March 23, 2022

Trends in the Manufacturing Software Market

Trends in the Manufacturing Software Market

This week on episode 71 of Augmented Season 2 (@augmentedpod), Trond is in conversation with Ralph Verrilli, the Managing Director of Madison Park Group. The topic is: "Trends in the Manufacturing Software Market." Augmented reveals the stories behind the new era of industrial operations, where technology will restore the agility of frontline workers. Technology is changing rapidly. What’s next in the digital factory? Who is leading the change? What are the key skills to learn and how to stay up to date on manufacturing and industry 4.0? Augmented is a podcast for industrial leaders, process engineers, and shop floor operators, hosted by futurist Trond Arne Undheim (@trondau), presented by Tulip, the frontline operations platform. 

My takeaway is: The manufacturing software market is rapidly evolving. Is there hope that we can get the industry weaned off legacy technology with poor interoperability, horrible user interfaces? Which as a result, requires hours and hours of training only not to work very well at all.

The Augmented podcast is created in association with Tulip, the frontline operations platform that connects the people, machines, devices, and the systems used in a production or logistics process in a physical location. Tulip is democratizing technology and empowering those closest to operations to solve problems. Tulip is also hiring. You can find Tulip at Tulip.co.

Please share this show with colleagues who care about where industrial tech is heading. 

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See you next time. Augmented--industrial conversations that matter. 

Transcript

[00:00:00] Trond Arne Undheim: Welcome to another episode of the Augmented podcast. Augmented brings industrial conversations that matter, serving up the most relevant conversations on industrial tech. Our vision is a world where technology will restore the agility of frontline workers. We serve an audience of executives, industry leaders, investors, founders, educators, technologists.

Academics process engineers and shop floor operators across the emerging field of frontline operations. In episode 71 of the podcast, the topic is trends in the Manufacturing software market. And our guest is Ralph Verrilli, Managing director of Madison Park Group. In this conversation, we talk about his notion of industry 4.0, emphasizing how manufacturing integrates with humans, including human-robot collaboration and true collaboration between humans and machines and increased emphasis on personalized production and supply chain resiliency.[00:01:00] 

Augmented is a podcast for industrial leaders hosted by futurist Trond Arne Undheim, presented by Tulip. Ralph, how are you? 

[00:01:09] Ralph Verrilli: I'm well Trond how about yourself?

[00:01:09] Trond Arne Undheim: I'm doing great. I'm excited about this conversation, the software market, and your deep experience in it, in the manufacturing space. It's a thriving area that not everybody really understands.

So my question to you is, how did you get into this business? I know a little bit about your wealth, right? So engineering degree UMass I Hurst. Yeah, right? A little bit of music in there. Yeah. On the side. Right. You're a drummer, right? I am. 

[00:01:36] Ralph Verrilli: I am. Maybe I'll give you a little background. So, I actually grew up in New York.

I grew up in the Bronx and I had visions of being a drummer, a musician, and my Italian father put a stop to that very early. And I always liked mechanical things. And my father and I spent a lot of time working on things around the house and I liked mechanical things, I wanted to become a mechanical engineer and went to, as you mentioned, the university [00:02:00] of Massachusetts got my undergraduate degree in mechanical engineering.

Specializing and manufacturing is basically how you put things together. And then I stayed and got my graduate degree as well in mechanical engineering, but I specialized in artificial intelligence and this was in 1987. So as I like to say, that's before artificial intelligence was really cool like it is today.

So, educational background, mechanical and software. 

[00:02:24] Trond Arne Undheim: Well, that's interesting. You specialized in AI, there's been so many waves of AI. What were you guys doing back then? 

[00:02:30] Ralph Verrilli: So it's pretty interesting. We were at the forefront of it. Believe it or not, at the time, UMass was actually the leading one of the leading universities in artificial intelligence and what we had done my group in the mechanical engineering department was trying to take artificial intelligence tech NES, and apply them to mechanical design.

So how do you get the software to reason about. The design trade-offs that have to be made, so to be honest with you, compared to where it is now is very rudimentary at the time, but we, it was really cool stuff. [00:03:00] And we were really, at that time, really transforming how software was being applied to the design of parts.

[00:03:07] Trond Arne Undheim: It's interesting. What you just said. It felt very exciting and it was leading at a time, but then it's rudimentary in a historical perspective. Do you think it's always like that because it's hard to put yourself in the position of being in 1989 and saying, well, actually, It was groundbreaking. Some things though remain groundbreaking, but I guess in AI, the processing power and everything about it just feels different.

[00:03:32] Ralph Verrilli: Right? Yeah. Without a doubt. I remember having these theoretical conversations late at night in the lab about, when is artificial intelligence going to be able to get even close to what humans can do? Never realized 30 years ago. That we'd be anywhere close to where we are now.

And I remember having a conversation with my research colleagues in a bar saying, it's gonna be forever until a robot's gonna be able to balance a glass of water, yet we're there. And then some till really we've made unbelievable shots. [00:04:00] 

[00:04:01] Trond Arne Undheim: Yes. You can see it from both sides though.

