The manufacturing industry has proven that it can be innovative, transformative, agile, and resilient, if not in the past few years over the course of history with events like the Industrial Revolution. Despite factory production being at its highest levels in 14 years as of September 2022, manufacturers are still feeling looming pressures and industry disruptions. Along with some of the challenges from 2022, nearly two-thirds of manufacturing leaders believe that the economy will fall into a recession in 2023, adding additional concerns to an already turbulent economic environment.
But with challenges come opportunity; West Monroe’s 2023 Manufacturing Outlook Report outlines 5 key focus areas for this year that will help to prioritize and accelerate critical capabilities and change within organizations, small and large, and the industry as a whole.
5 Key Focus Areas for Manufacturers in 2023
- Incorporating holistic digital systems throughout every facet of your business
While the industry has been talking about digital transformation for years, actions have been slow moving. Now is the time for manufacturers to give attention to their digital journey as it can help to plan with confidence and emerge in a healthy position when the economy is on the upswing. In a Manufacturing Leadership Council survey, 84% of manufacturing executives expect the pace of digital adoption to accelerate throughout the rest of this decade. The automotive industry is a leading trailblazer when it comes to digital progression, delivering smart products through smart manufacturing.
Harvesting and using data to drive better performance, supply chain visibility, sustainability, and talent – many of which are included as other key issues and focus areas within this article, is critical as the economic environment puts pressure on costs and investments for manufacturers. It can also be useful when filling productivity gaps due to labor shortages.
The report outlines some action items regardless of where you are in your digital progression:
Just Starting Out
- It is recommended that you establish a team focused solely on digital, with the right leaders, advisors, and trailblazers.
- Find concrete use cases that are quick to put into operation and offer fast payback, this can include networking components on the shop floor to improve visibility and produce new insight that increases agility and efficiency.
- Test, measure, and refine, and then act quickly based on what you’ve learned.
- Commit to taking your efforts to the next level. For example, if you’re piloting a digital solution on one line to see how it works and assess return, design it in a way that makes it simple to deploy to the rest of your operation and start planning for expansion to other lines or facilities.
- Explore a variety of ways to scale. Look for additional applications for specific technologies in which you’ve invested such as your IIoT or cloud platform.
- Analyze the insights from early efforts and ask: What else could we learn with additional analysis? The more data you collect, the more questions you can ask. This is a never-ending journey—always aim to learn more.
Forward-thinking and Further Along
- This may be the time to think about advanced digital strategies that drive new and predictable revenue streams—such as smart products—rather than just operational innovation and efficiency. In the current economic environment, creating a smart product with predictable recurring revenue may have more immediate impact than consumer applications.
Maintaining momentum towards a digital future is critical to navigating the challenges the industry faces now and when the economy rebounds.
- Increasing supply chain resiliency
Supply shortages and cost-of-goods are top of mind challenges for manufacturers. 48% of executives polled in West Monroe’s mid-year Consumer & Industrial Products Executive Poll said that supply chain shortages are their leading operational challenge. While the industry has normalized the disruption, consumers will throw an additional curveball into the mix, by challenging suppliers and their views on product availability and lead times. Knowing that, manufacturers need to be better prepared for the next supply chain crisis.
More than 80% of respondents in a recent Gartner study have insufficient supply chain visibility and another large portion are still collecting supply chain data with manual processes contributing to errors and laborious, time consuming tasks. Supply chain visibility is key in business agility and productivity, among many other factors.
The report breaks down two approaches to help remedy supply chain challenges:
- In-house/internal: Start with modifications and improvements within your in-house business departments, for example, fine-tune processes within your internal teams to optimize efficiencies, look at ERP functionalities that you are paying for but may not be using or utilizing to its maximum abilities, analyze nonessential, indirect spending, and add more rigorous criteria around sourcing direct material.
- a Partners/vendors: Look outwards and engage with supply partners; ensure you have key information about raw materials, logistics, lead times and incentives.
- Transforming the workforce to sync with digital developments
There could be as many as 2.1 million unfilled manufacturing jobs by 2030 with only 60 people looking for every 100 manufacturing job openings. As long tenured employees are retiring or leaving the workforce, manufacturers are courting younger generations of digital natives with quite different expectations around working conditions such as flexibility in the workplace and growth potential.
