What are industrial manufacturing CEOs doing in this tough external environment? They are looking inward

May 7, 2019

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By Bobby Bono and Barry Jaruzelski

The industrial manufacturing sector is facing several significant challenges: trade wars, political instability, and a slowdown in economic growth. Deal activity in the first quarter for industrial manufacturers fell to its lowest level in more than four years and many economists are predicting slower growth ahead. It’s no wonder that, according to our recent global CEO survey, manufacturing leaders are concerned about government policy and trade conflicts, especially in relation to China. Given this difficult external environment, over which the sector has little control, some companies are investing in operational improvements to help offset higher material costs and to help boost profit margins. And more are considering following suit. In fact, 81% of industrial manufacturing CEOs in our survey indicated that they plan to rely on greater operational efficiencies to bolster growth via enhanced competitiveness — they are seeking to take share.

In today’s world, achieving greater operational efficiency generally means digitizing functions across the enterprise spanning three primary areas:

  1. customer-facing activities, including sales, marketing, and connected products and services
  2. core operations, including product development, smart factories, and networked supply chains
  3. supporting operations, including post sales service, HR, and accounting

As of now, industrial manufacturers have focused primarily on digitizing customer-facing activities by adding digital components to products and services. But some notable industry leaders have taken greater leaps. One high-tech aerospace company has digitized its production lines and created an entirely automated assembly process, outfitting a battery of sensors to real-time data. Another manufacturer has gone even further in digitizing its internal operations, with robotic process automation (RPA) tools supporting workers at every stage in the production and fulfillment process. This company expects its digitization effort will yield cost savings of more than a billion dollars by 2020.

We’ve observed much more focused digitization programs also yield significant savings. In a recent analysis for an industrial manufacturer, we addressed several bottlenecks in the manufacturing process, creating more transparency. We supported the  implementation of automation and AI in key administrative roles, such as HR, accounting, and compliance, which are easiest to digitize and will help the company deal with an increasingly tight labor market by creating capacity. We estimated that these operational improvements will support an additional 10% in organic growth without requiring additional headcount.

In this time of disrupted supply chains, digitization can also arm manufacturers with the insight needed to boost efficiency. By creating a digital twin of the supply chain, including the interactions between a company and its suppliers, firms can analyze and monitor supply chain performance. This greater transparency allows companies to make real-time assessments about the most cost-effective and reliable sources of supply as well as design the most optimal global footprint. This could include shortening the supply chain, making it easier to manage and plan production and resulting in less inventory and more agile decision-making.

We’re not suggesting companies need to make wholesale changes to their manufacturing footprint in this uncertain climate, but we do think they need to leverage technology to gain more control over operations and profitability. Industrial manufacturers can no longer count on stability and cost advantages from manufacturing in a particular country or sourcing from certain suppliers. By investing in the technology that’s needed for future success, the industry can help itself cope with changing global realities in the present.

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