You can say, well, 1989, a long time ago, you can now balance the glass, but you can't do much more arguably. Right. So, there's you can see it from both sides. I just love that. Anyway, Ralph, so let's start poking into this because there's an immediate context here and we'll talk about what you do for a living now in, in certain private.

But your group wrote a report and you keep tracking, obviously the trends in the area. You wrote something in September called the Manufacturing software market, top trends. It's a market update. So we'll cover some of the stuff you wrote about there, cuz it's been an interesting year for Manufacturing tech.

Yeah, but maybe just first let's cover this. So you work at Madison Parker group now advising. Founder owned and also sort of private equity-backed companies in broadly engineering and software. What does that space look like just quickly before we get into the meter of the matter? Sure. So 

[00:04:55] Ralph Verrilli: maybe I could take a, even a little bit of a step back, I'm very fortunate in that, over my career, I've worked [00:05:00] for a number of engineering software companies.

I've worked at computer vision. I worked at an artificial intelligence company for engineering. I then started a company with one of my research colleagues that specialized in design and Manufacturing, simulation tools for the aerospace world. We focus on carbon fiber. Carbon fibers, a very lightweight high strength material that was really sort of coming into prevalence into mass use in let's call it the early two thousand carbon fibers used to design all fighter aircraft submarines.

Omal one race car. So we started a company in 19 92, 19 93. And ran it for about 17 years. We sold to the airbuses of the world, the Northrop grins the LANs, all the formula one guy. And, we took it from two guys in a room to about a hundred employees worldwide. And it was really a lot of fun.

And I, so I got a lot of experience in working with aerospace companies and to the opening software. We [00:06:00] were acquired by Siemens in 2011 and I helped run it for a couple of years that was fun, but fundamentally I'm a small company guy and I really like engineering and Manufacturing. So I was looking for ways to sort of get back into really working.

In true engineering and Manufacturing software, I've started to work with the Madison Park group, which is an investment bank based out of New York. I'm based out of Boston. But what they wanted to do was start to help engineering and Manufacturing software companies realize their value. Meaning there all these companies in the space have great technology that eventually might want to get wired, but don't really know how to go about doing it.

So I came in and started to work with them and we built a worldwide practice where we primarily work with founders' own companies. Let's say 60% of our clients are founder-owned or run by founders in the engineering Manufacturing software world. So we don't do. Manufacturing companies. We only work in the world of software.

So I spend 80% of my time doing that, but I also spend [00:07:00] 20% of my time working with early-stage companies on strategy and execution, which is what I really love doing. It's really a lot of fun working with these small companies and engineering, Manufacturing, robotics, but I can provide, add a lot of value based on my operating experience to these other companies that they're trying to get acquired.

So. Primarily, that's how I split my time. And Madison Park group is emerging in acquisitions firm that we do the M and 

[00:07:24] Trond Arne Undheim: a with. Yeah, no, that makes a lot of sense. I mean, I've learned so much over the last few months, basically about this space both interviewing people and where I work now, one of the things that strike me is those complexities of building for in a physical world, they are immense.

So I can imagine that. The advantage of having tried to do so and successfully done. So a few times is quite interesting when you're assessing what's possible now. Yeah. So even though the tools might change from, the eighties, nineties, two thousand, right. Things do change, but there are certain things that don't really change that fast.

So [00:08:00] maybe you can kind of line up a little bit, the space. When you say Manufacturing software and you make a distinction, you're not working with manufacturers. That sounds intuitive like, I, I think I understand what that means, but what does even Manufacturing software mean? Because we're talking about a sector Manufacturing.

That's not really a sector. It's basically everybody that makes thing is a manufacturer. So now software could be anything. 

[00:08:27] Ralph Verrilli: Yeah. So companies make things, you're making a fighter jet. You're making a table, you're making your chair, they have to be made, they get designed, but then these things have to be made.

Right. And whether you're custom Manufacturing things or you're buying components to assemble things, it's typically a complex process and people, I always, my, my family jokes, cause I'm always like, well, I wonder how that's made. And my family's like, you're such a geek, but you know, the complexity in making things is really interesting.

And things have become so complex that being able to manage Manufacturing without [00:09:00] software, and whether that's to manage the process, to manage the logistics, to manage the machines is virtually impossible. But I think it's worthwhile to take a step back. And as you mentioned, Manufacturing is a big area.

There are a number of different types of Manufacturing, right? You have mass customization. Right or mass Manufacturing, you're making, for example, bottles, chairs, light bulbs. These are things that don't change. You're cranking out hundreds of thousands. Millions of 'em. You're gonna have semi-custom Manufacturing.

Think about an automobile, right? An automobile, changes, colors. They change the types of seats. You change engines. It's not a ground-up design and not everything is not completely different, but there is a variation on it. Then you have what we call complex, large scale. Those are things like fighter jets.

Those are things like submarines, nuclear reactors, things that take long, multiple years to manufacture, and things that are constantly changing. And then the other area that's sort of under the radar, [00:10:00] people don't think about is what's known as process Manufacturing. That's where you're Manufacturing.

