How IoT and OEE Drive Manufacturing Success in the Outcome Economy

You’ve likely seen the discussions about the risks of adopting the Internet of Things (IoT)—security threats, budget concerns, and uncertain benefits. While these challenges exist, the bigger risk is not adopting IoT at all. Companies that fail to leverage real-time data insights risk inefficiency, higher costs, and even obsolescence in an industry shifting toward smart manufacturing.

What Matters Most Are Outcomes, Not Products

52 percent of the Fortune 500 companies have vanished during the last 20 years. They closed, were acquired, spun off profitable business units and shuttered the remainder. For whatever reasons, they could not weather the changes underway in industries worldwide. Whether it’s Industrie 4.0 in Germany or digital transformation in enterprises elsewhere, today’s most successful companies are revolutionizing how they operate and serve customers. They adopt digital technologies and advanced business intelligence to create the best results from their investments in people, machines, facilities, and processes.

As these companies adopt the IoT, they become more efficient operations with more productive workers. They create more flexible services and develop new products. But, as the World Economic Forum stated, those are relatively minor events compared to what’s next. The data-enabled, intelligence-driven, quickly evolving nature of business operations supported by the IoT changes how value is created. Companies and their customers are more concerned with outcomes than they are with products and services.

In the outcome economy, it’s all about the transportation, not the truck. It’s about dependable, eye-friendly illumination, not a lamp or a light bulb. For the clients of ThyssenKrupp, the leading maker of elevators and other technical systems, it’s about getting people to where they need to be – reliably and quickly. IoT-connected sensors on elevator systems provide real-time information to building owners and maintenance technicians, who can perform repairs and adjustments to keep the elevators always running. Some companies don’t sell discrete products anymore, because they don’t mean as much as they once did. They can easily be replaced and upgraded within the service value experience that customers really pay for. You don’t want your company to become obsolete like others did. “The risks of moving too slowly are real,” says the World Economic Forum about companies that are hesitant to embrace the IoT and the outcome economy.

But what is the best way to deliver the outcomes your customers expect?

Staggering costs of poor OEE performance

If you run any equipment, machinery, or other industrial assets, you know about Overall Equipment Effectiveness (OEE), the powerful measurement of quality, performance, and uptime. When you connect your machines and production lines to the IoT, you can monitor OEE values as they happen, and make corrections and improvements immediately. Improving your OEE is a highly controlled, predictable manner of achieving the best possible outcomes from the use of machinery and industrial assets. It’s what enables your business to compete and thrive, and, if you deliver machines to customers, they will learn to count on it as well.

Unfortunately, many companies don’t take OEE seriously enough. Across industries, it’s the norm to be operating in the 40 to 60 percent range of OEE. That means you achieve enough of the right outcomes to continue meeting some customer needs, but you do it at an outrageous cost. Research shows that a 10 percent improvement in OEE – which one might accomplish by improving just one of the three OEE metrics, such as performance – boosts your bottom line by 22 percent. If your annual income from operations (IFO) amounts to $1 million, that means you could increase it by $220,000, more than $18,000 every month. On the other hand, if you don’t improve your OEE, you’re leaving substantial revenue unrealized. You practically lose that amount month after month. Given that significant OEE improvements might be possible in many of the organizations that run at 60 percent or less, the financial losses from poor OEE performance are astounding.

The risks of not boosting OEE are not acceptable

If you’re a production manager, the head of the maintenance team, or an executive at a manufacturing company, you know what improved uptime, performance, and quality of your machinery means, even if you don’t regularly measure OEE. If you do, you will also be aware that improving OEE by 10 percent can save you 12 percent on scheduled repairs and reduce your overall maintenance costs by 30 percent. Once again, if you don’t improve OEE, those savings are money that you burn.

In the many companies that underperform on the OEE metric, poor performance may well be the accepted norm of many years of practice – institutionalized, slow failure. Typically, business leaders don’t consider the right values and lack meaningful substantiating data. As a result, they may achieve positive results in spite of their challenges – like a runner who must carry a heavy stone during a race. When you run your teams, processes, and equipment at a certain output level and you don’t review business operations based on meaningful metrics, that can easily happen.
However, in the outcome economy, when customers are looking to you for continuous improvement and your stakeholders expect sound, strategic decisions and a sharp competitive edge, poor OEE will greatly limit your ability to succeed. Connecting and monitoring your industrial assets in the IoT is a practical, low-risk, and economical way to change course and avoid obsolescence.