Looking forward, looking up
February 27, 2018
Trends to watch as you modernize and optimize
The future looks bright for manufacturing. In the latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM), manufacturers’ optimism has risen substantially; almost 95% of respondents say they are positive about their own company’s outlook. This optimism is reflected in the UK, as well, with the EEF forecasting 1.4% growth in UK manufacturing in 2018.
What’s driving that growth and what do manufacturers need to be mindful of to keep things moving in the right direction? Here are ten trends to watch:
1. Regulatory reform
The passing of tax reform is expected to have great impact on manufacturing, according to NAM’s Boerstling. The vast majority of NAM’s members (94.6%) expect to increase capital spending, increase wages, and hire more workers with the passing of tax reform. But, there’s still work to be done around trade and immigration, both of which could greatly impact manufacturing.
In the UK, Brexit still looms, creating quite a bit of volatility. Lee Hopley, Chief Economist for the EFF, the Voice for Manufacturing and Engineering in the UK, reports that in a recent survey, UK manufacturers expect to see more risks to their business over the next year than they saw in the previous quarter. Hopley attributes this reaction to policy challenges and politics around the Brexit negotiations.
2. Growing global economy
Regulatory reform and the current political environment are creating a business climate with a focus on the possible. “I wasn’t confident that we were going to see a big boost in 2017, but the outturn has been better than we anticipated,” says Hopley, during a recent IndustryWeek webinar, sponsored by Infor. She sees stronger growth across manufacturing sectors, particularly those that are investing in new technology. Internationally, she sees continued optimism about global growth prospects, which translates to greater export opportunities for manufacturers.
3. Continuing Skills gap
NAM reports that there are close to 400,000 unfilled jobs in manufacturing today, and that number is expected to grow to 2 million by 2025. Infor’s Nick Castellina, Director of Product and Industry Strategy for Discrete Manufacturing, adds that 78 million US employees will retire from manufacturing within the next 10 years, and 82% of manufacturing CEOs say the skills gap will affect their ability to meet customer demands.
The solution to this problem needs to be multi-pronged. The government has a part to play, with passing education and technical training legislation, as well as the creation of apprenticeships—5 million over the next 3 years, according to Robyn Boerstling, Vice President of Infrastructure, Innovation, and Human Resources Policy for the National Association of Manufacturers (NAM).
But, manufacturers need to tackle the problem, as well. Manufacturers need to create more work-based learning programs and their own apprenticeships. Technology has a role to play in closing the skills gap, as well. Today’s generation of workers want to work with solutions that are user-friendly and that resemble the technology they use in their everyday lives. Their impression is that they won’t find that sort of technology at manufacturing companies. So, it’s time for manufacturers to make technology a key differentiator.
Infor’s Castellina reports that executives at digital leaders say they have 90% of the talent they need; they can find the people they need and keep them working at their companies because they’ve made technology a priority.
4. More connected supply chain
Roughly 80% of the data that organizations need to effectively run their global supply chains is stored externally, according to Castellina. To remedy this situation and gain greater visibility into products, better manage demand, and collaborate more effectively with partners, the next generation of supply chain will be digitally connected. It will function as an interconnected network that’s agile, responsive, and efficient. Most of these supply chain interactions will happen across cloud-based commerce networks and be supplemented with analytics to better manage demand, keep costs low, and ensure profits.
5. Tightening of cybersecurity
Cybercrime is predicted to cost global businesses $2.1 trillion by 2019. Preventing all cyberattacks isn’t possible, but manufacturers can—and must—continue to tighten their security to safeguard their data and operations.
The Cyber Security Information Act of 2015 created a framework for cybersecurity and established the structure for businesses and government to work together on the issue. The US government spent $14 billion on cybersecurity in 2017, and expects to continue to increase spending. Manufacturers need to build collaborative relationships with government on cybersecurity, but they need to work on the issue themselves, as well. Employees need to be educated on the importance of cyber safety and companies need to tighten the reins on what comes in—and goes out—of their operations. There’s much for manufacturers to learn from incidents like the Equifax data breach in terms of best practices and approaches.
6. Manufacturing CFO becomes more strategic
Where in the past, CFOs were part of the back-office operations, that business model is shifting within manufacturing. Today, and moving forward, CFOs are becoming partners to the line of business and driving strategy to enable them to grow the organization and perform their jobs more effectively. Manufacturing CFOs are increasingly becoming involved in technology decisions around cloud, mobility, business intelligence, and overall business and technology strategy. They’re playing a key role in determining the technologies and business processes that can help the organization grow into new markets and fight off competition in existing ones.
7. Mass customization of products
Customers are demanding products that are more configured and tailored specifically for them. That’s something that’s not going to change. The key for manufacturers is collaboration. They need to work more closely with their customers to find out what exactly they want, and then to communicate clearly what they’ll be getting and how much it will cost. On the back-end, manufacturers need to know if such customization is profitable and how they can deliver on that promise. To make all that work, Castellina sees manufacturers transitioning these processes from their ERP systems to front-office configure-price-quote or business-to-business e-commerce applications. These applications make it easy to manage customization and to collaborate more effectively with customers.
8. Growth of servitization
This term may be new to many manufacturers, but the concept isn’t. Servitization is a transformation journey that manufacturers are taking as they search for new, incremental revenue streams. It translates to manufacturers changing their business models to one where they don’t just sell products; they also provide support for the products they already sell. To make this transition, manufacturers need the tools to efficiently schedule service technicians and manage the demand for those services, to ensure their interacting with their customers effectively. Technicians will need information at the point of service and to be able to do everything they need to do while at the customer’s site. Finally, the CFO will need analytics tools to ensure the new model is profitable.
9. ERP system as focus of digital transformation
Digital transformation is about connecting people, processes, technology, and products, so they’re more connected, you can make better decisions, be more collaborative, and ultimately, create a more effective manufacturing organization. There are many different ways for a manufacturing organization to change the way it operates and promote efficiency. But, the ERP system has always been the heart and soul of every manufacturing organization, and there’s no reason to change. All the information a manufacturer draws from and all the technology that it’s connecting as part of its digital transformation should be connected to its foundation—its ERP system. That ERP system can be implemented in the cloud, which is a core component of digital transformation. And it can (and should) have analytics embedded in it. That’s the way to build a digital transformation on a solid foundation.
10. Continued emphasis on Big Data and Internet of Things
Data is the true currency of manufacturing. The more data manufacturers have, and the more they can use it effectively to make better decisions, the better positioned they are for growth. The Internet of Things (IoT) will continue to be a key driver of innovation. The number of connected IoT devices worldwide will jump 12% on average annually, going from nearly 27 billion in 2017 to 127 billion in 2030. The IoT will create opportunities for manufacturers to build more embedded devices to deliver to customers. From the product design phase, they’ll need to consider what services and revenue an IoT-connected product can generate through its lifetime.
There’s also the data side of the IoT to consider. Those devices are going to generate a tremendous amount of data, which is where the importance of Big Data and analytics come in. The IoT is a toolset for connecting data and assets. But it’s going to take powerful analytics to make sense of all that data and make it useful and meaningful for determining what new service models or revenue streams to pursue, as well as how to operate more efficiently.
If manufacturers pay careful attention to these 10 trends, they can position themselves for greater operating efficiency and growth in the coming year.