Things like cosmetics or food, basically it's some type of process that typically involves chemicals, in, in liquids. So, you have these different areas and what we're finding is that different manufacturers want different types of software to help them manage the process. So typically during the process, things will change.

You, you have to source certain materials. You'll have materials that, you don't have anymore. There are lots of things to keep track of. And typically you need software to be able to do that. 

[00:10:37] Trond Arne Undheim: So is that the bulk, would you say of the software starts out with trying to keep track of this material that flows a material that has us to come into the production process?

[00:10:46] Ralph Verrilli: Material is certainly one aspect of it. You can think about compliance if you're making something and you have to make a change to it. Well, that has all sorts of ramifications. So let's say that during a Manufacturing process, I have some type of change. How does that ripple through, [00:11:00] into compliance aspects, into inspection aspects, into shipping?

So again, one, what you always say is one small change at the beginning of a manufacturing process has a great ripple effect. 

[00:11:13] Trond Arne Undheim: So, if you were to classify the different software tools that operate in this industry, are they for you grouped by the distinctions you just made between mass productions, custom, and sort of process Manufacturing or do sometimes the tools cater to all of the above.

[00:11:32] Ralph Verrilli: We're seeing more and more that they're catering to specific types of Manufacturing and even in situations, certain types of domains. But again, I think if you take a step back. Across the board of Manufacturing. We're seeing some very interesting and common themes, right? The ability to predict cost and predict the Manufacturing ability of something.

Right. You have to remember that engineers go off and design something and then it goes to [00:12:00] Manufacturing engineers and the design engineers. Don't always know if the Manufacturing guys can really make it. So, being able to assess whether something's manufacturable early in the process is really important and what that's going to cost.

Yeah. The other idea of being able to do predictive quality, I'm doing this batch run of things. Well, what's the quality going to be, right. I'd like to not have to test every hundred bottles that come off of, so thing based on what's going on the Manufacturing floor, can I predict what my quality might be?

We're seeing a lot of things about shop floor analytics. There are all these Manufacturing machines pulling data off machines to improve efficiency, to improve timing, things like that are sort of interesting. We're seeing a lot these days on employee or. Worker and robot interaction, right? Everyone's here.

You can't get enough workers. So now companies are saying, well, we can either completely run things with robots, but it might, some things are better if we combine robots and machines. [00:13:00] So, robot-human interaction is becoming really interesting. 

[00:13:04] Trond Arne Undheim: Yeah. In your report, you talk about this as industry 5.0 and there, there are all these.

Notions of four and five. And there are even some people in Finland now talking about 6.0, but for you, I don't know where you kind of picked up the idea that the robot integration with humans is the 5.0 for you. But what does it really mean? Because there are many distinctions in that area. Right? So cobots, are robots that actually have some sort of interaction interface.

They're not dangerous, that's the first problem, but then more kind of advanced sensors, I guess, generally, and also. More sophistication, perhaps, and interfaces on the human side so they can kind of control these robots. What are some of the companies that come into mind for you over the last year that exemplify this industry?

[00:13:53] Ralph Verrilli: what's interesting about it is, on the robot thing, right. We found, or the industry is found that is, that if you're doing [00:14:00] mass customization, you do it all with robots. And there are certain things that believe it or not, it's still better done by humans. Well, what's the right optimization between the two, and robots can still, in certain cases only pick certain types of things and move 'em and place them in certain areas.

Sometimes you need a human to do it. There's a company out there right now called pickle. Right now that's really focusing on human and robot interaction. Let the robot do part of it. Let the human do part of it. We're seeing fewer and less safety concerns. To be honest with you, right? You're not gonna put a human into this robot cell where you've got this big 200-pound arm moving across.

It's more the finesse part of assembling things. And then even in cases where you might have something semi-custom that you're putting together where you can't program the robot to do it. How do you get the robot to do the standard part, the non-custom part, and then have the human put in the parts that are somewhat custom?

[00:14:54] Trond Arne Undheim: Yeah, I mean, it's a huge focus on this podcast. Obviously these distinctions between kind of industrial [00:15:00] automation approaches and then what we would call more advanced kind of augmentation approaches, where you are sort of taking more into account. Exactly what you're saying, what are the optimal activities that humans should be doing at this point?

And robots and these things I'm assuming will be changing. So that's part of the game for you is to figure out what is the market ready for and what is actually possible. Yeah, exactly. 

[00:15:22] Ralph Verrilli: The number of interesting companies that we're seeing right now is unbelievable. And again, you need to remember going back to what I said.

I spent 80% of my time helping establish companies or re-get equity. Or get acquired. What's really fun is that I get to see the entire spectrum because of my work with some early-stage companies. And, you really get to see some early-stage companies doing things that are just really cool, knowing that eventually is going to get to the mass market and that's gonna be in a couple of years.

[00:15:52] Trond Arne Undheim: Well, I wanted to ask you a little on the financial side too. I wanna go back to some of the companies, but before that, so private equity isn't necessarily [00:16:00] known for going in early stage, but as you're pointing out, well, certainly there's been mid-market private equity for a while, but in Manufacturing, these things tended to just be that you pick up some older firm that wasn't perhaps growing and then you kind of shake it up and makes it grow.