Nearly half of executives surveyed in a Bloomberg Law report said they have had to turn down business opportunities due to a lack of properly skilled workers. Short-term needs are stealing attention from building the workforce of the future. Digital operating models exacerbate the demand for new types of technology-driven roles, but half of today’s production employees say they don’t feel ready to take on advanced roles.
Manufacturers should expect labor costs to remain high, even during slowdown and competition for talent to be a factor in high employee turnover. The industry is tasked with the following in order to develop and maintain the future workforce:
- Engage their next-generation workforce with meaningful work that leverages their intrinsic digital skills while instilling them with the institutional knowledge of retiring workers.
- Manufacturers must dedicate more attention to the soft side of operations—vision and culture — to help establish a culture that attracts and retains talent. Design a compelling value proposition that should convey what it’s like to work for the organization, how it feels to be a team member, and what employees get for delivering high quality work. This strategic approach will engage the younger generation who strongly values connection in this form.
- Skill development must become a top priority. High performing companies have holistic learning and upskilling plans; key goals include transferring knowledge from experienced workers to newer workers, making sure employees feel prepared as their roles transform, and providing options for development, especially surrounding digital skills.
- Expand partnerships with vocational training programs and community colleges to assist with recruitment, as well as educational content, delivery, and curriculum, that supports the increasingly digital manufacturing environment.
- Create career models that showcase a clearly defined path forward with outlined opportunities to move up and across the organization.
- Creating innovative approaches to drive profitable growth
Manufacturers must be prepared to increase profitable revenue from existing customers, channels, and products while also developing new revenue streams. According to a study done by Forrester, 86% of executives view revenue operations as critical for achieving goals, but only 41% are confident they understand it.
Often revenue generating departments like sales, marketing, and product development, operate independently with varying goals which can limit effectiveness, agility, and competitive advantage. Creating cross-functional internal teams and managing the revenue engine proactively across functions can help teams work more cohesively and collaboratively, and drive process coordination and overall common goals.
Capitalizing on new revenue streams with digital and smart products and services, like apps, in a product-as-a-service innovation model is said to improve customer service, and moreover, is projected to bring $20 trillion from IoT connected devices by 2030. By capturing, storing, and analyzing data from products within this model, businesses can build service-based revenue streams that align business operations with customer priorities.
The data collected will greatly assist with customer strategies, buying behaviors, and expectations. Leading organizations use quantitative and qualitative analysis to segment customers into groups that reflect their priorities, and then use this insight to allocate resources accordingly.
- Advancing sustainability
According to U.S. Environmental Protection Act data, nearly a quarter of U.S. greenhouse gas emissions come from industrial sources. Mounting pressures from investors, consumers, regulators, and employees to take responsibility and action have elevated change and targeted improvements from manufacturers.
Companies struggle with sustainability initiatives due to the cost perspectives; some see it as a burden on profitability with a slow return on investment, while others see the consumer appeal to incorporating sustainability initiatives within their business.
Despite uncertainty in the near term, the factors that initially made sustainability a priority are not going away. Global research finds that consumers increasingly make buying decisions based on sustainability and are willing to pay more for products that are sustainable or coined as “socially responsible.”
Other key areas of focus include tracking and demonstrating a sustainable supply chain, pursuing a green IT strategy, committing to create a circular economy, and developing smart products that help eliminate consumption and waste. Advances in technology and digital operations can accelerate progress by providing new insights and data to support formal sustainability goals.
To align your digital journey with your sustainability journey, it is recommended that businesses not only measure and report the impact of your sustainability initiatives, but also do the same outside of just in-house initiatives by tracking and reporting environmental impacts of your suppliers, setting requirements, and providing direction and support, where necessary, for fulfilling those requirements.
The common theme these 5 areas of focus share is that it is time to refresh, reframe and reinvest in your capabilities, especially as it relates to digital. While it is disheartening to hear that the economic turbulence will continue for the coming year, the industry has many opportunities to remain focused and afloat, as they have done throughout past. How will you equip your business with these key focus areas to accelerate full steam ahead?