2019 started with the United States and global manufacturing experiencing tremendous growth. However, the Purchasing Manager’s Index (PMI) is now experiencing a downward trend towards 2020 (November’s PMI is at 48% and December’s PMI is at 47.2). Besides, the 2019 manufacturing outlook report by the National Association of Manufacturers shows that only 68% of manufacturers are optimistic. The reason for this downward trend is the market volatility associated with tariffs, trade wars and geopolitical risks. Even in this pessimistic climate, there is a great opportunity for manufacturing leaders to accelerate their growth because, due to uncertainty, unprepared competitors will not be able to keep up. The following are some key trends that we see in the market that will provide opportunities for leaders to accelerate through the twists and turns so that they’re ready for the straight, open road when manufacturing picks back up.
(1) M&As and divestitures make end-to-end visibility essential
According to Deloitte’s 2020 Manufacturing Industry Outlook, industrial companies are trying to focus on their core competencies by divesting areas that are not core and increasing M&A in areas that are. However, these acquisitions and divestitures also create challenges.
Individual acquisitions, even though they bring significant benefits to the organization, also cause information silos. Manufacturing plants for each acquired company have their own Manufacturing Execution Systems (MES) with localized processes and manufacturing differences. For acquisitions to go smoothly, organizations are wise to integrate these disparate MES systems and gain end-to-end visibility.
Potential buyers are most attracted to business units with rock-solid operations. Being able to show these buyers that the corporation has high visibility to manufacturing operations can have a significant impact on how the divested organization is assessed. To gain manufacturing visibility (whether internal or external), companies must standardize their manufacturing data model (also referred to as the digital twin) and seamlessly convert in-depth manufacturing data to high-level supply chain data. Once the hard work of establishing the data model is done and the manufacturing plant can plug and play into the overall supply chain, it becomes a valuable asset for potential suitors.
(2) Manufacturers expect touchless collaboration with supplier ecosystems
As the business climate continues to change rapidly, it’s essential for companies to cultivate a strong supply ecosystem that they can rely on for their business needs. The suppliers become an extension of their manufacturing operation and contribute in various ways, such as reducing inventory liability and improving supply assurance. The next level in this evolution is touchless supply collaboration, where brand-owners establish process governance and a platform for their contract manufacturers, tier suppliers and logistics providers to collaborate independently of the brand-owner. The brand-owner receives health information of the various agreed-upon metrics and jumps into the mix for conflict resolution only when needed. This level of process automation and collaboration frees up significant time for brand-owners to further differentiate themselves based on product innovation.
(3) Rise of digital threads
Since manufacturers have made great strides in outsourcing their manufacturing and supply processes, the next step in the evolution is linking with product lifecycle management. A key trend is the evolution of digital threads where, according to Gartner, “Rising complexity across products and value networks requires improved transparency to lessen risk and accelerate innovation cycles without compromising product integrity.” Gartner also says, “A digital thread can save time and money by enabling, enhancing and accelerating decision support for the purposes of quality management, change management and regulatory compliance.”
The key gap in establishing digital threads today is that product design, manufacturing and supply chains are all highly siloed. There is a need for companies to invest in processes as well as technologies that seamlessly integrate the new product design process with the manufacturing process. The main goal of the digital thread is to synchronize cross-functional processes across engineering, manufacturing and supply chain. It requires capabilities in 3 main areas:
- Data governance – how do I digitally represent my manufacturing operations in a consistent manner?
- Manufacturing operations intelligence – how do I know whether my manufacturing operations are performing well or poorly?
- Decision-making efficiency – how do I course-correct and improve my performance?
(4) Rise of embedded AI and machine learning
There is a significant amount of hype in the market about AI technologies with very limited real-life results to show for it. The focus in 2020 will shift to real use-cases and business value that can be quantified. In contrast to most of the hype in the market today, AI and ML need to be embedded in business domain applications and the business networks as purpose-driven tools that work on active streams of data instead of generic analytic tools that sit over static data lakes in search of correlations—essentially to find the “needle in the haystack.” These algorithms must support predictive and prescriptive analytics in order for business users to make better decisions.
In summation, manufacturers and their supply partners must work together better than in the past while braving the challenging business environments they are subjected to. To accomplish this improved collaboration, they must focus on their core competency areas. Making the supply partner ecosystem into a key extension of the manufacturer and empowering the suppliers is critical. Linking the manufacturing operations to new product introduction is more important than ever. Lastly, purposeful adoption of new technologies such as AI and ML can bring significant business value.
The manufacturers who will win in 2020 are those that are proactive in understanding the trends above and adjusting their organizations accordingly.