But. You're seeing now private equity becoming interested in Manufacturing also at earlier stages and even so just more interested than they were before. Comment about this. Trond when did it happen? Who are sort of the actors that are active and what exactly is it that you're seeing? Early cuz that doesn't make a lot of sense to me.

It actually, blurs the picture that you have in your head of right. Which financial actor is active at given stages. Right? Private equity is not something you assume you're dabbling in investing in the garage and some guys. And 

[00:16:48] Ralph Verrilli: so, what we're seeing Manufacturing started to become cool, right?

The supply chain is starting to become cool. Right? The whole COVID situation has really. Made people [00:17:00] realize that you have to start to think about Manufacturing closer to home, start to really worry about the entire supply chain. So COVID was a great accelerator. And one thing we should touch on at some point is sort of COVID and driving the idea of Manufacturing software as a service.

But we can come back to that. But going to your question across the board, we're seeing the lines blur now between traditional private equity and the early-stage venture guys. There are certain funds that are certainly gonna focus on, very well, big established companies and certain funds that are gonna focus on the two guys in the garage, but you're a hundred percent, right.

Everything's becoming blurred, 

[00:17:39] Trond Arne Undheim: even family offices, arguably I've been seeing some LinkedIn activity, very sort of bullish people from that industry saying, Hey, VC, go eyes, keep watching. We're more patient. We have more money. We're getting smarter. We're coming for you. 

[00:17:53] Ralph Verrilli: Right. Yeah. And that's, regardless of the industry, you're a hundred percent right.

In the Manufacturing world, [00:18:00] everyone's trying to get into it right now. It is just such a hot space. And there are so many places that you can sort of interjecting yourself. We can do traditional Manufacturing, but in the software world, again, there are so many different, interesting points, whether it's shop floor analytics, whether it's predictive, costing, whether it's sourcing, there are just so many areas that you can interject yourself.

When we work with our clients, they might have inbound offers from someone saying, Hey, so one wants to acquire us, or, Hey, we've been doing this for five or six, seven years. We think now is the right time to look at some exit options. We have a number of firms and again, the universe of private equity firms is extremely big, but we like to work with companies that have a thesis around it.

Meaning do you have a conviction for it? Do you have a passion for it? Do you typically work 60% with found their own companies? These are people that have spent their careers building this company. The money, believe it or not, is secondary. They wanna find the right home for their products and their technology.

And that's where we spend a [00:19:00] lot of time based on what we know about the ecosystem. Who would truly value what these people do and how they do it. But again, we're seeing big investments in early-stage companies. I mean, it's just unbelievable what we're seeing, companies like Tulip companies, like paperless parts, just getting significant investment from big, whether it's venture private equity, however, you want to distinguish, but the investment community as a whole has really taken a liking to manufacturing. 

[00:19:32] Trond Arne Undheim: And one of the interesting things about that, Ralph to me at least, is that the complexities haven't necessarily gone away. It's still hard to grow a business. Even if you are not yourself making products, you are selling software to people who are yes.

So it's not as easy as just throwing in some good algorithms. Right. Cuz you're actually trying to help people. Improve the efficiency of their process, right? It's not just about your [00:20:00] process, your wonderful product. It actually really works in this material flow that we were talking about earlier, right?

[00:20:07] Ralph Verrilli: Nothing is standalone anymore. Trond nothing is standalone, right? You need to integrate, take data from send data to a lot of different products. There's no one company that is really doing it end to end. And some of the big guys sort of try. You think about the Siemens of the world and companies like that.

And they might have been okay. Solutions across the entire spectrum, but they don't have best in class solutions, which is what we're seeing drives some of the acquisition 

[00:20:39] Trond Arne Undheim: interest. I was gonna ask you about that because. Of course, if you are a traditional industrial company with ambitions on technology, you're gonna try to gun for controlling the process.

Right. Right. And of course, the ideal situation for any startup is, is also to do that. You capture all the value. You're not giving money away living anything on the table, but why [00:21:00] is it that this has been so complex X? I mean, this is your space, right? The acquisition game. Is about sort of complimenting your kind of innovation portfolio and I guess you sometimes rely on that for the exits for these companies.

Why is it that the likes of, and Siemens is just one example? There are many of these sorts of industrial giants GE another one, right? They have gotten into trouble, like you said, Getting best in class, all across the board. Is there complexity just too much or is it the integration of the different pieces that they buy that may at some point be excellent, but the moment you put it into your portfolio, the integration of it is too complex to get the value out of it.

What is the reason why this does not seem to be happening? 

[00:21:42] Ralph Verrilli: We have a lot of data on this in the engineering software world. And we're seeing the same thing transfer over to Manufacturing. We're seeing companies want what we call domain-specific tools. They want software that works for their [00:22:00] problems.

