Is your digital strategy fit for the manufacturing future?

2. Skilled labor shortages hamper productivity

For manufacturers, finding and keeping both engineers and blue-collar workers continues to be difficult.

Manufacturing industries face increasing competition for scarce science, technology, engineering and math (STEM) resources, and decreasing interest and time available for engineers to learn at a hands-on level as previous generations did. New generations of engineers expect simplified user interfaces, enabled by low- or no-code solutions, rather than the more complex interfaces used on many factory floors.

There is a similar problem in the availability of skilled blue-collar workers. In one Danish machine shop with roughly 70 machine operators, every worker was recruited from abroad.

The challenge is compounded when companies seek to build blended teams that include engineers and specialists from fields, such as data science, cybersecurity and product design and usability.

These skills shortages are driving discrete manufacturers to digitalize activities both in product development and production to reduce the need for scarce manpower. In the EY CEO Outlook Survey, manufacturing CEOs identified technology and automation investments to reduce labor costs as the leading strategic driver in improving margins.

3. Sustainability requirements put pressure on manufacturers

Scope 3 greenhouse gas emissions are the result of activities from assets not owned or controlled by the reporting organization itself, but from separate operations within the organization’s value chain. These emissions significantly increase the demands on manufacturing companies to know and manage their supply chain and customers. This will lead to a higher need for traceability, as well as additional focus on yield and energy optimization across the supply base, which manufacturers will need to monitor. At the same time, manufacturers will want to encourage both suppliers and customers to automate, either on their own or with the manufacturer’s support, for greater transparency throughout the supply chain. Once manufacturers can see where the emissions are, they have more opportunities to improve efficiency and apply solutions that reduce their CO2 emissions.

Digital technologies broaden the competitive playing field

Often overlooked or underestimated is the profound shift digital technologies can have on how discrete manufacturers do business and what this means for existing players in the industry. Two trends having an impact are the increasing access customers have to data and cloud manufacturing solutions.

1. Customers’ data access

Discrete manufacturing customers are gaining access to more data from other organizations within their value chains. This expanded data access is presenting a growing challenge to value chain participants such as CAD and computer-aided manufacturing (CAM) providers, machine tool manufacturers, and cutting tool providers. These suppliers have historically focused on their own markets while cooperating with other players in the ecosystem. Improved digital solutions will increase data availability and transparency, which in turn will drive commoditization and standardization. This will benefit manufacturing companies’ supply of equipment, consumables, software and services. However, traditional hardware suppliers will likely face increased competition as their application knowledge advantage gradually becomes available digitally. This could open the opportunity for tech companies to introduce more value into the value chain and tap into some of the available profit pools.

Similarly, the boom in data availability will increase demands on software suppliers in the industry. Customers are increasingly demanding seamless data flow across applications, which will force players in the industry to cooperate to solve customer problems.

2. Cloud manufacturing

Since the early- to mid-2010s, cloud manufacturing platforms have introduced new ways for companies to order components and assemblies. Through cloud manufacturing platforms, customers can receive instant quotes for parts and components, reducing lead time for prototyping and improving customer access to component quotes and alternative sourcing options.

The jury is still out for the mid- to long-term impact of these solutions. However, it is clear they have the potential to significantly disrupt the way small and mid-sized machine shops, other component manufacturers and assembly shops interact with their OEM or Tier 1/n customers. By significantly reducing the CAD to quote lead-time and accumulating know-how across manufacturing processes, methods, machinery and tools, these players have the potential to disrupt existing customer-supplier relationships in the industrial products sector in general, and specifically in component manufacturing. The next question will be to what extent they can move beyond prototyping and pre-series to series production.

Industrial customers have retail customer expectations

Digital solutions are changing customer demands. Just as in consumer industries, industrial product companies’ customers are demanding customization, responsiveness and user-friendliness from their suppliers.

Given the often long and complicated processes of changing product offerings and employee behaviors, the stakes are high. Those able to quickly adapt and change their approach to customers have a lot to gain, while laggards could face deteriorating sales in the medium term.

There are three main ways discrete manufacturers can address increasing customer demands.

1. Connectivity and responsiveness

Discrete manufacturers often receive information about end customer demands as it makes its way through the supply chain, which creates delays in response time for manufacturers. This leads to a need to improve demand transparency and own responsiveness. Connected products can provide discrete manufacturers with greater transparency into demand, thus enabling them to become more responsive to customers. With deeper insights into customer behavior, manufacturers can offer proactive services including through preventive maintenance and remote customer support.

2. Digitalization of the customer interface

A generation of highly skilled engineers will retire over the next five to 10 years. Skills such as numerical control (NC) coding and manual pre-setting of machining tools will become increasingly scarce as new generations of engineers and operators expect easier user interfaces. This opens new opportunities for native software solutions providers such as product lifecycle management companies to play a more important role.

As a result, there will be a race where existing and new software players who want to own as much of the customer process as possible will compete with incumbent industrial product companies, which will need to develop new ways to interact with their customers so as not to lose relevance.

3. Smaller batch sizes

Higher levels of end-product customization invariably result in smaller batch sizes, as well as greater complexity. These challenges put increasing demand on manufacturing companies to manage optimal line and machine use, predictable lead times and high quality.