk create unsurpassed availability at manageable costs. Express options can also significantly reduce lead times in the event of time-critical component failures or urgent projects.

In purchasing, too, there is a clear trend toward eProcurement, the use of the price advantages of procurement platforms, and a general trend toward digital solutions. This is because, on the one hand, platforms can be used to minimize failure risks, as was impressively demonstrated in the Corona pandemic. On the other hand, by pooling orders, we can also realize conditions for small to medium-sized companies that were otherwise reserved for corporate groups. The biggest lever, however, lies in the reduction of process costs in purchasing. Our systems offer APIs via which costs can be requested directly. Project status messages from material receipt to goods shipment can also be queried automatically.

From Start-up to Corporates

We can undoubtedly create the greatest benefit at the operational level for small to medium-sized companies for which the cost factor is an important basis for decision-making. But we have also been able to win large companies as customers, for whom digital procurement solutions are a central component of the digitization strategy.

In this way, digitization becomes a real added value: it costs no more than it brings in in terms of profitability and opens up opportunities for networked collaboration. Our easy access via the online calculator also provides a low-threshold opportunity to try out the process manually for the first time.

If you are also interested in ordering CNC parts online, why not give our online estimator a try? If you are more interested in strategic cooperation for the digitization of your company, take a look at our subpage on the topic of strategic partnership or contact us directly. We look forward to your message or your call!