They don't wanna take general software and try and apply it to what they're doing. So we call these domain-specific tools and do something domain-specific. Meaning, shop floor analytics, for example, you really need to delve deep. You really need to understand the domain, understand the problem.

And these bigger companies are traditional, they're not going in deep. They're trying to be something to everyone. And that's why we're seeing the acquisition interest. You have these companies, for instance, doing, no code applications from Manufacturing cost estimation, they know that really deeply.

It's a critical part of the process. And the big companies are never going to have the interest to spend the time to go deep. Because it's too nichey for. 

[00:22:46] Trond Arne Undheim: Talk to me more about no-code platforms. Obviously, Tulip is a no-code for the Manufacturing platform. So we do spend some time there. You highlighted no code in your report as an interesting concept, [00:23:00] no code has been part of sort of general software for a little while.

Is there any chance in your mind that these very generic software platforms can, or are moving into Manufacturing, or are you seeing more? Custom sort of Manufacturing, no code. So 

[00:23:16] Ralph Verrilli: just to set the stage, right? No code typically means developing a software application by configuring it, dragging things, configuring a specific application.

There are definitely no-code platforms out there that try and be anything in everything, people, but the no-code platforms we're seeing are successful. Light tool or focus on a specific area, at least for now, because you're sort of more configuring or, the domain in which you're working.

Right. You know that, okay, I'm going to develop this application, but it's in the world of shop floor analytics. It's in the world of sourcing it's in the world of quality. So right now the no code, [00:24:00] low code applications that we're seeing of certainly that are successful are within certain areas. That's in general now eventually will you get there?

Yeah. I mean, there's certainly a bunch of no-code platforms out there that can do anything and everything, but they typically work in very generic business processes and, not to disparage 'em, but you know, the world of Manufacturing, the world of engineering, the world of analytics, machine shop analytics is pretty complex.

[00:24:24] Trond Arne Undheim: So let's do cuts then into this because. Obviously, there are separate industries that have sometimes their own kind of software players that historically are there. And then there are some startups that are moving industry by industry, right? So there are no code applications for specific industries or low code applications for specific industries.

And then others again, say, no, it's the problem-specific focus. That's gonna be my thing. So there are software firms now for like, Asset intensive industries, I guess. And they focus a lot on kind of digital twin type technology. And a lot of buzzwords here, but you focus quite a bit on engineering [00:25:00] and engineering analysis.

Can you map out that space a little bit for us and how that's relevant for how to think about the sector overall? Cause engineering is one of these things that people think they understand, but when you start. To say engineering software. That's already kind of a misnomer right there because it gets complicated.

You're now talking about a profession matched with technology. So you get into kind of this, I guess, the complexity of, the information technology space, plus the operational challenges that get pretty hairy. 

[00:25:31] Ralph Verrilli: It is. But again, it goes back to what I was saying before. Right? I have this saying, if I'm a plumber, I need the tools that allow me to fix pipes and do my job.

Right. If I'm an electrician, I need the tools that allow me to run wires and put in lights. There's a little bit of overlap, but those professions want tools that help them do their job. We're seeing the same thing in engineering. Again, going back to this concept of domain-specific tools. [00:26:00] If I'm designing a carbon fiber apart, I want a tool that allows me to design a carbon fiber apart.

Companies are going away from, generic CAD systems. And saying, okay, know, I'm gonna allow you to design anything and everything. Well, you need that, but you also need tools to help you do specific types of processes, specific types of design. And that's where, again, coming back to these smaller companies that focus on things.

Getting great valuations, right? And again, you just map it to Manufacturing the sets of tools that Manufacturing software, that automakers use is different than the Manufacturing tools needed to design an aircraft. It's just different. So that's what we're seeing. And then again, I, I did want to bring this back.

One of the biggest things that we've seen is this transition to SaaS software as a service. And Manufacturing and engineering companies, right? The big companies, the lock feeds the Airbus. They always had software on-premise, right? They wanted to manage it. They [00:27:00] never wanted to allow their designs outside of their enterprise with COVID and no one being able to go to the office or being able to share things and no one is able to travel, the ability to access software and designs remotely.

Has become critical. And now all of a sudden SAS has really taken off in the world of both engineering and Manufacturing COVID has just been a boom for that type of software in that 

[00:27:24] Trond Arne Undheim: industry. Yeah. So I would agree with you but it is a completely separate business model and it does have quite some effects on a company that just says, they're gonna go as, like, what if they have invested in an on-prem platform that doesn't even provide it.

Then the vendors are scrambling to put a SAS layer on top of an on-prem solution. I mean, these are mission-critical systems and actual factories where like downtime of 20 minutes during the day is a big issue. 

[00:27:49] Ralph Verrilli: Yeah. So it has been a scramble then your example is very good. You look at companies like PTC or Autodesk that traditionally have only had on-premise solutions.

[00:28:00] They have focused on SAS to get new functionality. We need to getaway. Getting a SaaS platform out there and it's been difficult, right? A lot of these companies, again, going back to the big aerospace manufacturers or any type of manufacturer, typically always use their software on-premise and they've invested all this money.

So the software manufacturers, whether it's for engineering or Manufacturing have had to develop a product and get the customers to convert over. And in many cases, it hasn't been easy. Until COVID all of a sudden in COVID post-world, companies saying, I don't want to do it. I don't want to do it now. They're saying I need it.

I need it. I need it. So that's been good for the software industry, but you know, again, you can go into the financials, you take a revenue hit on it and things like that. Probably not appropriate for this, but there are a lot of challenges for the software companies in this world, but it appears that there are all getting there.

[00:28:50] Trond Arne Undheim: Yes. So that's interesting. The software companies seem to be finding opportunities, but I'm interested in the Manufacturing factories as such. One of the things that [00:29:00] struck me looking into this is even bigger firms that you would think have made the transition already either to SaaS already, or, to some sort of cloud solution and maybe to advance kind of worker tools and predictive maintenance that have a lot of those buzz words covered.

You have systems. But then you look at the fact that they make acquisitions and also they make specialty parts sometimes and have smaller facilities. There's just this discrepancy across the Manufacturing portfolio of almost every large company where they have these outperforming big places where they can maybe.

Install new systems and can afford to take the costs of making all those transitions. And then you have simultaneously either their own factories that are smaller and can yeah. Take those costs or you have the enormous challenge of the supplier networks, right? It's not just you, right. You gotta in some way, upgrade your entire support structure.

[00:29:54] Ralph Verrilli: Right. And no easy task by any means. Right. And as you're alluding to and listen, let's not [00:30:00] say that the whole world has gone to SaaS. There's still a tremendous amount of. Perpetual and on-premise licenses or, usage out there in the world, but you hit on an interesting thing is that all these OEMs are looking for a way to get more visibility into their supply chain.

And if they want to do that, they're recognizing that they all have to be on a common software platform. And the only way to really do that, Is to move to this SaaS or cloud-based model. So there are complexities, but I think, the ability to look into your supply chain is also driving the need to go to SaaS or like what we call cloud-based.

I think one point, we've really spoken about, the larger manufacturers, we need to remember that in the United States, There are so many very small manufacturers. I call 'em Joe's machine shop, that's designing bolts, someone that's designing or Manufacturing parts for a Boeing airplane, part of a landing gear.

There are hundreds of thousands of small manufacturers. And now there are companies that are starting to try and cater to those guys' eyes, right? Forget the [00:31:00] Lockheeds of the world. How do we go and really help. Companies on the smaller side of Manufacturing achieve efficiencies through software. That's sort of becoming a really interesting space as well.

[00:31:11] Trond Arne Undheim: Well, but it ties into the business model, right? Because if the business model of the provider, even if it shifts from on-premise to software, as a service, if you're still charging an enormous license fee, as a install cost, you see this game, play, people are trying to get it both ways.

They're like, yeah. Our software as a service has its a million dollars to get started and then we can start to do some monthly in addition. right. So now you're getting both. 

[00:31:37] Ralph Verrilli: Yeah, well, they're not getting both well, they're trying to, yeah, they're trying to, but they're not getting both. It's interesting.

You're a hundred percent, right. And the purchases of software have sort of wised up and saying, listen, we only wanna pay for what we use. We're not gonna buy all this software and let it sit on the shelf. And we don't want this upfront cost. So they're getting pretty [00:32:00] smart, right? The Salesforce model has changed the world and it's now coming around to engineering and Manufacturing.

But again, you bring up a good point. If you look at some of the big software providers, whether it's the SOS of the world, the ANSYS of the world, certainly PTC and Autodesk as they go through this transition from. Perpetual on-premise, whereas you say, you get a couple of million dollars upfront to getting something on an annual or monthly fee, you're gonna take a revenue hit and you have to be smart as the way you work through that.

And, we call it the trough, right? You're gonna have to go through the trough to get to the good part on the other side. And a lot of big ones that deal win it. And a lot of small ones are starting to catch up, but you're a hundred percent. Right, right. They're not getting it both ways anymore.

[00:32:42] Trond Arne Undheim: Talk to me about the industrial engineer of the future, cuz it strikes me that some of the things that you're talking about here, take a long time to fully understand. It's not like, oh wow, there's cloud. I get it. And then every engineer is suddenly wired for cloud and has it all figured out what are the challenges both [00:33:00] within the industry and to the provider who are trying to sell new types of solutions in terms of grasping what it actually is to be an engineer.

In this evolving market. I mean, none of the engineers on the shop were educated for software, even in the first place. They might have had a little software course, but whatever software course they had is not the software we're seeing now. Yeah. So, yeah. Okay. I get it. The interfaces are getting simpler, so they say, and there's low code or no code, but there are skills involved.

How does that play out? 

[00:33:31] Ralph Verrilli: Yeah, so it's a very good question because. We see engineers, Manufacturing, engineers, everyone's becoming specialized. And we say that because products are becoming more and more complex, right. 20 years ago, even, right. You didn't have all these electronics in software.

You didn't have electronics, controlling mechanical components and think about it, right? You introduced electronics. Well, now you have an heat problem, [00:34:00] right? You have a vibration problem that you need to manage. We're seeing engineers become more and more specialized. Again, going back to that and as such, they want tools is because they don't want to take a generic product and figure out how I'm going to apply this to my specific problem.

They're wanting specific tools that help them manage their process. Their product companies are looking for engineers that can go really deep in certain areas. So I'm not sure it exactly answers your question, but that's certainly a Trond that we're seeing. And again, I go back to you, I think about even just 20 years ago, you didn't have all these electronics in cars like you do now, electronics and machines, what does electronics now require batteries?

It requires more heat analysis. Things are becoming more complex. 

[00:34:50] Trond Arne Undheim: Yeah, I guess I'm talking about both the workforce retraining challenge of trying to get engineers to feel confident about the opportunities [00:35:00] that are forthcoming with the SAS world, basically. And these new systems, even just like staying up to date on that.

And then the question of, if you think about the schools, the universities, and even the colleges that are educating engineers and technicians. So, at lower levels, what should they be doing to prepare for this? Because it's so evolving. Yeah. 

[00:35:21] Ralph Verrilli: I can't say that I've given it a tremendous amount of thought.

To be honest with you, I will tell you that after spending seven years in engineering school, you end up spending a lot of time on a lot of theoretical things. And I personally believe that engineering school and getting people prepared, don't address a lot of the practical things that you're going to encounter.

And some might say, listen, you're gonna learn that on the job, but I think that's sort of hard. So, I think almost every school at some level is bringing software in for design and analysis. Right. That's been happening, but you know, really, how do you use this on real world's problems? I think is a challenge [00:36:00] that we've yet to sort of see.

But I think taking a step back again, going back that the real world is becoming more and more complex, this idea. How do you train engineers to multidisciplinary design? How do you train engineers? That things are not just going to be mechanical. Things are not just going to be electronic. You have to sort of bringing all of these things together.

I think that's something that we should spend more time thinking about. 

[00:36:24] Trond Arne Undheim: Yeah. So that's, I guess why I was trying to use the term industrial engineer because you have to make sure the system works. As you said, it doesn't matter. You are trained as an electrical engineer. If there's more than electronics needed, you're in trouble.

One challenge that you did highlight this report under the bracket of industry 5.0 was. The energy efficiency and sustainability challenges, that would seem to be an area for sure. Yep. Where it's a little bit unclear. What exactly is gonna make a dent and who has the skill really there to make a difference?

What are you seeing in this area? [00:37:00] Are there. Specific startups that are attacking the kind of eco-efficiency and Manufacturing tech that you're looking at, or is it just something that you highlighted as something that we all have to get better on and you'd wish someone brought a deal to you that looked like that.

[00:37:15] Ralph Verrilli: Yeah. So we certainly highlighted, as you said, in our report, As a Trond that needs to be addressed, but we're actually starting to see. And again, this is, these are early-stage companies that we're starting to see companies that will track carbon emissions or, the carbon footprint from a factory, which is really interesting.

Right? I mean, no one you years ago was speaking about this, right? How do I track the carbon footprint of a factory? Right. That's going to be important. , I'm not really sure. Anyone really knows how to do that. Companies do it or try and 

[00:37:53] Trond Arne Undheim: do it well. So that's my point, right? In this stage where there are so many approaches and it's not clear [00:38:00] how, and whether it will be regulated, what the approaches might be.

No one seems to really have the kind of silver bullet yet. How do you play that market? We might everyone think right now that it's a important, but we're going through this experimental phase where we don't know. Yeah. What's gonna pan out. 

[00:38:17] Ralph Verrilli: That's an area that is just so early stage and you're right.

There's no silver bullet. I think the small companies are starting to see that there's a problem here, right? The startups, right. Which we love saying, Hey, there's a problem there. How do we go solve it? Let's go learn what the real problem is and try and get ahead of a solution. That's probably the best I can do for you in that one.

But I think it's gonna be driven by those startups and the guys that are really looking ahead. 2, 3, 4, 10 years that are gonna solve that one. 

[00:38:48] Trond Arne Undheim: Let me just hit on one last thing. Again, that was part of your report. You talked about sort of simulation technologies, digital twin being one of them. When I am used to thinking about digital twins, [00:39:00] I think about some sort of fairly complicated industrial asset, whether it's a boat.

Or a reactor or some of these that you mentioned in this sort of category up here of more complex Manufacturing, complex goods, but the way this field is going, we are starting to see the possibility of modeling larger systems, not just the thing. However complicated the thing is, people are starting to, and to this sustainability challenge, that's essentially what this would require.

Right? You're not just measuring carbon in and out. You have to have a simulation of not just the thing, but the system around it. What does that look like? So this digital dynamics. Yeah. Essentially. 

[00:39:42] Ralph Verrilli: Yeah. So, you probably know this concept of this wording of digital twin gets thrown around so much.

Right. So it's really incredible. And fundamentally what you're trying to do is you design something electronically, you manufacture it and then you put it in the field. And basically, it's a twin. The thing in the field [00:40:00] is a twin of what got designed rarely is that the case, because changes happen in Manufacturing, changes happen in the field, but typically you get close enough, right?

So if you can censor it, you can do predictive analytics, predictive maintenance and things like that. But you're right. Right. Then, what you put in the field is typically part of a larger overall system. So unless you have all the data from the environment around it, Or the entire, ecosystem, it becomes really complex, but we are seeing companies start to do that.

For instance, we're speaking with a company that's doing digital twins of data centers. And this goes back to your point of electricity consumption, CO2 emissions. Right. So all of a sudden they're saying, okay, we're gonna model a data center. And we're going to start to figure out how that's going to affect the environment.

So now all of a sudden, if we wanna reduce electricity consumption, we can sort of tweak some things. To drive that right. And that, we've got, too much air conditioning is used, which is generating too much CO2. How do we tweet that? Your point's a very good one.

Typically it still is big assets, but [00:41:00] we're starting to see companies use the digital twin concept to model and simulate broader environment. 

[00:41:07] Trond Arne Undheim: Ralph, we're talking a lot about the markets, but I'm imagining when you set at the outset, you spend your time advising founders and founders is kind of the focus and that's the fun part.

What do you advise them about? Cause some of it is these discussions that we're having here about, what's actually happening in the field. And how do you position yourself? Yep. What is the Boer of the mentoring work that goes into, I guess the companies you have already chosen to invest in what is the sort of guidance they do 

[00:41:30] Ralph Verrilli: need.

I think myself, like a lot of other people, is go find something that you are really interested in and truly understands the problem. Right. Truly understand the problem and immerse yourself in it. And then think about it from a broad context. So that you could figure out what the best solution is, and again, the example is, just to bring it full circle, know, we started a company that focused on carbon fiber parts.

We didn't really know much about carbon fiber at the time, but we said, this is [00:42:00] gonna be something really big in a couple of years, let's go learn about it. And, we took, what I always say is, you get a bunch of good smart engineers that are curious and they can understand the complex problem.

And then articulate a solution. You're probably gonna be okay. So those are the fundamental things go, really understand the problem, right? You don't even need a background on it. Right. If you're a good engineer, you'll go figure it out. So that's what I always try and do. And, trying to, it's really interesting.

There's no shortage of good ideas out there. Right? You think about the investment thing, right? You see a lot of 'em. I see we see so many good ideas, the execution. I've come to realize the execution is just as important or more important than the good idea. I always say to my guys, execute, keep your head down, go build a really strong business.

And eventually, the good exit will come. 

[00:42:50] Trond Arne Undheim: Good advice. Execution is the game. So you gotta understand what to execute and then just go do it. Don't be distracted. Good advice. Yeah, no, do it keep [00:43:00] your head down, yeah, I like it. Well, Ralph, it's been great to cover some of these things with you. Thanks for sharing your insight.

[00:43:07] Ralph Verrilli: Thank you look forward to doing it again. Thank you so much. 

[00:43:10] Trond Arne Undheim: You have just listened to episode 71 of the Augmented podcast with host Undheim. The topic was trends in a Manufacturing software market, and our guest was Ralph VA, managing director of a Madison Park group. In this conversation, we talked about his notion of an industry 5.0, emphasizing how manufacturing integrates with humans.

My takeaway is that the manufacturing software market is, thankfully, finally evolving. Is there hope that we can get the industry weaned off legacy technology with poor interoperability, horrible user interfaces? Which as a result, require hours and hours of training only not to work very well at all.

Thanks for listening. If you liked the show, subscribe at augmented podcast.co or in your preferred podcast player and rate us with 5 stars. If you liked this episode, you might also like episode 59 "Early Startups Meet Industry 4.0." Hopefully, you'll find something awesome in these or in other episodes.

And if so, do let us know by messaging us, we would love to share your thoughts with other listeners. The Augmented podcast is created in association with Tulip, the frontline operations platform that connects the people, machines, devices, and systems used in a production or logistics process in a physical location.

Tulip is democratizing technology. And empowering those closest to operations to solve problems. Tulip is also hiring. You can find Tulip at Tulip dot co to find us on social media is easy. We are Augmented pod on LinkedIn and Twitter and Augmented podcast on Facebook and YouTube, Augmented industrial [00:45:00] conversations that matter.

See you next time.

Ralph Verrilli Profile Photo

Ralph Verrilli

Managing Director

Based in Boston, Ralph works with enterprise software companies throughout North America. Previously, he was COO of VISTAGY, which grew to be a worldwide leader in enterprise design and manufacturing software for the aerospace, automotive, and marine markets. Ralph led VISTAGY’s global expansion, establishing operations, sales, and services in England, France, Russia, China, and Japan. In 2012, he and his executive team sold VISTAGY to Siemens in a strategic acquisition.
Over his career, Ralph has been a senior member of teams that took early-stage concepts and developed them into high-growth global enterprises. He has held front-line and executive leadership roles in operations, sales, product development, product support, and client services. As product manager, he helped position Concentra for its successful IPO.
Ralph received B.S. and M.S degrees, both in mechanical engineering, from the University of Massachusetts.